North Vernon, IN · Member since 2015 · 13 posts · 9 votes
I’m working on purchasing my first rental property but I don’t have an llc just yet. I just applied for one but it could take more than a month to get it. If I purchase this property in my name, then how hard is it to switch it under the llc and also are there any tax repercussions? Or would I be better off just leaving this property in my name until I acquire more?
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
7y
What @Julie N. wrote is correct. I've done it many times. Just make sure the LLC is set up with the names of the same people who bought the property. I've added a comment below that I've posted on similar questions from other BP members;
The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC). Regardless, you should first talk to your lender and tell them exactly what you’re planning and get their approval.
Next is to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.” Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.
Real Estate Investor · Unionville, CT · Member since 2016 · 260 posts · 167 votes
7y
@Garrett Leahigh it's a simple quit claim process. It's quick and there aren't any tax implications- at least in CT where I live. If you want to refi or do a heloc down the road- you'll most likely have to quit claim it back into your name as most lenders do not lend to LLC's unless it's commercial.
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
7y
What @Julie N. wrote is correct. I've done it many times. Just make sure the LLC is set up with the names of the same people who bought the property. I've added a comment below that I've posted on similar questions from other BP members;
The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC). Regardless, you should first talk to your lender and tell them exactly what you’re planning and get their approval.
Next is to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.” Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.
Attorney · Boston, MA · Member since 2018 · 109 posts · 63 votes
7y
@Garrett Leahigh, why would it take a month to set up an LLC? You should be able to do it fairly quickly online. Are you forming it as a single member?
Also, how are you financing the deal? If you are paying with your own cash, then you shouldn't have to worry, but if you get bank financing or other secured lending you may trigger a due on sale clause when you make the LLC contribution.
Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
7y
In the great state (commonwealth) of Pennsylvania, we have found that any transfer to an LLC will trigger city/state transfer taxes. Please check your own state's interpretations of this. Also, make sure you notify your insurance company of the change and see what they have to say.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Garrett Leahigh Keep in mind also, if you are planning to buy a property that needs rehab with a hard money loan most HMLs we deal with here in Connecticut will require you to own the property in a LLC. You can always quit claim at closing from your personal name to a LLC at closing if neccessary, had a client do that a couple weeks ago.
Rental Property Investor · Erie, PA · Member since 2016 · 169 posts · 124 votes
7y
@Garrett Leahigh what type of financing are you using? If you are using conventional you will have to purchase in your name, if commercial, you will have to purchase in your LLC. In PA if you switch from your name to an LLC you will incur transfer tax of 2%.
Lender · Kirkland, WA · Member since 2018 · 19 posts · 20 votes
7y
Curious to hear your reasoning behind why it must be in the name of the LLC or why you're opening an LLC in the first place? From a tax perspective, an LLC will not do a whole lot for you. I assume you're doing this to protect yourself from liability on the assets? Why not just buy an umbrella policy to protect your assets? They're fairly inexpensive. $30 a month maybe? There's a great post about it found here:
Curious to hear your reasoning behind why it must be in the name of the LLC or why you're opening an LLC in the first place? From a tax perspective, an LLC will not do a whole lot for you. I assume you're doing this to protect yourself from liability on the assets? Why not just buy an umbrella policy to protect your assets? They're fairly inexpensive. $30 a month maybe? There's a great post about it found here:
Thanks for your response! I am opening an LLC to protect against liability and I figured once my portfolio got so big I would want my investments under the LLC. I have heard of the umbrella policy and I will definitely look into it! Thanks
@Garrett Leahigh what type of financing are you using? If you are using conventional you will have to purchase in your name, if commercial, you will have to purchase in your LLC. In PA if you switch from your name to an LLC you will incur transfer tax of 2%.
I will be using a conventional loan. I’m not sure what the implications are if I transfer in Indiana. Definitely something I will look into. Thank you
@Garrett Leahigh Keep in mind also, if you are planning to buy a property that needs rehab with a hard money loan most HMLs we deal with here in Connecticut will require you to own the property in a LLC. You can always quit claim at closing from your personal name to a LLC at closing if neccessary, had a client do that a couple weeks ago.
Thank you for the information! Not rehabbing this one, just a buy and hold. I will definitely keep that in mind in the future!
In the great state (commonwealth) of Pennsylvania, we have found that any transfer to an LLC will trigger city/state transfer taxes. Please check your own state's interpretations of this. Also, make sure you notify your insurance company of the change and see what they have to say.
@Garrett Leahigh, why would it take a month to set up an LLC? You should be able to do it fairly quickly online. Are you forming it as a single member?
Also, how are you financing the deal? If you are paying with your own cash, then you shouldn't have to worry, but if you get bank financing or other secured lending you may trigger a due on sale clause when you make the LLC contribution.
I am doing it online but it said it could be 30 days before I get the paperwork I believe. I am getting a bank financing though so I will be careful with that. Thank you!
What @Julie N. wrote is correct. I've done it many times. Just make sure the LLC is set up with the names of the same people who bought the property. I've added a comment below that I've posted on similar questions from other BP members;
The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC). Regardless, you should first talk to your lender and tell them exactly what you’re planning and get their approval.
Next is to check with the Title Company regarding the Title insurance. Generally, the coverage of the policy will state; “The coverage of this policy shall continue in force as of Date of Policy in favor of an Insured after acquisition of the Title by an Insured or after conveyance by an Insured, but only so long as the Insured retains an estate or interest in the Land, or holds an obligation secured by a purchase money Mortgage given by a purchaser from the Insured, or only so long as the Insured shall have liability by reason of warranties in any transfer or conveyance of the Title.” Again, as with the question regarding the lender mentioned above, its best to ask your Title company if the insurance coverage remains intact if the asset is transferred.
Thanks for the reply! That is some great information, I appreciate it!
@Garrett Leahigh it's a simple quit claim process. It's quick and there aren't any tax implications- at least in CT where I live. If you want to refi or do a heloc down the road- you'll most likely have to quit claim it back into your name as most lenders do not lend to LLC's unless it's commercial.
Thanks for the information! I’ll be checking out indiana last laws here shortly.
You do have a point about an umbrella policy covering. I've been in the insurance business for 25+ years. However, I still have my properties in LLC's. Unless you have very few assets to protect or it is cost prohibitive to the amount of your investment, I would say better safe than sorry. Nothing is fool proof.
Investor · Princeton, IN · Member since 2017 · 109 posts · 54 votes
7y
@Garrett Leahigh I live and invest in Indiana. I had my lawyer Grant Deed (not quit-claim) my property into the name of my LLC. I got this idea from one of Clayton Morris's podcasts with Garrett Sutton, a Rich Dad advisor. It is episode 197 if you are interested. I'm a big fan of Clayton's show even though I've heard all the horror stories about his company.
According to them, if you Grant Deed a property into an LLC, it should not affect the Due on Sale clause because there is a "continuity of obligation". Basically you are still liable for the amount of the loan since you are a member of the LLC. Also in the podcast, he said that when the bank accepts the first mortgage payment from the LLC, they are basically waiving their rights to trigger the Due on Sale. It sets a precedent for how the property is paid for.
Again all my information may be wrong, but I have personally done this with one property for almost a year now and have not heard any word from the bank. Good luck! Hope to connect in the future.
Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
7y
@Dalton Dellinger, @Garrett Leahigh, and anyone else who is interested. If you have a conforming loan, Fannie Mae explicitly allows for the transfer into an LLC. Check out this link. The LLC part is towards the bottom.
Attorney, CPA, Broker & Author · Scottsdale, AZ · Member since 2018 · 532 posts · 488 votes
7y
@Dalton Dellinger One could potentially argue there is no waiver by your bank when they cash your first check from the LLC, because you didn't notify them of the transfer. Also, I suspect there is language in your loan docs that says one act of forbearance (accepting your payment from the LLC), doesn't waive their right to object to future problems.
To me, the whole thing boils down to 4 things:
a) Are you technically violating the Due on Sale / Alienation clause in your loan docs? Probably ...
b) Will the lender bother to enforce this as long as your payments are being made on time? Maybe not ...
c) Could the lender, in times of rising interest rates, eventually use this as an excuse to call your loan? Probably so ...
d) Is it worth it to give your lender a potential reason to call your loan? Maybe not ...
For these reasons, I never counsel any of my legal clients to knowingly and intentionally violate their Due on Sale clauses in their loan docs.
However, I am not your lawyer, so this is just my 2¢ of free legal advice.
Investor · Round Rock, TX · Member since 2017 · 6 posts · 1 vote
7y
@Jeff Martinez
I do believe that any title transfer in PA incurs transfer fees. I just looked into transferring title of my Mom's place to either a trust or a relative, and either would incur a transfer tax, so I'd guess a trader to an LLC would,too.