First Property - Do I need to set up an LLC BEFORE refinancing?

2 Replies

I own one rental property that I came into by accident. I used to live in a condo, I moved across the country, and now I rent that condo out. I've owned the condo for ~5 years so I have some equity in it. I'd like to refinance it to pull some money out and I'd like to do that ASAP. I've also decided that I want to set up an LLC for this property (my first time doing that) but I'm not necessarily in a rush to set up the LLC. Should I go ahead and refinance the property now, as an individual owner, or is there any tax/financial benefit to creating the LLC first and then refinancing? Is it even possible to simply "transfer" my existing mortgage to a new LLC? I don't know much about how that transition works. I.e. When I create the LLC, would I basically "sell" my condo to the LLC?

Technically any change in ownership would be considered selling. The common way would be to use your states version of a quit claim deed into the LLC name. The down side of this is that any existing loan likely has a due on sale clause that can be triggered by this transfer. It will be up to the banks discretion as to whether this happens. Secondly, you will not be able to receive a mortgage on a residential property, from any major bank, while it is in an LLC. So unless you can find a small local bank that would plan on keeping the loan in house and doesn’t mind the LLC being listed as the owner you will have some trouble refinancing after the transfer.

@Matt Sears Why do you want to start an LLC for that property?

You can transfer existing title to your LLC but your mortgagor won't like it if they find out. It would probably trigger a due on sale clause.

You could xfer to an LLC when you refi but then you would likely be looking at a commercial loan-not a traditional 30 year fixed mortgage.

If you're setting the LLC up for liability reasons, check into an umbrella policy with your insurer. Might be a better option.

Good luck!

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