Transferring a rented property to an LLC

6 Replies

Hello everyone, I wonder if I could seek your advice. I have a single family home in Houston which is rented for 4 years until 2019. Under my name, no liens. Per everyone's advice I set up a single member LLC under my name.

A question is what kind of reactions from the tenant when I inform my intention to transfer their home to an LLC? Of course I will explain that the security deposits and all obligations under the existing lease contract will be transferred to the LLC. Legally it should be OK, but I would like to know your experience if you have done this with your tenant, please.

The first question that comes to mind would be whether you own the home outright. If you do not, how leveraged are you? Because upon transfer, you could violate the due on sale clause likely found in your mortgage documents. While it is rare for the lender to act under the authority provided by this clause, they could demand the remainder of the loan upon transfer of the property from your private person to your LLC. Just something to think about. I have not done this, and as you will see I am a new investor, but I do possess knowledge in this area. If my understanding of your situation is flawed, please feel free to let me know!

As for the seasoned investors, I'm curious to know how your tenants received this new information as well.

I hope my comments helped.

@Yoshi Hakone Shouldn't be an issue. The only change they would see is making the check payable to your LLC, rather than yourself.

Josh, thank you for your comment.  The property is 100% owned by me without any liens - so no lenders.  

I reviewed the lease contract and there are not any terms prohibiting Owner's assignment of the lease.  So I think I am OK to do this from legal point of view.   As I do not want to surprise my tenant, I would like to be prepared for her potential reactions - ranging from "OK" to "wow I will cancel the lease."

Thanks again, if I do, I would certainly share the experience.

Thank you, Mark. Got it on the check payable. Do you think I need to revise the lease - changing "Owner" from myself to the LLC

Instead of explaining a lot to confuse them, just get a custom printed rubber stamp (with your LLCs full legal name) and ask them to use that in the payable section of the check, instead of your name. 

I think you are worrying too much here.

Jojo - good advice, thank you.

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