should LLC own or lease rental properties?

Question

We're considering to start an LLC for our rental properties and just came up with a question.

Instead of transferring property title to that LLC, what if we sign a lease contract with it? What are pros and cons?

Justin Cohen · Answer

@Jason DiClemente This is very true, however, I'd imagine regardless of whether or not she was closing under an entity or as an individual the majority of these loans are going to come with a personal guarantee.

Nhat Lam · Answer

Hi Sami,

Thanks for your reply but that's not what I'm asking.

Should I transfer the title to an LLC or sign a lease contract with an LLC and allow it to sublease?

Nhat Lam · Answer

Justin, thanks for your reply but again, it isn't my question.

Let's assume the LLC is not mine and they want to lease my property for several years and use them for their rental business. So, the title is still under my name. In this situation, would the LLC take over all liabilities?

Justin Cohen · Answer

Nhat,

You can easily just quitclaim the property into an LLC set up under your name. It's a fairly simple process. I'd call one of the title agents you've used in the past and ask if they have any suggestions for you.

Nhat Lam · Answer

Jason,

That's my main point. Is there any types of contract, signed between property owners and LLCs so the LLCs will take over the liability?

Sami Davis · Answer

If the property was purchased with a mortgage transference of property into an llc could be a violations of your mortgage covenants.  This could result in the bank calling in your loan.  Requiring full payment of remaining mortgage.  In addition when you placed your property in an llc and have to go court for a tenant related matter or building code violations then you are require to have legal representation.  Which equates to an potential expense even for small simple matters (applies in city of chicago).  Lastly filling an llc would require additional tax filings every year and annual fees.  Also it can make it hard to get future financing.

should LLC own or lease rental properties?

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