30 year fixed, LLC's, taxes...
So I have a LLC that contains 3 properties, 5-year ARM mortgages on them.
I'd love to lock in low 4% 30 year fixed rate mortgages, talked with my banker and I would have to quick claim deed them to myself and partner, wait 4 months and then get freddie/fannie mortgages on them.
I'd LOVE to lock in lower interest rates, but I love how clean having properties in a LLC is (myself and one partner). All the rent checks get deposited into our business account, I use quickbooks to track them using classes, and at the end of the year we just file a simple biz return and each get a K-1 form. Doing it non-llc seems like a mess to me from a operational administrative standpoint.
So being creative - is there some way to get a mortgage & title in my name, but still have my LLC claim the interest instead, revenue and everything related to the asset? Can we draft a document that for $1 our LLC leases all operational rights to our properties in our names? Same for the interest? Could we pay the mortgages personally, but then somehow as the business reimburse ourselves so it's more of a passthrough on us personally?
I feel like a umbrella insurance policy for protections, is worth the potential $4000/year in interest savings over the next 30 years - I just don't want to create a opertional nightmare and spend it all on tax accountants each year trying to sort through it...
I've read other posts here on PB about a quick claim deed to the LLC for the property after the mortgage is in place, but that wouldn't solve the interest problem...
I had a 24 year partnership where we did exactly what you are describing. We purchased SFR & Duplexes financed and titled in our personal names, But ALL the business activity went through the LLC (leases, contracts, income, expenses, court eviction/small claim filings). The properties were listed on our LLC tax return and we each got a K-1 detailing income/expense and depreciation.
When the partnership ended, we took the properties off the LLC form and onto our own Schedule E. The IRS doesn't care who takes the income/expense/credits as long as it only happens once per property per year.
However, as to the issue of liability protection... there is no protection in the LLC for these homes titled in your name. The tenant will think they have to go through the LLC but as soon as their attorney looks at it he'll cut right through it. So, get a $1 or $2 million umbrella policy and call it good.
*not to be construed as tax or legal advice - because I only know what I did and got away with!
Did he say why you had to wait 4 months?
@John D. - he said that before you can do a Freddie / Fannie Refi (from a property that's currently held in a LLC), it has to be deeded to an individual for 4 months - apparently Freddie and Fannie want to make it inconvenient for someone to use them as a business mortgage lenders...
@Curtis Bidwell - any issues with paying the mortgages from the LLC (even though they are in your personal names), and then claiming the interest within the LLC? Since the interest statement the bank would send would have personal SSN numbers on it and not a business TIN?
We never had an issue with either of those issues. No lender really cares where the $ comes from as long as they get it in a timely fashion! If you are late YOU, not the LLC will get the call. But no one ever called to ask who the $ was coming from. Just be sure to designate the account accurately.
We never saw any hint of an audit because the IRS doesn't know/care who the property is deeded to (that is a state issue not federal), but more importantly, each property was properly identified in the 1065 (US Return of Partnership Income) on the Rental Real Estate Income and Expenses Form 8825 - from which each member gets their K-1.