Do you need to transfer property to llc name?

Question

Hi , I have two rentals I own right out. one is a house with land and the other is a mobile home on leased land in a very good location . I just created an llc for these properties per my accountants recommendation he also suggested I transfer the properties from my personal name to the llc name. I had really just created the llc for tax purposes and to keep my personal finances apart from my business finances. Do you really need to transfer to llc name ? I’m located in SC if that helps

Greg Scott · Answer

I've never heard of a CPA recommending an entity.  Unless California is different, every deduction that I know of for real estate, you can take whether it is owned by you or an LLC.  I'd talk to a new CPA.

Axel Meierhoefer · Answer

@Anne Abrams You can have a Series LLC in another state and then report the "Mother" in your state as a foreign entity.

I am not smart enough for all the things I have learned but I know that learning and finding great experts is super-helpful for me and my mentoring clients.

One of those is Scott Smith from Royal Legal Solutions who is probably THE expert on series LLC's. If you or anybody on this thread like an into, just DM me and I am happy to help with that.

Axel Meierhoefer · Answer

@Johnny Dlcrz I agree with the 50% of folks on BP who like to have an LLC structure. To me, there are a few things to consider that the LLC structure, also often called Series LCL structure, provides:

1. The LLC structure creates anonymity - as others here mentioned, it makes it harder or impossible to find out who the true owner of a property is.

2. Have an LLC (often called "mother") as an S-Corp LLC to run all the operations of REI through it (mortgage payments, reserve accumulation, rent deposits, etc.) clearly separates REI from all other business activities, i.e. your construction company as well as your private activities and belongings

3. Having separate LLC's (often called "Children) in a Series LLC structure lowers your liability and risk. If you have your two properties in your name and your construction company has allowed you to accumulate a few nice things, maybe a nice big house you use as your residence, etc. If someone successfully sues your "child-LLC" that owns one of your properties, all your private belongings and all your other "Child-LLC's" with your other houses (maybe more than 2 in the future) are protected. Just to illustrate what that means:

Let's say you own a $900K house/residence, a $50K car, have a W2 paycheck of $100K/year, and have two investment properties each currently worth $150K, your total 'worth' is about $1.3 Million + your W2 income. If someone sues you successfully and the court awards the person $2Million in damages, everything you own is gone and you will pay your paycheck to that person until the full sum of $2 MIllion is covered.

Alternative: You create an LLC structure with a mother and two children (maybe more children as you keep adding investment properties), and a person who feels you did them wrong with or in one of your rental properties sues you. The court again awards damages of $2 Million. All this person can sue is one child LLC. That means you can give them the house worth $150K, and declare bankruptcy for that child LLC. You keep everything else and count the award as a loss in the tax return of your mother-LLC to which all tax-relevant items roll up to.

I am not a lawyer or CPA, but my research has confirmed this construct several times.

Maybe that helps explain why I prefer an LLC structure versus not having one. Naturally, you can decide to take the risk and keep it all under your name as some people here said. The only thing that is really driving it one way or the other is the answer to the question: How likely is it that someone tries to find a reason to sue me and convince a court that they are right?

I decided I don't want to find out. Therefore, I make the LLC structure and other protective aspects of becoming a professional real estate investor part of my mentoring approach.

Scott M. · Answer

@Johnny Dlcrz as you will find out here or by searching other similar topics BP is split 50/50 on the value of an LLC.  I am in the camp that says they are good thing but no, you do not need one.  My experience also differs from @Greg Scott as I have never worked with a CPA that didn't suggest investment real estate should go into an LLC.  That said it still isn't a "need".

I would talk to your CPA more and understand why they are suggesting what they are suggesting, both the pro's and con's of doing it in your individual situation so you can make the right and educated choice for yourself.

Randy Nelson · Answer

I think the "Series" llc is what Cory is talking about.  You can set up a "parent" llc with a bunch of "series" under the parent.  Not sure if it carries all the asset protection goodies that regular old LLCs provide.

Cory Lucas · Answer

@Anne Abrams I forget the specifics of what it's called, but you can setup an LLC to where they all go under the same LLC but you can branch off with each property so it's basically it's own entity and the others you have will be protected that way...

Michelle Foy · Answer

I put my rentals in an (or multiple) LLC(s) for protection purposes. It isn't foolproof and I think there are various ways to structure regarding protection but I mainly do it to keep my businesses separate on taxes. I like things clean and streamlined. Additionally, I like that people have to dig a little deeper to find the owner. I know Robert Kiyosaki and his tax advisor have some advice on this that delves deeper into the protection/privacy. I keep it fairly simple. I also do commercial loans (consolidated). I buy cash and consolidate a few at a time so nothing Fannie/Freddie backed. F/F don't like you to deed it to an LLC. They will want it in your personal name.

Chad McMahan · Answer

Hi David.

I'm not 100% clear on your questions, but I'll do my best.

I've heard of many lawsuits both with and without LLC protection. Without LLC protection, the person is personally liable every time. With LLC protection, rarely is the investor personally liable and the corporate veil is intact.

How the properties were managed was sometimes by property management companies, and sometimes by the investors. The percentage of lawsuits seems higher for those investors managing their own properties, as many of them are not as organized and consistent and layered with as much document protection.

David M. · Answer

@Chad McMahan

Do you have any examples of rentals held by a LLC being sued and how they were managed?

@Johnny Dlcrz You'll want to keep the insurance when using the LLC.  In fact, you need everything as if you were running the rental without a LLC.  The LLC is the add-on protection.  As for the insurance, you'll definitely need it in case you are sued.  You'll need the insurance company to cover the legal fees otherwise you will go broke protecting your LLC and most likely the little bit of equity that it holds.  again, good luck.

Chad McMahan · Answer

Johnny,

Putting your investments and possibly the management of those investments in 1 or more LLC's is a cheap extra layer of protection. Necessary? Absolutely no. Effective? Absolutely yes. In countless cases, LLC's have held up to piercing of the corporate veil and sufficiently insulated people from being personally sued, which is huge.

If you are determining to form 1+ LLC, based on how likely a problem is to occur... You likely won't have a problem. By that standard, you might as well pass on all insurance, as well. If you are considering it based on cost + time to get it set up + how much protection is afforded, then go for it. And do it yourself, as it's cheap and easy and you may find yourself quickly setting up LLC's in the future, as your portfolio grows.

Do you need to transfer property to llc name?

Most Popular Reply