Rental Property Investor · Chino, CA · Member since 2016 · 53 posts · 16 votes
I most likely will be moving a property into an LLC. Most likely the lender will notice the deed change and call the loan. This means I will have to pay it off. I can do that. But I don't want to have that much equity tied up in that one property. What's the best way to get that money back out? Looking to understand the tax and liability consequences.
@John K. Is this a single member LLC? And are you asking how you can take money out of an LLC in the form of a distribution to yourself? The LLC can certainly make a cash distribution to the member(s) of the LLC. I would need more information on what you are looking to do to answer your question.
Let's use round numbers. Say I I own a $500k property in my own name. I have a $200k loan. I want to deed this to an LLC (husband and wife). Expecting the bank to call the loan. I can pay the $200k balance.
But now I have $500k stuck in the property. I don't want to leave this there in entirety because a) the rental profit is not the best return on the capital and b) that's half a million exposed.
Assuming I sign a personal guarantee, can I obtain a new mortgage, for say $300k, and then distribute the $300k to myself? If the LLC is sued, is only the remaining $200k exposed? Assume a suitable insurance policy as well.
Let's use round numbers. Say I I own a $500k property in my own name. I have a $200k loan. I want to deed this to an LLC (husband and wife). Expecting the bank to call the loan. I can pay the $200k balance.
But now I have $500k stuck in the property. I don't want to leave this there in entirety because a) the rental profit is not the best return on the capital and b) that's half a million exposed.
Assuming I sign a personal guarantee, can I obtain a new mortgage, for say $300k, and then distribute the $300k to myself? If the LLC is sued, is only the remaining $200k exposed? Assume a suitable insurance policy as well.
In my experience, yes, you can do the bottom scenario. personally guarantee the new loan to LLC borrower, and cash out equity. Why not just do that with your first bank instead of paying it off at all?
Let's use round numbers. Say I I own a $500k property in my own name. I have a $200k loan. I want to deed this to an LLC (husband and wife). Expecting the bank to call the loan. I can pay the $200k balance.
But now I have $500k stuck in the property. I don't want to leave this there in entirety because a) the rental profit is not the best return on the capital and b) that's half a million exposed.
Assuming I sign a personal guarantee, can I obtain a new mortgage, for say $300k, and then distribute the $300k to myself? If the LLC is sued, is only the remaining $200k exposed? Assume a suitable insurance policy as well.
In my experience, yes, you can do the bottom scenario. personally guarantee the new loan to LLC borrower, and cash out equity. Why not just do that with your first bank instead of paying it off at all?
I tried asking the bank originally and they wouldn't allow it. Maybe I need to try again.
One of us thinks of it backward :) Here is how I would do it. Have property in your name. Borrow 75-80% of it. Now through remaining equity in LLC by placing a second lien on the property. Good luck
A) the bank probably won't ever notice or care if they keep getting their payment. Just use a title company to transfer title.
B) if they do care and call it due, pay it off then go cash out refinance somewhere else. You may have to sign personal guarantee on the loan but it will be in the LLC. You do have asset segregation and the legal protection for a worst case scenario, but still will personally responsible for mortgage balance.
C) yes, I believe once owner's distributions are done that cash is no longer assets of the LLC.
John K. Have you talked to your insurance broker about the cost to add maybe a $5M umbrella policy to the property? In my mind I'm thinking that you have a great interest rate today (from a few years ago) and you might end up paying another 1/2 or 1 point if you refinanced. More than that if it was an old primary residence you're now renting out. Depending on the size of the loan you might want to look at that as an alternative means of protection.
I most likely will be moving a property into an LLC. Most likely the lender will notice the deed change and call the loan. This means I will have to pay it off. I can do that. But I don't want to have that much equity tied up in that one property. What's the best way to get that money back out? Looking to understand the tax and liability consequences.
But then accessing the rental equity through a cash out refinance of some sort creates new debt obligation and cost; some business necessity for accessing the equity such as if accessing the equity to make other acquisitions may make more sense than just paranoia of risk exposure.