Protecting Assests Without Transferring the Deed

Washington, District of Columbia
General Landlording & Rental Properties
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Protecting Assests Without Transferring the Deed

Andy Vasquez
Member since 2022 · 42 posts · 25 votes

I live in DC and want to rent out the house that I am living in today. It is my understanding that I cannot transfer the deed into a LLC without paying a huge transfer fee. Is there anything I can do to protect myself from potential legal issues? Ideally, I would have liked to set up a LLC, but that doesn't seem reasonable when considering the fee associated with it.

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Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
3y

@Andy Vasquez, purchase an umbrella insurance policy for liability coverage. 

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  • Kevin Sobilo
    Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
    3y

    @Andy Vasquez, purchase an umbrella insurance policy for liability coverage. 

    3Reply
  • Andy Vasquez
    OP
    Member since 2022 · 42 posts · 25 votes
    3y
    Quote from @Kevin Sobilo:

    @Andy Vasquez, purchase an umbrella insurance policy for liability coverage. 


     Thank you! I will look into it.

    0Reply
  • Jack Seiden
    Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes
    3y
    Quote from @Kevin Sobilo:

    @Andy Vasquez, purchase an umbrella insurance policy for liability coverage. 


     2nd this!

    1Reply
  • Will FraserPro Member
    Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
    3y

    Also, manage with excellence or, even better liability limitation, hire a really ridiculously good Property Management company to look after your property.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y

    1) Make sure to get your BBL License and Rental Inspection Completed

    2) Purchase Umbrella Insurance

    3) Maintain your property

    4) Maintain good relationship with your tenants.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Andy Vasquez

    All of the above plus get a good property manager and make sure to review and understand their agreement and who is responsible for what

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  • Adah N.
    Investor · Atlanta, GA · Member since 2020 · 294 posts · 142 votes
    3y

    @Andy Vasquez

    Why can't he simply do a Quit Claim deed to the LLC? What is the advantage of an Umbrella policy over a regular landlord policy?

    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y

    You could use a Quit Claim Deed to move the property into an LLC. However, it may trigger additional costs and add a layer of complexity to your life. New bank accounts, costs of setting up the LLC and filing every year, possibly separate tax returns, etc.

    Even umbrella insurance is unnecessary, but it's a much simpler option if you feel the need for additional protection.

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  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    3y
    Quote from @Adah N.:

    @Andy Vasquez

    Why can't he simply do a Quit Claim deed to the LLC? What is the advantage of an Umbrella policy over a regular landlord policy?


    Don't quit claim deed to your LLC. Use a Warranty Deed instead. The use of the Quit Claim may void your title policy and will make the chain of title murkier.
    0Reply
  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    3y
    Quote from @Andy Vasquez:

    I live in DC and want to rent out the house that I am living in today. It is my understanding that I cannot transfer the deed into a LLC without paying a huge transfer fee. Is there anything I can do to protect myself from potential legal issues? Ideally, I would have liked to set up a LLC, but that doesn't seem reasonable when considering the fee associated with it.

    I am not sure about your state, but there are often exemption for title change when it is a free transaction (gift) or if the final beneficial owner doesn't change. In some state the exemption is only when you transfer to a trust. So you may want to deed it to a land trust where you are still the initial beneficiary, then in a second stage, assign the beneficial interest of the land trust to the LLC. This last approach should be free (excluding some minor recording fee) in most state.
    1Reply
  • Andy Vasquez
    OP
    Member since 2022 · 42 posts · 25 votes
    3y
    Quote from @Will Fraser:

    Also, manage with excellence or, even better liability limitation, hire a really ridiculously good Property Management company to look after your property.


     Unfortuntately, that will kill any profit I hope to make. As it is, I will likely not truly cash flow (taking operational expenses (10% of monthly Rev.) into consideration)

    0Reply
  • Andy Vasquez
    OP
    Member since 2022 · 42 posts · 25 votes
    3y
    Quote from @Adah N.:

    @Andy Vasquez

    Why can't he simply do a Quit Claim deed to the LLC? What is the advantage of an Umbrella policy over a regular landlord policy?

    I will look into this, but I believe there is a heavy charge in DC for this as well. Also, transferring post purchase, I believe is a pain when it comes to the mortgage. I will research and get back to you.
    0Reply
  • Andy Vasquez
    OP
    Member since 2022 · 42 posts · 25 votes
    3y
    Quote from @Nathan Gesner:

    You could use a Quit Claim Deed to move the property into an LLC. However, it may trigger additional costs and add a layer of complexity to your life. New bank accounts, costs of setting up the LLC and filing every year, possibly separate tax returns, etc.

    Even umbrella insurance is unnecessary, but it's a much simpler option if you feel the need for additional protection.


    Even without the transfer, I was planning on creating a LLC and having the renter pay into a seperate LLC account. I want to show a history of revenue, so I can purchase another property using the LLC.

    2Reply
  • Frank Chin
    Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Andy Vasquez:
    Quote from @Nathan Gesner:

    You could use a Quit Claim Deed to move the property into an LLC. However, it may trigger additional costs and add a layer of complexity to your life. New bank accounts, costs of setting up the LLC and filing every year, possibly separate tax returns, etc.

    Even umbrella insurance is unnecessary, but it's a much simpler option if you feel the need for additional protection.


    Even without the transfer, I was planning on creating a LLC and having the renter pay into a seperate LLC account. I want to show a history of revenue, so I can purchase another property using the LLC.

    I owned rentals and businesses and had businesses in an LLC, but not the rentals. And while I had the businesses in LLC's, my attorney and insurance agent insisted that I get an endorsement in the LLC policy that covers me personally and an umbrella in addition on top.

    Furthermore, I bought an active business in an S Corp, through an LLC, and the owner was sued for $3 million. He had liability for his S Corp for $1 million, but no umbrella and none for himself. Reason? He thought the S Corp should shield him, why bother with anything beyond that.

    I followed the case as my employees had to take time off to give depositions. I checked with my attorney if the LLC is sufficient and why bother with the personal endorsement and umbrella. I'm told litigants usually sue the owners and the corporate entities, both by default, the owner personally for negligence, unless I can show I have absolutely no personal involvement with operations. In other words, no corporate shield. In the case of real estate, you would have to use a property manager. In fact, the S Corp owner tried to get the case against him personally dismissed but was denied.

    Thus, even I had and used LLCs for my active business, for rental, I did not. I relied on umbrella insurance. I used LLCs for active businesses to keep entities separate from other businesses to insulate one business from another in the operation of unemployment insurance, workman's comp insurance etc.

    0Reply
  • Matthew McNeil
    Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
    3y
    Quote from @Mike S.:
    Quote from @Adah N.:

    @Andy Vasquez

    Why can't he simply do a Quit Claim deed to the LLC? What is the advantage of an Umbrella policy over a regular landlord policy?


    Don't quit claim deed to your LLC. Use a Warranty Deed instead. The use of the Quit Claim may void your title policy and will make the chain of title murkier.
    Generally, the title policy isn't voided using a QC if the LLC member(s) are the same as the name(s) on the mortgage. He can call the Title Co to confirm.
    0Reply
  • Matthew McNeil
    Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
    3y

    The level of asset protection you decide to go with depends entirely on the level of risk you feel comfortable with. As others have written here, if you have a great property manager and a $1M umbrella policy then you may be fine. I've put each of my assets into separate LLCs each with a 65 page Operating Agreement that deals with issues you rarely read about on BP. 

    2Reply
  • Jack Seiden
    Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 654 votes
    3y
    Quote from @Adah N.:

    @Andy Vasquez

    Why can't he simply do a Quit Claim deed to the LLC? What is the advantage of an Umbrella policy over a regular landlord policy?

    More protection, for a few hundred dollars you can go from maybe 500k to 2-3 million, probably unnecessary but well worth it for the price.
    0Reply
  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    3y

    In DC a transfer to an LLC will be subject to transfer and recordation taxes of 2.2% or 2.9% of the current taxed-assessed value of the property. Let's say the property is assessed at 500k (modest for DC standards)... yes, that deed will cost you $14,500 to record and you'd gain little in terms of liability protection.

    It doesn't matter whether a quitclaim deed or warranty deed is used.

    Also transferring to an entity precludes using this property as STR.

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y

    And to tag onto what Tom said...a property in DC owned by an LLC is automatically subject to rent control.

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  • Andy Vasquez
    OP
    Member since 2022 · 42 posts · 25 votes
    3y
    Quote from @Russell Brazil:

    And to tag onto what Tom said...a property in DC owned by an LLC is automatically subject to rent control.


    Russell, if I create a LLC and have the renter pay into the LLC, but the deed is still in my name, does that create any problems. The reason I want to do that is to develop a history of revenue in the LLC.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    3y
    Quote from @Andy Vasquez:
    Quote from @Russell Brazil:

    And to tag onto what Tom said...a property in DC owned by an LLC is automatically subject to rent control.


    Russell, if I create a LLC and have the renter pay into the LLC, but the deed is still in my name, does that create any problems. The reason I want to do that is to develop a history of revenue in the LLC.


    It makes the point of the LLC completely pointless.

    What is the point of an LLC? It is to Limit the Liability of the owner of the LLC by keeping those assets seperate from the owners.

    So how is that accomplished? By keeping everything seperate. If everything is not seperate, then the LLC is piercable. If it is easily piercable, then it serves no point whatsoever.

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  • Andy Vasquez
    OP
    Member since 2022 · 42 posts · 25 votes
    3y
    Quote from @Russell Brazil:
    Quote from @Andy Vasquez:
    Quote from @Russell Brazil:

    And to tag onto what Tom said...a property in DC owned by an LLC is automatically subject to rent control.

    The idea being it shows revenue, so I can purchase a second propterty using the LLC.

    Russell, if I create a LLC and have the renter pay into the LLC, but the deed is still in my name, does that create any problems. The reason I want to do that is to develop a history of revenue in the LLC.


    It makes the point of the LLC completely pointless.

    What is the point of an LLC? It is to Limit the Liability of the owner of the LLC by keeping those assets seperate from the owners.

    So how is that accomplished? By keeping everything seperate. If everything is not seperate, then the LLC is piercable. If it is easily piercable, then it serves no point whatsoever.


    The idea is that I show revenue in an entity other than me, so I can build credit to buy additional properties in that LLC, even if this property is not included.

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    3y

    FNMA allows transfer of deed to LLC if mortgage originated after June 1, 2016 and original borrower owns a majority interest in the LLC and any 12 months of owner-occupancy is first met.

    https://servicing-guide.fanniemae.com/THE-SERVICING-GUIDE/Part-D-Providing-Solutions-to-a-Borrower/Subpart-D1-Assisting-the-Borrower-with-Property-Related/Chapter-D1-4-Transfers-of-Ownership/Section-D1-4-1-Information-Relating-to-Transfers-of-Owner/D1-4-1-02-Allowable-Exemptions-Due-to-the-Type-of-Transfer/1041300841/D1-4-1-02-Allowable-Exemptions-Due-to-the-Type-of-Transfer-09-09-2020.htm

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  • Sara Frank
    Realtor · Baltimore, MD · Member since 2020 · 255 posts · 182 votes
    3y
    Quote from @Andy Vasquez:

    I live in DC and want to rent out the house that I am living in today. It is my understanding that I cannot transfer the deed into a LLC without paying a huge transfer fee. Is there anything I can do to protect myself from potential legal issues? Ideally, I would have liked to set up a LLC, but that doesn't seem reasonable when considering the fee associated with it.


    Property will be subject to rent control if transferred to LLC - like most others said an umbrella insurance policy will work to protect you but you want to keep a good relationship with tenants which is a good idea regardless. Best advice I've heard is to try and prevent your tenants from knowing you are the owner in any way you can (if possible).

    1Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Deed needs to be in the LLC's name for any protection.

    1Reply
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