Hi BP friends,
This is my first post. So I’m looking for some advice. My wife and I are currently small investors. We do currently have an LLC setup but after going to refi some cash out of one of the homes, I realized that the homes are not in the name of the LLC. I assume I should put them in the LLC, right?
How do I go about doing that? Is this just a title transfer issue?
Follow-up: For future purchases, how do I buy them as part of the LLC and not personally?
Thanks in advance for all your help!
1. To transfer the property to an LLC, you'd need to quit claim deed it to the LLC. This can call the loan due from the lender so be aware of that.
2. To buy a property directly with the LLC, you'd need to get a commercial loan.
If you have debt on them, the loans could be called for transfer of the property. Make sure that is not the case. An LLC may offer some good asset protection but I would not do anything until I talked with both a CPA and attorney.
"I assume I should put them in the LLC, right?"
Wrong. Why would you assume that. Is it because that is what you have been told.
There is no reason to have them in a LLC. Negatives far out weigh the positives.
Thank you for the thoughtful replies. Two quick follow-up questions.
Does having an LLC give me any protection if the properties aren’t titled under that LLc?
If they aren’t titled under the LLC, are we personally liable?
So are most people that get loans on SFR taking out commercial loans or are they just getting an umbrella insurance policy and taking on the liability personally?
The field between those with and those without a LLC is split about 50/50. The majority with a LLC do so because they have been told it is the thing to do without having any actual solid proof that it is proven to be necessary.
It is primarily physiological protection. A placebo sleeping pill.
I wouldn't listen to an investor who is out of the country. Also, if you don't have any asset protection, then YOU Don't Have ANY ASSET PROTECTION!
It's easy to "pierce the corporate vail" if you don't have a business account, that collects the rent, pays the mortgages and any other costs. Then that account transfers the Cashflow to you as income into your personal account. If you co-mingle your personal and business accounts, you will lose that protection.
The guy above probably has no idea about charging orders or single vs multiple member LLCs and the states that protect those LLCs like Nevada and Wyoming.
Thanks again for the thoughts.
So is the only negative that I’ll have to refinance into commercial loan?
I do have an LLC with the bank account attached to it. I don’t commingle those funds at all and have normal insurance on the rentals. So would an umbrella policy be enough or would most people suggest titling the homes in the LLC?
@Brian Irk you can have both the LLC and the umbrella policy.
If you quit claim your property into the LLC, everyone always talks about the Due On Sale Clause. The bank can foreclose on the property. This is highly unlikely to happen. This is the way people buy properties subject to the existing financing, and is done every day.
The bank doesn't want to foreclose on a performing asset. That means they want to be paid on time, by whoever sends the check, they don't care. If they foreclose, they are looking at 6 months to a year to get the property back. In that time, they make no money. Most of the time they get the house back destroyed by the owner before they took it back. Now they have to re sale it at auction, for a lower price than it was worth. Seems like a lot of trouble for negative returns, but they do happen every once in a while, and there is usually a bigger reason to cause this to happen.
@Robert Herrera I don't believe that Due on Sale triggers foreclosure. It generates a demand letter, which usually has to be cured - by paying off the debt or otherwise - in 30 days. The lender has no right to or interest in the property in this case, just the demand that they be paid the loan in full because ownership has been transferred. Whether or not banks will trigger DOS clauses is debatable, but I don't think one should consider them unlikely because of the foreclosure process.
@Dan Schwartz if you don't pay, when they due on sale is called, then the bank has to take the property back. That is done through foreclosure.
Thanks so much. So should I just have a conversation with the bank that services the loans?
@Robert Herrera aha. You are correct, sir. Thanks for the clarification....I wasn't thinking down the line of "if borrower refuses to repay."
@Brian Irk I'm bumping this thread because I'm studying how to structure an LLC as well. My thought process brought me to the same point as you: talk to the bank about the transfer to explain the mortgage payments are still flowing. Would be great to get some affirmation on that being the right way to go.
@Gregory Flores, Jr. I talked with a banker today with whom I'm refinancing one of my homes. We currently have the mortgage in our personal names with an umbrella liability policy ($165/yr). When I asked him to refi the property under our LLC, he said they can't even do that. But he's a big bank guy so he has a bunch of regulations.
We just bought our third REI and will title that under our LLC. But for now, we are likely just going to keep the titles the way they are.
If you find out that your bank is willing to work with you please let me know!
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