Changing Primary Residence to Rental Property

[Kyle Storms]

Good Morning Fellow BPers!

My wife and I are thinking of purchasing a new home due to a growing family and we would like to convert our existing home to a rental property. There is little to no equity in the existing home, and the property is titled in my name. I would like to transfer the rental into an LLC. My question to you is this:

Are there any ramifications/consequences with the mortgage holder (triggering Due on Sale clause, etc) of transferring the home to an LLC that I'm the 100% owner of? Since I would be the 100% owner of the LLC and the property isn't being sold, I'm not sure that would technically trigger anything, but want to be sure.

Looking forward to any responses that have had experience in this realm.

Thanks!

[Kyle Hipp]

If you simply move to a new residence and rent your current house out, you will need to change your insurance to a rental policy. This rental insurance will most likely be cheaper than your previous home owners policy because your are not insuring nearlg as much personal property. You might also need to get a weatherization inspection or other provisions to legally rent out your home in your location. As for your mortgage nothing will change, you need to have your insurance update the new policy with the bank as additional insured and update your mailing address when you move.

If you transfer the property into a LLC even if it is 100% owned by you you will trigger the due on sale clause. Whether the bank enforces it is another story but you have triggered it. When you set up you rental/investment property insurancd you will now pay higher rates than before as the policy is in the name of a LLC and requires a different type of a policy. You will also have all the fees and requirements that having a LLC requires. You do shield your personal assets if you operate the LLC perfectly and happen to get a rare claim that your insurance does not cover which usually results from negligence.

I the end I would leave the property in your name and get the proper insurance and follow correct local laws for renting out your property. Then study up on the legalities of renting a property and landlord/tenant laws so you are nit negligent in your business. Good luck.