I'm sure this is a common question with house hackers, but I currently have my first multi unit in a rehab. I have an LLC set up and my question is twofold. 1) I understand putting this property into the LLC could trigger the due on sale clause, but my mortgage says it will allow "under certain circumstances" the transfer to another person. For a 4-unit owner occupant should I put it in the LLC or wait until I refinance? And 2) I have heard there are challenges to refinancing with a bank under an LLC? How do you guys do this?
Also any tips as I wait to refinance this property?
I've advised clients with multi-families that if you show the bank that you are majority owner (articles of incorporation) they will likely acquiesce to the change. This is mostly true with multi-families because the bank doesn't want call it due because then they have to manage it lol.
The challenges to refinancing under an LLC aren't neceassarily much different than you would have personally. Income verification, LLC credit, etc are all taken into consideration. The issue comes when you're LLC isn't established enough to have a decent and sufficient track record yet. You could refinance with your property still under your name THEN ask the mortgage company to allow transfer of ownership to your LLC.
I guess I'd start this by asking you what you wish to accomplish with this LLC?
The main reason to put property into an LLC is to protect it in event of a lawsuit. However, they can only come after the equity you have in the property. So what is your property worth compared to the mortgage you have on it?
Yes, once the property is held in an LLC it becomes limited to commerical mortgages. You no longer get the benefit of refinancing it with 30 year fixed rate debt. Instead, you'll be looking at 5-10 year ARMS, which is scary in the current rising interest rate environment we're in right now.
Impossible to say which way you should go. Might be worth talking with an attorney or your CPA. Good luck!