Starting Out - New Property and LLC

2 Replies

I tried searching about this topic because I know a lot of people ask about it but couldn't find the answer to my particular question.

I have my first investment property under contract. Its a Fannie REO property and I close on it at the end of the month. I will be using it for a rental home.

I currently have the contract under my name. I will be financing the home under a Homepath Loan.

I registered for a LLC a few weeks ago but haven't received confirmation it has gone through yet.

I would like to be protected against liability therefore think I should put the home under my LLC. How do I do this? Transfer the title after closing? Change the name on the contract to my LLC?

Is liability insurance enough to not worry about transferring the title the LLC?

The property is located in Mobile, AL.

Please give me your thoughts!

(1) Fannie Mae isn't going to let you assign the contract before closing, so anything you do will have to be after closing. You'll have to close in your personal name.

(2) Your HomePath loan will most likely have a "due on sale" clause that states the entire loan balance is due at the time the property is sold. Technically, when you transfer the property from your name to the LLC, you are "selling" it. So theoretically, the bank could call the loan due if they wanted to. There has been a lot of debate on BP about this topic, so just do a search for more information. Lots of people do it and hope the bank never finds out.

(3) The LLC vs. liability insurance debate is also a popular topic on BP. A quick search will get you lots of information. A lot of it has to do with the value of your personal assets. It's always a good idea to talk to an attorney about it as well.

Personally, if I could get 30 year fixed rate financing but only if the properties were in my personal name I would probably go that route and just buy a bunch of insurance. If you want to go the LLC route in the future, you'll have to look for portfolio lenders who will lend to an LLC. Most of the large national banks won't.

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