Primary Residence Convert to LLC?

Question

I'm a first time home buyer and have been renting up until this point. Can I get a conventional loan on a primary residence and then convert it to an LLC if I want to have roommates or rent it out when I'm not there so I'm protected? Would wanting to create and have the title under the LLC change the type of loan?

Thanks!

Patricia Steiner · Answer

You have to decide what "protection" you're seeking and what options you have for achieving it. I recommend reading this article that compares an LLC to an Umbrella Policy and which is best based on specific scenarios:

https://www.apartments.com/ren...

Other ways to minimize risk as a landlord include:

Maintaining your property; if it's broken, fix it.  If it's aged out or on it's way out, replace it.  Trip hazards are expensive to cure so make sure there are none.  Have photos of your property that reflect its condition in case you have to defend it/or make a claim.

A solid lease.  And, then there's this:  the AAOA cited that the #1 reason why most landlords fail is that they failed to manage to the lease. If there is a lease violation, address it.  Rent is late? Not okay...it's a wake-up call for all things not good to come.  And, here's a biggie:  know your lease - what's in it and what needs to be added to it.

Know the FAIR HOUSING ACT and comply with it - completely. Be careful what you ask on an application and what you deny tenancy.  One of the hottest class action suits - and growing - is against landlords who refuse to rent to those with a criminal background. It has been successfully argued with consistent rulings against landlords based on the premise that once a sentence is served, that debt to society is paid and to deny housing is discriminatory.  HUD has backed the rulings so just know that what you don't know can hurt you.

Protection is far more than getting the title or insurance in place...hope this helps.

Best.

Chris Seveney · Answer

@Michael Taylor

Don’t do this. Just have insurance. There is no need to have an LLC especially since you have no assets

Dwayne Ghant · Answer

Hello Micheal,

Typically, if you want to transfer your current property from a primary residence to a LLC you would pay a Realty transfer tax.  Lucky for you, if you property is located in Arizona (AZ), you don't pay a real-estate transfer tax. To my knowledge, only 13 state in the country don't require a real-estate transfer tax and AZ is one of them.If you Refi you home with conventional loan, during closing, you can transfer the property to be owned by your LLC (pass-through).  Technically, at the end of the day, loans are given to people. The LLC (pass-through) being listed as the owner on the title shouldn't matter.If I have misinterpreted the question you are asking please let me know.

Dwayne Ghant · Answer

I agreed with @Chris an insurance umbrella policy should suffice until you start growing your property portfolio.

Chris Seveney · Answer

@Dwayne Ghant

There are other posts on that company in BP recommend you research

Dwayne Ghant · Answer

@Michael Wallimann: Just found https://www.linkedin.com/compa...Equity Assurance, LLC was founded with the real estate Investor in mind.  As real estate investors there is a great deal of opportunity in “subject too” and/or “wrap” transactions.  However, currently the “subject too” and/or “wrap” transaction is always subject to the existing mortgage company exercising their legal rights to foreclose on the subject property based on the “Due On Sale Clause” which is contained in all mortgages and/or deeds of trust on real property.  Equity Assurance, LLC has the ability to provide coverage in the event that the existing unsatisfied mortgage that is to remain in place after the transaction has completed decides to exercise their rights under the aforementioned “Due On Sale Clause”.

==============================================I would love you thought on companies like this one.

Michael Wallimann · Answer

You can switch over to an LLC but I do believe if the lender wanted to they could call a due on sale clause. Typically this never happens but knowing that it is a possibility is something to keep in mind. At the end of the day I agree with @Chris Seveney and @Dwayne Ghant. There really should be no reason to put your property in an LLC just get good insurance and you should be covered for most anything you would face.

Primary Residence Convert to LLC?

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