First Time Investor Purchase - Land Trust & LLC Formation

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First Time Investor Purchase - Land Trust & LLC Formation

Laura R.
Rental Property Investor · Austin TX · Member since 2019 · 20 posts · 6 votes

Hello, I'm under contract on my first rental property located in Buffalo, NY. The property will be financed with a mortgage in my personal name. 

My understanding is that I will need to take title in my personal name to begin with to satisfy the mortgage requirements. However, I own another active full-time business that I want to keep totally separate from the rental activities. So just owning the property personally with an umbrella insurance doesn't sound like a great idea. I will be using a property manager since I'm out of state. 

I've read about the strategy of putting title into a land trust and then having the trust owned by an LLC. Has anyone done this successfully in Upstate New York? Should I be asking the attorney firm who is handling my closing to help me with this? Or should this all be kept secret from the bank and I should use a different attorney since they are all working together on the closing?

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    4y

    @Laura R.Keeping secrets from the bank is known as mortgage fraud. Which can result in Prison time and a lot of unhappiness! ;<). Look before you leap!!

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  • Sarah Brown
    Real Estate Agent · Nampa, ID · Member since 2017 · 439 posts · 361 votes
    4y

    I would chat with your attorney about asset protection in that state. I purchase in my name and then quick claim to an LLC, which is then owned by a trust. Understand that as part of the promissory note, the lending institution can call the note due if the title is changed into a name other than the one on the loan. I haven't had this happen, but I also haven't gone into default, or sold utilizing a bridge loan. Also, make sure your insurance covers both you and your entity. Basically, you'll need to talk to a few people to make sure your bases are covered.

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  • Tim DelaneyPro Member
    Buffalo, NY · Member since 2018 · 790 posts · 530 votes
    4y

    @Laura R. Owning a property personally has no impact on your other business. I own multiple businesses and multiple properties- some personally, some in other LLCs. The important thing is to make sure that each entity and property is insured properly.

    As for switching entities after financing conventional I know that many people do it and have not had the due on sale clause gone into effect by the bank. However, the banks have had no incentive to enforce that over the past decade as long as the loan was performing. With rates now rising it wouldn’t shock me if banks start paying more attention because if they can get a 3% loan off their books and force you into a 6-7% loan instead they can make more money.

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  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    4y
    Quote from @Laura R.:

    Hello, I'm under contract on my first rental property located in Buffalo, NY. The property will be financed with a mortgage in my personal name. 

    My understanding is that I will need to take title in my personal name to begin with to satisfy the mortgage requirements. However, I own another active full-time business that I want to keep totally separate from the rental activities. So just owning the property personally with an umbrella insurance doesn't sound like a great idea. I will be using a property manager since I'm out of state. 

    I've read about the strategy of putting title into a land trust and then having the trust owned by an LLC. Has anyone done this successfully in Upstate New York? Should I be asking the attorney firm who is handling my closing to help me with this? Or should this all be kept secret from the bank and I should use a different attorney since they are all working together on the closing?


    I own several business's, property in my personal name, property in the name of an LLC, etc.. The issue of liability and your umbrella insurance usually comes from there being provable fraud, using uninsured "1099" workers who should actually be classified as employees, and other things that would make you personally liable. There is no way to 100% protect yourself from every scenario. Using a residential loan and then moving it to an LLC or a land trust is fairly common. It can technically trigger a due on sale clause but, I have never seen it happen, and its common practice. Some lenders will remove that clause from the contract.

    The big issue really all comes from insurance.  When you go the cheap route, hire a 1099 worker with general liability but, no workers comp and he brings employees onto the property that are not properly insured you become ultimately liable.  Those are scary situations.  If you are using a professional property management company you should have further protections from these situations. 

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    FNMA now allows a borrower to move ownership to a single-member LLC owned by the borrower without triggering the Due on Sale clause.

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  • Laura R.
    OP
    Rental Property Investor · Austin TX · Member since 2019 · 20 posts · 6 votes
    4y

    Thanks everyone. I talked to the closing attorney and they said just check with lender because some are totally OK with it. The lender confirmed they won't care if we move to LLC later as long as we make the payments on time.

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