rentals and llc help

5 Replies

@darrensager 

I'm curious to know what most property owners do when it comes to protecting yourself and also tax purposes. I read some pros and cons for putting rentals in an LLC. The one that concerns me the most is that the mortgage company can take your interest rate away and or show that you sold the property to an LLC. Which can trigger you to payoff the loan or switch you to a commercial rate. . . I wanted to create an LLC for my property but I'm not sure it's the best idea ...
@darrensager 

Originally posted by @Joseph Tarallo :

@darrensager 

I'm curious to know what most property owners do when it comes to protecting yourself and also tax purposes. I read some pros and cons for putting rentals in an LLC. The one that concerns me the most is that the mortgage company can take your interest rate away and or show that you sold the property to an LLC. Which can trigger you to payoff the loan or switch you to a commercial rate. . . I wanted to create an LLC for my property but I'm not sure it's the best idea ...
@darrensager 

 I assume you don't have many rentals and they are single family, which I generally default to suggesting you hold them personally. Actually, the risk is very low with a single family detached home, you take more risk driving your car! Good management and upkeep manages risks, vet your tenants, contractors and meet code requirements. Having a loan called or needing a commercial insurance policy can be a bigger deal. 

Now, with multifamily my advice changes because there is a higher concentration of tenants in one property. The risk exposure is greater and these are commercial properties (more than 4 units).

Having just one house in an LLC may not pay, there are related expenses to having an LLC, legal, accounting, filings, licenses, insurance and property taxes can be different, that can all eat the cash flow. Another consideration is your location, how sue happy are tenants? Usually tenants don't follow through on any threat, that costs them money......unless you mess up in management cheating them and then you may have legal services taking you on.

With good management you can avoid liability, just don't be negligent in your responsibilities.

Now, this can change if you have other ventures that carry higher risks, those should be in some kind of entity. Up your auto coverage too, personal liability insurance is cheap.  Good luck :)  

BTW, watch what topic you post in, this isn't official BP stuff. :)

Joseph,

I see you seem to want an answer from @Darren Sager he may get this now. If you hold the property now and are thinking about switching it to an LLC, which it seems you are talking about, then yes, technically with most mortgages that will trigger the due on sales clause. some times banks may not do anything but there is always that possibility that they can call the loan. i suggest purchasing any future properties under the LLC to avoid that problem all together.

This post has been removed.

@Account Closed correct - it would be a commercial loan, so they WILL loan, it would just be a commercial loan. And that's exactly what I had said, if he switches now to an LLC then the bank could call the loan

@Joseph Tarallo first and foremost talk to your accountant.  It really depends on your situation.

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