Architect · Beverly Hills, CA · Member since 2016 · 20 posts · 2 votes
Hello everyone,
I bought a condo in downtown Chicago 4 years ago that has been my primary residence since. However, my wife just received a job offer in Miami and we are moving at the end of the month, so I want to turn the property into a rental.
My initial reaction was creating an LLC to hold title to the property for asset protection, but the lender (Chase) claims the deed must remain under my name. So I have 2 questions:
1. If my name still shows up in the title, even if it's shared with the LLC, I would still be liable and therefore there is no point in creating the LLC in the first place, am I correct?
2. Does anybody have any experience with this and how to get around it?
Look up the "Due on Sale Clause" for information regarding transferring the property to an LLC while you have a mortgage in your personal name. Basically, the bank could call the loan due, but many investors here say it rarely happens.
Another option that a lot of people use is to have a high limit landlord insurance policy and an additional umbrella liability policy.
Miami, FL · Member since 2015 · 99 posts · 32 votes
10y
Welcome to S. Florida Javier.
I would think that you would have to do another closing to put the property under the LLC. My advice would be to contact a real estate lawyer or a corporate lawyer to help you out with that. But you definitely don't want to leave it in your name if you were to rent it out. The risks outweigh the rewards.
Investor / Real Estate Agent · Miami, FL · Member since 2015 · 81 posts · 55 votes
10y
Hi Javier,
I'm in Miami. I mostly buy and hold, but have done a few flips as well.
If your name is on title then yes you would be liable. If you QCD (Quick Claim Deed) the property to an LLC without notifying the bank and they find out they can call the loan. This would force you to either pay in full or refinance into the LLC. Refinancing would be the way to get around this issue.
If you want to connect or have any questions about the Miami market feel free to send me a message.
Look up the "Due on Sale Clause" for information regarding transferring the property to an LLC while you have a mortgage in your personal name. Basically, the bank could call the loan due, but many investors here say it rarely happens.
Another option that a lot of people use is to have a high limit landlord insurance policy and an additional umbrella liability policy.
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
@Javier Gil Yes, I have experience with your situation; and in a written opinion, of my Real Estate Attorney, there is no way around it. If you Quit Claim the property to a LLC, the lender can initiate the "Acceleration Clause" or "Due on Sale Clause" that will demand the loan payable in full, in x number of days. In the eyes of the lender, this constitutes a Title/ Deed Transfer and a breech of terms. The aforementioned clauses are contained in all Promissory Notes nowadays. I hope this information helps you, to make an informed decision.
Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
10y
If you are just have this one condo and renting it out, I really don't see the need to set up the LLC at this time.
Do you intend to sell the property within the next few years to avoid paying capital gains? If so, you'll be spending a heck of a lot of money forming the LLC for nothing.
If you are just have this one condo and renting it out, I really don't see the need to set up the LLC at this time.
Do you intend to sell the property within the next few years to avoid paying capital gains? If so, you'll be spending a heck of a lot of money forming the LLC for nothing.
Thanks Sarah. I don't expect to sell the property in the near future. I believe the neighborhood is going to go up in value quite a bit in the next few years as they are about to build several new buildings nearby that will bring many new residents to the area.
Real Estate Attorney & Investor · Greater NYC Area · Member since 2016 · 70 posts · 48 votes
10y
As others here have noted, transferring any portion of your property will trigger a default under your mortgage. Having the property under your name and an LLC would do nothing for you, from a liability standpoint. Also be aware that most banks will not give residential condo mortgages to an LLC. Typically, residential loans must be held in the name of an individual as the banks will look to package the loan and resell it as part of an asset pool (REMIC) on the secondary market. Those investment vehicles have certain basic requirements which each loan must meet, and the mortgagor being an individual is one of them.
Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
10y
The only other consideration is what your current rental policy in the building is. Many buildings are at the rental cap or have some other restriction in place as to limit the amount of non owner occupied units in a building.
Rental Property Investor · Albuquerque, NM · Member since 2016 · 6 posts · 4 votes
10y
I would setup the LLC for the next place you are going to purchase and buy the next one via LLC. Possibly even a Self directed IRA (Roth or standard real estate) then it owning the LLC or moving to an S-Corp if you are planning to get many more. You'll need to weigh the advantages and number of properties and get all the legal lined up. It is a lot of up front work, but after a few properties in your name, the Schedule E max is reached or the max loans is reached and you are exposed to a lot of liability.
It also depends on your net worth (what they can sue you for). Make sure you have a large umbrella insurance policy to cover those if you keep it in your name.
Investor · Bossier City, LA · Member since 2015 · 55 posts · 21 votes
10y
Good Afternoon,
A couple people mentioned refinancing their existing homes in their name into the me of their LLC. This will be my situation in about a year to two years, since I want to upgrade to a larger property.
That being said, in order to refinance, does any existing equity in the home count towards a down payment on behalf of the LLC? Or is there even a down payment required?
If there isn't much equity in the property (just enough to cover closing costs for the buyer), what is involved with refinancing it over?
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
10y
@Javier Gil THIS IS NOT LEGAL ADVICE, but I'm going to tell you what's really up with the due on sale clause to save you from wasting tons of money.
I haven't seen banks foreclose based upon a due on sale clause on performing notes, nor have I or my colleagues ever seen a foreclosure prosecuted under those circumstances.
This is not legal advice and you are not my client, but I believe the risk is very low if you deed the property into the LLC ($200 likely total cost) and ignore the bank; if they begin foreclosure, cure the breach of contract by deeding it back to you (which I would be shocked if it came to that) and then whole process should halt at that moment. The cost/benefit/risk seems more attractive than the costs of refinancing (higher rates, closing costs, etc.)
Now for some speculation...
We believe that it has to do with the fact that it is bad business for the banks, and we believe that the bank attorneys have to justify their budget so they add a huge line item around "notices" to make it look like they are doing a bunch of work even though it is basically worthless.
The fact is that when a bank forecloses it is bad for business -- they will likely lose money on the foreclosure and REO sale and their rating goes down for issuing "bad" notes. A bank literally fails at their job if they issue a bad note because banks are in the business of loaning money and collecting P/I payments. If you work in corporate America and are the boss overseeing this, do you want to be the one that loses your company money and also hurts it reputation?
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
10y
@Account Closed banks will want to see that the LLC and you as the owner of the LLC have at least 2-3 years experience with active real estate assets in the LLC before they will loan to it. Commercial lenders and portfolio lenders will loan to the LLC, but they are going to want 70% LTV and rent payments that show that you can meet the P/I payments from the income of the properties.
Investor · Atlanta, GA · Member since 2013 · 212 posts · 107 votes
10y
I would consider not deeding to the LLC and instead selling the property in two years to fit in the exception for avoiding capital gain tax on owner occupied property. I am not an accountant but you may want to look into whether the change in ownership to the LLC voids that option. The tax savings would likely outweigh any appreciation you'll see in the near future.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
10y
@Adam H. I'm not a tax expert, and I'm thinking that I'm missing something...Long term capital gains for IRS is over one year, so can you help me understand what you are referring to? https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States
Investor · Atlanta, GA · Member since 2013 · 212 posts · 107 votes
10y
The reference to capital gains may have been confusing. I am just referring to the exclusion for $250,000 ($500,000 for married couples) in gains on the sale of a property that was owner occupied for 2 of the past 5 years. IRC Section 121. I am not sure what the effect transferring title to LLC would have on that exclusion, which is a serious benefit.