Deeding multi-family properties into an LLC after purchase

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Deeding multi-family properties into an LLC after purchase

Rob Wallin
Rental Property Investor · Longview, TX · Member since 2020 · 8 posts · 2 votes

I am a newbie investor and this is my first post. I am a BP member and have been using various tools and information on this site for 3-4 months. I am frustrated trying to get properties to cash flow while using an LLC for protection.

In order to get a low interest rate (~3.0 - 3.5%), it seems I have to pay points (2-3), put 25% down, and purchase the properties in my name outside the LLC. I am being told that I can deed a property into the LLC once purchased but there is supposedly a clause that states the lender can call the note due if this is done. I am also being told that it does not ever happen but that this is the lenders right legally. I am also not sure if I would be able to deed many (say 5) duplexes into a Series LLC if I were to buy them from a single entity.

I live in a mid-size city in Texas where property taxes are high which does not help with my cash flow problems. I am en engineer so I tend to overthink & overanalyze everything I do. It would help tremendously if someone could validate what I am being told or straighten me out with a more accurate assessment of this particular situation.

With that being said, question #1 is should I just forget trying to bring the properties into the LLC? I have heard Brandon Turner state that they are not really necessary. But remember I am an engineer and engineers are not typically risk takers by nature; we like hard data.

Question #2 is to those of you experienced investors. Am I missing something really basic that will allow the properties in my area to cash flow well? Houses in my area are being snatched up immediately once listed on the MLS so somebody is making properties cash flow around me.

Ok, I know this is a very long first post but I am excited to get started and frustrated that I can't get my investment business off the ground. Any help you real estate gurus can provide would be greatly appreciated.

Rob the engineer...:)

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Rob Wallin

    As another engineer, perhaps you need to work on your research. There are discussion threads very day asking about moving properties into LLC and whether LLC's are necessary. You just found one reason why they are costly.

    In short, LLC are really only for asset protection. But, you pay for it In your operations (you need to maintain your corporate veil, the financing, and whatever administrative expenses you have in your State.

    For many of us, buying insurance including an umbrella policy is sufficient asset protection. Unless you have large apartment complexes or commercial properties, the LLC isn't necessarily required, nor worth ALL the extra costs.

    For seeding the property, yes the Due on Sale Clause is a big gotcha. After you move the property, you will have to update your insurance policy which will inform your loan servicer since the insurance clause will have to be changed I believe. So, the change will be out there. It's whether the holder of the Note cares to call it in. Meanwhile, now the mortgage is in your personal name while Title of the property is in the LLC. Who makes the mortgage payment? Hmmm... looks very much like piercing the corporate veil here... then you have to make an arrangement between yourself and your LLC.

    I suppose if you have this all down pat the work and the expenses will be normal. Once you have a bunch going and have your legal and accounting team going , they can take care of all the arrangements and all the bank accounts.

    It’s a lot of hassle. I hope my quick two cents helps. Good luck

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  • Rob Wallin
    OP
    Rental Property Investor · Longview, TX · Member since 2020 · 8 posts · 2 votes
    6y

    Good info. Thanks David M.

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  • Adrienne Donato
    Rental Property Investor · Long Island, NY · Member since 2020 · 36 posts · 3 votes
    6y

    @Rob Wallin check out Mark Kohler

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  • Chris Levarek
    Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
    6y

    @Rob Wallin An LLC is really for Liability protection as you know. Therefore, if you can achieve the same liability protection and save costs you have your answer. An umbrella policy works great for many the investor.

    In my experience, I purchased under my name or with partners and then transferred the deeds to LLCs. This made sense for me as the LLC's are partnerships as well so my partner feels good in the ownership of the entity and property. The Mortgage is still in my name, I care the risk and responsibility with the lender. The bank accounts are all under the LLC names. The insurance provider simply needs to be called at transfer to have the policy add the LLC to the policy or even replace the personal name.

    This structuring positioned me well to continue this into larger apartment and multifamily properties where the structure of debt is similar in that the operator, me, holds the risk and responsibility of the mortgage and the investors do not. So it well-positioned my company to grow as it was a similar principle somewhat.

    That being said on much smaller properties, a LLC can be skipped for using an umbrella policy. There are annual costs, maintenance efforts and of course the due-on sale clause which make this so. I have not had any issues with any lenders as of yet and I have multiple properties like this but there you go.

    IF you do plan on using a LLC, i recommend, putting as many properties in that LLC as possible to save costs on maintenance within reason.

    Here is a good way to know how many : Determine an equity amount you would be comfortable losing in a lawsuit and put only that many properties in the LLC. So if you have $1 million in equity between 5 properties and feel comfortable only losing that $1 million if ever sued, then put only those 5 properties. The 6th would add more equity, so put it in a new llc.

    Obviously, the equity number would never be good to lose, but it's about what you are comfortable paying out if things went bad. The more LLCs the more cost but the more segregation of the equity and better protection.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    6y

    @Rob Wallin @David M. If you decide you want to, debatable, Fannie Mae, as of a couple of years ago, specifically let’s  you obtain the loan/title in your personal name and transfer title afterward into a single member llc which  you solely own, no due on sale issues. 

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