Paying rental property in my name with my new LLC
Member since 2020 · 13 posts · 2 votes
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael,
You've got some good advise, but sounds like you're starting out. The entity now probably doesn't matter a lot, but here's perhaps a better profile:
Buy your houses in a trust, not an LLC, have a separate trust for each one. And, yes, go to class, books and articles to learn how trusts work. They can protect you, to a point, but insurance is your first line of defense. The Trust will act like an investment.
Manage your houses with an LLC, that has an agreement with the trustee (that owns the house), to manage, which could include collecting the rent, paying the mortgage, maintenance or what ever you want. The LLC will act as a business. The profits/losses will flow to you personally unless you set up something else.
Keep your stuff separate from your wife's. There's no advantage of co-ownership and a lot of disadvantages. Put yours in your trust and hers in her trust. One LLC can still manage both but keep that as a separate ownership, too.
Now the LLC "can" own houses, but is more expensive, and little to no advantage. And you certainly don't want a bunch on them in the same LLC. Yes, creditors can go after the assets of and LLC, while you, personally, are protected.
And, once you get all of this going, there's lots more in creative ownership, trusts, IRAs, Roths, options, etc., etc., and is a lot of fun, depending on how complicated you want to get and how you create your asset and liability protection.
And, as mentioned... get some training on this, will pay off handsomely.
@Michael Hebron Jr
Sounds like you need to learn about how to operate your LLC to protect/maintain its corporate veil. Consult some professionals. Later I'll try to post some links to discussion threads where I've posted or where it's been discussed.
@Michael Hebron Jr
If you have a single member LLC with no special tax election you can pay whatever you want with it as it is disregarded for IRS and it all come down on your personal tax return.
Now from an asset protection point of view, by using your llc to pay for things that have nothing to do with your LLC you are de facto creating an alter ego and lost any protection by piercing its company veil.
You need to treat your company as a business. Why a business would pay for your mortgage? Where is the arm length transaction there?
Thank you so much for the advice/information @Mike S. My current rental property is under my wife and my names; also the LLC is under both our names as well.
I want to answer your last question. I am trying to use it to pay the rental property nortgage. Get the renters to deposit thier rent/money into the LLC account and then use the LLC account to pay the morgage (not my personal house I live in mortgage)...sorry for the newbie questions
Thank you so much for the advice/information @Mike S. My current rental property is under my wife and my names; also the LLC is under both our names as well.
I want to answer your last question. I am trying to use it to pay the rental property nortgage. Get the renters to deposit thier rent/money into the LLC account and then use the LLC account to pay the morgage (not my personal house I live in mortgage)...sorry for the newbie questions
If the property is not owned by the LLC or under a management contract with the LLC, why should the LLC receive any rent?
You should wait until you transfer the property under the name of the LLC to get the rent flow through it. Then, you can write a private note or a private assignment of the mortgage to the LLC to justify why the LLC is paying it.
Thank you so much for the advice/information @Mike S. My current rental property is under my wife and my names; also the LLC is under both our names as well.
I want to answer your last question. I am trying to use it to pay the rental property nortgage. Get the renters to deposit thier rent/money into the LLC account and then use the LLC account to pay the morgage (not my personal house I live in mortgage)...sorry for the newbie questions
If the property is not owned by the LLC or under a management contract with the LLC, why should the LLC receive any rent?
You should wait until you transfer the property under the name of the LLC to get the rent flow through it. Then, you can write a private note or a private assignment of the mortgage to the LLC to justify why the LLC is paying it.
Who set up the LLC for you? I would ask them some of the questions you are asking here to make sure you are in compliance with local laws that people on here may not be familiar with.
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
Thank you so much for this information!!!
1) You'll want to Quitclaim the asset from your name to the LLC.
Here are some recent discussions you might want to take a look at:
https://www.biggerpockets.com/...
https://www.biggerpockets.com/...
https://www.biggerpockets.com/...
So, first what your reasoning for setting up the LLC for one property? I assume its a single family property. You don't necessarily need a LLC depending on your personal circumstances. Many times, its really not warranted, but you should consult a few qualified professionals.
As its been brought up already, at the very least you need to be mindful of co-mingling funds and using your LLC as an alter-ego. The former is pretty much using the "wrong" bank account to pay bills. The latter is treating the LLC as basically an extension of yourself. Remember, the LLC is its own legal entity (in NY), so you need to treat it like a separate person. Think of it like a stranger. For example, would you really expect to have your tenant sign a lease with me to rent a property in your name and expect me to hand over all the rents to you? Hmmm.. no...
Also, do you realize that since you are investing with a spousal partner, you don't really need a LLC for accounting/tax purposes? You seem to want to get the rent in to the LLC. The deducdtions you can take for a rental are the same whether you have a LLC or not. The entity is for asset protection, not accounting/tax benefits. Very common misconception.
As the other posts I've referenced have said, if you want the limited liability protection of the LLC, you need "everything" to be held by the LLC. Its not a "magical shield" that you can waive around, if you don't mind the slightly flippant example. The only way to separate you from your entity is by what the entity owns (again, why you need to treat and operate it as an entirely separate entity doing its own business). This is where the limited liability protection arises.
One of the big reasons where people get tripped up is that when you hold Title in an entity, it is not eligible for conforming residential loans. You have to get more expensive commercial lending. That's part of the cost for the LLC's limited liability protection. If you purchase the property personally, then deed it over to the LLC without refi'ing to a commercial loan taken out by the LLC, you leave it in a "Frankenstein" situation. Think back to my example of above of trying to do this deal with a stranger --- as a whole it doesn't work.
You ask: "would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?" Sure its legal from my layman's perspective, but you jeopardize your corporate veil. Think about it.. I could pay your mortgage for you... At this low level I don't see it as being criminal, and I don't immediately see why you could start a civil action against me since there is no harm. But, why would I do that --- think back to the alter-ego criteria for keeping the LLC separate from you.
I hope this helps. Consult a few qualified professionals. Soak up some more info. Good luck.
@David M. Thank you so much. It is alot to know and learn. My main reason was to start getting income for my LLC, that is why I want to "legally" transfer it. You have alot of information and reference info that I will dig into and learn. Thank you for your time and willing to teach! I greatly appreciate it.
No problem.
So, why did you want to get income into your LLC? Or, after reading my post, do you still have a reason to get the income into your LLC?
I know I threw a lot there. I'd be happy to chat if you'd like. Send me a direct message if you think it would help.
Take care.
Michael,
You've got some good advise, but sounds like you're starting out. The entity now probably doesn't matter a lot, but here's perhaps a better profile:
Buy your houses in a trust, not an LLC, have a separate trust for each one. And, yes, go to class, books and articles to learn how trusts work. They can protect you, to a point, but insurance is your first line of defense. The Trust will act like an investment.
Manage your houses with an LLC, that has an agreement with the trustee (that owns the house), to manage, which could include collecting the rent, paying the mortgage, maintenance or what ever you want. The LLC will act as a business. The profits/losses will flow to you personally unless you set up something else.
Keep your stuff separate from your wife's. There's no advantage of co-ownership and a lot of disadvantages. Put yours in your trust and hers in her trust. One LLC can still manage both but keep that as a separate ownership, too.
Now the LLC "can" own houses, but is more expensive, and little to no advantage. And you certainly don't want a bunch on them in the same LLC. Yes, creditors can go after the assets of and LLC, while you, personally, are protected.
And, once you get all of this going, there's lots more in creative ownership, trusts, IRAs, Roths, options, etc., etc., and is a lot of fun, depending on how complicated you want to get and how you create your asset and liability protection.
And, as mentioned... get some training on this, will pay off handsomely.
@Steve Smith wow!!!!
Great information. I will look into every detail you mentioned, never hurts to get educated and gain more knowledge! Thank you so much
@Michael Hebron Jr As others mentioned above, most likely your lender will not legally allow you to do this, and they can call in the loan. Probably won't happen, but there are reports of lenders being more strict during COVID.
@Michael Hebron Jr As others mentioned above, most likely your lender will not legally allow you to do this, and they can call in the loan. Probably won't happen, but there are reports of lenders being more strict during COVID.
I know one guy that had this happen roughly a year ago, however I can only imagine the potential bad press a bank would get for doing this right now.
@Tom S. Yes, that's the Due on Sale clause. When you transfer Title the holder of the mortgage can call in the loan.
@Mike Lee I don't think the politics would really come into play as much. No "bank" should be holding the mortgage to a conforming loan, anyway. They are all sold off to the secondary market. It should be the mortgage/note holder is the one that calls in the loan, not the servicer.
Yes, there are people who in some 40 years have never known anybody where the clause was called in, and some in their 40 years have seen in called in. Its just one of those "mysteries..."
The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC).
If you take out a mortgage personally and transfer the property to your LLC that you control, you should be exempt. Also, if your loan was conventional; Fannie Mae recognizes the legitimacy of a transfer between the mortgage holders and the LLC so long as the LLC is controlled by the borrowers;
If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See for additional details.)
I believe Freddie Mac follows suit. Here’s a BP post on the same topic;
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
Regarding the affect of the conveyance on the current title insurance, I believe the best thing to do is look at the definition of Insured in the Definitions section of the policy and ensure the Grantee meets the definition. If it does the coverage of the policy continues in favor of the Grantee.
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
Regarding the affect of the conveyance on the current title insurance, I believe the best thing to do is look at the definition of Insured in the Definitions section of the policy and ensure the Grantee meets the definition. If it does the coverage of the policy continues in favor of the Grantee.
Actually, the best thing to do is call the Title Company directly. Or email them and get a response in writing.
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
Regarding the affect of the conveyance on the current title insurance, I believe the best thing to do is look at the definition of Insured in the Definitions section of the policy and ensure the Grantee meets the definition. If it does the coverage of the policy continues in favor of the Grantee.
Actually, the best thing to do is call the Title Company directly. Or email them and get a response in writing.
"Title Company" is a nebulous term. If you mean title agent, they won't know. If you mean title insurance company, the company the policy is written on, if you get ahold of someone they will tell you to read the policy, they're not in a position to interpret the policy for you. It says what it says.
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
Regarding the affect of the conveyance on the current title insurance, I believe the best thing to do is look at the definition of Insured in the Definitions section of the policy and ensure the Grantee meets the definition. If it does the coverage of the policy continues in favor of the Grantee.
Actually, the best thing to do is call the Title Company directly. Or email them and get a response in writing.
"Title Company" is a nebulous term. If you mean title agent, they won't know. If you mean title insurance company, the company the policy is written on, if you get ahold of someone they will tell you to read the policy, they're not in a position to interpret the policy for you. It says what it says.
That's not been my experience. I find they've been very helpful to clarify any specific question I've asked them.
I have a rental property in my own name. I just recently received my LLC. I would like to transfer it to my LLC. What is my first step? Lastly, would it be legal to pay my mortgage with my LLC while I wait or find out how to transfer it into my LLC?
Thank you.
Michael, there's quite a bit that you need to understand regarding how an LLC functions. I'd encourage you to do a search for the topic here on BP because there's a lot of information you can glean. Or, look on YouTube.
The specific answers to your questions are;
1) You'll want to Quitclaim the asset from your name to the LLC. This can be done by an attorney, or you can do it yourself at the country courthouse. HOWEVER, you first need to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; "The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title."
2) The lender is generally going to be happy to receive the mortgage from anyone as long as its paid. However, its best to pay the mortgage using your LLC bank account after you've Quitclaim the asset to the LLC. And, a common practice is to wait 30 days after purchase before you QC the asset.
Fair warning; you’ll probably get some comments concerning the Due on Transfer clause. That's en entirely separate topic.
Cheers!
Regarding the affect of the conveyance on the current title insurance, I believe the best thing to do is look at the definition of Insured in the Definitions section of the policy and ensure the Grantee meets the definition. If it does the coverage of the policy continues in favor of the Grantee.
Actually, the best thing to do is call the Title Company directly. Or email them and get a response in writing.
"Title Company" is a nebulous term. If you mean title agent, they won't know. If you mean title insurance company, the company the policy is written on, if you get ahold of someone they will tell you to read the policy, they're not in a position to interpret the policy for you. It says what it says.
That's not been my experience. I find they've been very helpful to clarify any specific question I've asked them.
I'm not suggesting either do not try to be as helpful as possible but if you ask if a hypothetical grantee will be an insured under a current policy in case a claim arises in the future I'd be surprised and disappointed if you get a responsive answer. That opinion is based on doing claims and underwriting for various underwriters for about thirty years.