Hey All - I have recently just bought my 4th property and am hoping to move all my properties under one LLC. I currently have higher insurance on each property to help protect myself but think its best to move to an LLC now as i continue to expand.
What is the best process of doing this? Will my rates change? Would i even be allowed to do this.
You need to review your loans (preferably with your attorney) and see if you are able to move these properties into a LLC without a due-on-sale. If there is a due-on-sale clause; you can just quitclaim them anyway and hope there is no issue or get written acceptance/agreement of the quitclaim from your lender (most likely never going to happen). Either way, I would speak to your attorney first.
Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes
5y
@Jacob Holler everyone always freaks out about the due on sale clause. All you have to do is ask your lender for permission to transfer title. If they give it you can transfer title with no issues. I have done this twice, and got permission both times.
You should still keep your insurance limits up in my opinion. Since you are using leverage, the LLC doesn't really offer much additional protection besides a layer of anonymity (that is pretty easy to get around).
Realtor · Phoenix, AZ · Member since 2020 · 79 posts · 37 votes
5y
@Dave E.
This advice is from CPA Mark Kohler. He says he creates LLCs for thousands of clients and has never told the lender anything and only once did a lender bring it up from thousands of clients. He doesn't want the lender freaking out about nothing especially something they don't understand. Creating a LLC and quitclaiming is simple. No need to spend thousands of dollars in attorney fees.
Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes
5y
@Seidy Lasker that is really bad advice. Even if it does come from an attorney. I bet the one client that did have an issue really wishes they would have asked first. Mortgage companies do understand this stuff, and will give their permission. It’s really not that big of a deal.
I am an attorney, although I do not specialize in this area of law (asset protection & estate planning). I agree 100% w/ Dave E. Simply because something is "often done" doesn't mean it is legal or "safe".
The only professional who can competently and definitively advise as to the appropriate legal structure for asset protection is an attorney who practices this type of law.
Here are 2 comprehensive videos from a prominent real estate, estate planning, and tax law attorney which describes most of the issues you are concerned with:
The 2nd video is shorter and has updated info on the dreaded "Due on Sale" clause in your mortgage. Basically, new Fannie & Freddie guidelines allow for transfer of title into LLCs without problem. However, if you do not have a conventional loan, it is not so simple. Overall, Dave E's approach is the safest bet. You should call your mortgage company and get their approval. It shouldn't be too difficult - especially after you go through these two videos.