Realtor · King of Prussia, PA · Member since 2010 · 15 posts · 1 vote
Originally posted this in General Real Estate Investing but I think it probably belongs here instead.
What is the best method we should use to buy a property and put it into a newly formed LLC?
Our LLC currently does not have a property, but when we buy one we want it to be in the name of the LLC. It looks like from what I have read that a Quit Claim Deeds is the best way. As we are based in Pennsylvania, I'm aware that there is a 2% title transfer tax, would that affect a Quit Claim deed? Would we need to deal with it twice, once when purchased from seller, and again to transfer to LLC? Is there an exemption or some way around this?
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Marc Shaw:
The Transfer Tax in PA is 4%. But when it is a quit claim deed for a dollar instead of actual consideration like you are suggesting, it is based on the Tax Assessed Value multiplied by the common level ratio of the county you are working in. Then the outcome multiplied by the 4%.
The RTT in PA varies. In Philadelphia it is 4% as mentioned in the quote; in other parts it is as low as 2% as mentioned by the OP (Montgomery County for the most part is 2%, but I believe that some parts of that county may have a higher rate). Here is a link with some explanation as to why this varies:
http://www.parealtor.org/content/Archive_TransferTax.htm
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
I'm only familiar with California, but I imagine Pennsylvania isn't much different.
If you already have the LLC formed, then when you take title to your property, you can ask them to put it in the name of your LLC. If there is a lender involved, they will probably object, however, I hear you can try telling them it's for "estate planning". That may or may not work. I'm going to try this on the property we currently have in escrow and see if those key words work.
Otherwise, take title in your own name and transfer it to your LLC after closing. Depending on the county you're dealing with, you may submit an additional form or simply state on the deed (we used Grant Deeds vice Quit Claim Deeds) that the transfer is to a "wholly owned entity" and that should avoid any transfer tax.
Once again, this is how it works in California (namely San Diego and Riverside Counties), so double-check with your attorney regarding the details in PA.
Realtor · King of Prussia, PA · Member since 2010 · 15 posts · 1 vote
15y
I want to have the property put in the name of the LLC with me and my partner as the guarantee on the mortgage but I hear that that is unlikely. We will be dealing with a lender.
The property purchase will most likely be in Montgomery County, Pennsylvania.
Anyone able to offer a perspective that deals in Pennsylvania or more information about our options?
Real Estate Attorney · Philadelphia, PA · Member since 2011 · 2 posts · 0 votes
15y
My name is Marc and I am a Real Estate Attorney in Montgomery County. There is transfer tax doing it this way and I dont suggest it unless you first consult with an attorney. Moreover if you conduct the transaction this way the lender can actually call the loan. [SOLICITATION REMOVED]
Real Estate Agent · Yardley, PA · Member since 2008 · 96 posts · 11 votes
15y
Hey there - I am in Bucks, right near you! Most of my investors who purchase in the name of an LLC buy with cash.. If you are going to need a loan, the lender is going to require the name on the loan be the same on the title/deed.. so this doesn't help you. and to transfer into the LLC after the fact is going to a) cost you a pretty penny in transfer taxes all over again and b) jeopardize your loan with the bank.
If you need help finding investments in Montco, give me a call/email! I work with investors in the general Montco/Bucks/Phila area.
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
Originally posted by Kim Rock:
... and to transfer into the LLC after the fact is going to a) cost you a pretty penny in transfer taxes all over again and b) jeopardize your loan with the bank.
How high, generally, do transfer taxes run in Pennsylvania? I didn't pay a penny in taxes to transfer our rental properties in California to our LLC, but even if we did, it wouldn't have been more than a couple hundred dollars per house.
I always enjoy learning how the law works in different states.
Real Estate Attorney · Philadelphia, PA · Member since 2011 · 2 posts · 0 votes
15y
The Transfer Tax in PA is 4%. But when it is a quit claim deed for a dollar instead of actual consideration like you are suggesting, it is based on the Tax Assessed Value multiplied by the common level ratio of the county you are working in. Then the outcome multiplied by the 4%.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Originally posted by Marc Shaw:
The Transfer Tax in PA is 4%. But when it is a quit claim deed for a dollar instead of actual consideration like you are suggesting, it is based on the Tax Assessed Value multiplied by the common level ratio of the county you are working in. Then the outcome multiplied by the 4%.
The RTT in PA varies. In Philadelphia it is 4% as mentioned in the quote; in other parts it is as low as 2% as mentioned by the OP (Montgomery County for the most part is 2%, but I believe that some parts of that county may have a higher rate). Here is a link with some explanation as to why this varies:
http://www.parealtor.org/content/Archive_TransferTax.htm
Philadelphia, PA · Member since 2011 · 155 posts · 124 votes
14y
This is a tough one as once you start looking at financing, it is challenging to find conventional terms on a loan to an LLC. It can be done, but I recommend lining up at least 1-2 sources before you commit to anything.
It took me FOREVER to find one so I could refi out of a private loan. I used Beneficial Bank (in the Philadelphia) market and their commercial loan dept. was willing to do it (it was a SFR) for a 15-year loan, fixed at 7% - not bad at the end of the day.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
14y
Originally posted by Mitch Kronowit:
How high, generally, do transfer taxes run in Pennsylvania? I didn't pay a penny in taxes to transfer our rental properties in California to our LLC, but even if we did, it wouldn't have been more than a couple hundred dollars per house.
I always enjoy learning how the law works in different states.
Mitch, if I remember correctly, the PA transfer tax is 1% on the "monetary value of the property." This could be a significant amount on a very simple transfer.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
Originally posted by Bill Walston:
Originally posted by Mitch Kronowit:
How high, generally, do transfer taxes run in Pennsylvania? I didn't pay a penny in taxes to transfer our rental properties in California to our LLC, but even if we did, it wouldn't have been more than a couple hundred dollars per house.
I always enjoy learning how the law works in different states.
Mitch, if I remember correctly, the PA transfer tax is 1% on the "monetary value of the property." This could be a significant amount on a very simple transfer.
See my post above for the "correct" answer. The reality is that the state of PA gets 1% of every transaction, and the county the property is located in gets at least the same percentage. It's the local component that leads to state-wide variations.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
14y
Originally posted by Steve Babiak:
See my post above for the "correct" answer. The reality is that the state of PA gets 1% of every transaction, and the county the property is located in gets at least the same percentage. It's the local component that leads to state-wide variations.
Thanks for the clarification Steve. You're correct, I only spoke as to the state amount of the tax and didn't even give consideration to the county. That amount varies from county to county but is at least the 1%, right?
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
Originally posted by Bill Walston:
Originally posted by Steve Babiak:
See my post above for the "correct" answer. The reality is that the state of PA gets 1% of every transaction, and the county the property is located in gets at least the same percentage. It's the local component that leads to state-wide variations.
Thanks for the clarification Steve. You're correct, I only spoke as to the state amount of the tax and didn't even give consideration to the county. That amount varies from county to county but is at least the 1%, right?
Bill,
To the best of my knowledge, that is correct. Each county has at least 1% on top of state of PA's 1% - so across the state of PA it is at least 2%. Watch out for Phila at 4% total, and I believe Pittsburgh is at 3% total (I could be wrong about the exact Pitt amount here, since I am not buying there - but I've been told that in Pitt they get more than the "customary" RTT).
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
It seems the link I gave above to the PA Association of Realtors site is not working, so the variations across the state can't be viewed there. A replacement link for that purpose is below:
http://www.anytimeestimate.com/PA_REAL_ESTATE_TAX/pa-transfer-tax.htm
Apparently, some school districts don't take the 0.5% that they are permitted, so there are actually some places with only 1.5% transfer tax.
Regardless, PA is the state with the HIGHEST real estate transfer tax burden in all of the USA. I base that statement on this next link:
http://www.ncsl.org/default.aspx?tabid=12661
I am browsing through the forums and read your post. I am short on time, so I wasn't able to read all the comments - I apologize if I am repeating someone else!
The only way I have seen people protect their properties through an LLC without running into issues with lenders is by using a Land Trust. Other methods can often work, but depending on your lender and type of loan they may execute the Due on Sale Clause. A bank cannot use the Due on Sale Clause when you transfer a property from your own name into a Land Trust because it is considered an inter vivos trust (an estate planning tool) and is excluded thanks to the St Germain Act. So the smoothest way I have seen this work is when someone purchases a property into their personal names, use a warranty deed (a quit claim deed might risk your title insurance) to transfer the property into a Land Trust and then assign the beneficiary of the Land Trust to the LLC.
I am not sure on the transfer tax for PA off the top of my head, but I have helped several clients from the state with this type of transfer. If nobody has adequately answered this question just tag me and next time I hop on I can look up the answer when I have a few minutes.
If you have other questions just tag me or DM me. Best of luck to you moving forward!
This is not legal advice, just my opinion as a real estate investor.
For your benefit, following is the text of the Garn-St. Germain Act, with the relevant text bolded and underlined. It's helpful to read the language to understand what does - and what doesn't work to legally avoid due-on-sale clauses.
Exemption of specified transfers or dispositions: With respect to areal property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation,or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8)a transfer into an inter-vivos-trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transferor disposition described in regulations prescribed by the Federal Home Loan Bank Board.
I am browsing through the forums and read your post. I am short on time, so I wasn't able to read all the comments - I apologize if I am repeating someone else!
The only way I have seen people protect their properties through an LLC without running into issues with lenders is by using a Land Trust. Other methods can often work, but depending on your lender and type of loan they may execute the Due on Sale Clause. A bank cannot use the Due on Sale Clause when you transfer a property from your own name into a Land Trust because it is considered an inter vivos trust (an estate planning tool) and is excluded thanks to the St Germain Act. So the smoothest way I have seen this work is when someone purchases a property into their personal names, use a warranty deed (a quit claim deed might risk your title insurance) to transfer the property into a Land Trust and then assign the beneficiary of the Land Trust to the LLC.
I am not sure on the transfer tax for PA off the top of my head, but I have helped several clients from the state with this type of transfer. If nobody has adequately answered this question just tag me and next time I hop on I can look up the answer when I have a few minutes.
If you have other questions just tag me or DM me. Best of luck to you moving forward!
This is not legal advice, just my opinion as a real estate investor.
Hey Scott - per your comment above about having helped serveral clients in PA, I'm curious - did all of your clients pay the transfer tax when they transferred title to an LLC? This tax is particularly onerous in Pennsylvania, which charges a transfer tax of 2-4% of the property's value, depending on which PA jurisdiction (I believe this to be one of the heftiest transfer taxes in the nation).
There are a few cases in which you don't need to pay the transfer tax, but transferring title from personal name to LLC is NOT one of those exceptions. According to (c)(1) below, if you were transferring the property into a living trust (per the St Germain Act), the transfer WOULD be exempt from transfer tax IF you were PERSONALLY listed as the beneficiary. If, however, your LLC (which is of course a separate entity from you personally) is the beneficiary (which is what you need in order to gain the desired asset protection), then you must indeed pay the onerous transfer tax:
Rental Property Investor · San Francisco, CA · Member since 2016 · 215 posts · 42 votes
6y
@Mark Miles - the PA transfer tax is almost completely unavoidable except for a couple circumstances which you described. if you have a specific situation in mind, I would advise that you call your title/escrow company and talk to your contact there. they should be able to tell you if your situation qualifies