Purchasing duplex property then transferring it to an LLC

8 Replies

Two of my friends are planning to buy a fourplex property in Cerritos, CA. One of them has a good credit rating, the other one had a foreclosure a year ago. Is it possible in CA to buy a property, get a mortgage under one person's name, then transfer the ownership to an LLC which is owned by that person and his friend? Will any lender allow that transfer? If not, what are the possible options for them to buy and finance the property with both of them as an owner considering the credit situation they have. They will occupy two of the four units then rent out the other two.

Eric, the big issue with buying it under one persons name and then transferring it to the LLC after the fact is that you will be paying transfer taxes twice (depending on where you live that could be quite a lot of money).

Why can't they just buy the property originally under the LLC? As long as they are able to put up the down payment money I can't see a bank having a hard time with the deal...

Hi Sean, I read on one of the threads here that it is hard for an LLC (especially for an LLC that will be set up for this purpose) to get a financing and that % of approval is low but thank you for your thoughts, I really appreciate it. I will research more on this.

Most lenders wouldn't approve of the transfer and it would trigger the "due on sale" clause since the ownership was transferred from the name of the person they gave the loan to. Will the bank actually seek full payment of the balance due, who knows but it opens him up to that possibility. 

I've never done it but it was my understanding that you could buy it in the name of the LLC but you would just have to get the loan in your name.

Hey @Eric Caliboso I'm dealing with this issue. I've actually written my mortgage companies and asked for permission to transfer properties I own into a LLC. They all denied the request.

The work around is to transfer the property into a land trust (which is not a LLC), then name the LLC as the trustor. Hope that helps.

This is a very valid point. My professor has also mentioned that option in our class, maybe it's time to read more on this. Thank you Al. I really appreciate you taking time responding to this inquiry.

That's great advice @Al Williamson.   I'll definitely keep that in mind once I acquire my property.  Thank you for your input. 

Land trust is an excellent move. We purchased property in an LLC last year, paid cash for 3 properties. Banks wouldn't give us the time of day once we mentioned the LLC. Until the LLC has proof of income (multiple year tax returns) they are very limited for financing.

Hi Andy, thanks for your response. If I may ask, did you buy rental properties or SFRs? I'm just wondering if lenders are using same standards for owner-occupied SFR, plexes, and other multi-residential properties.