I own 4 rental properties. Two are in my name and two are owned through an LLC. The mortgage holder for the two I own in my name will not let me change ownership to the LLC. In order to keep the liability protection on the homes owned through the LLC, I need to maintain "separate identities" between myself and my LLC. for simplicity sake, I would like to deposit all the rents into the LLC bank account. Would this cause a court to see myself and the LLC as essentially the same entity? To pay the mortgages for the homes I own in my name would I have to transfer the money to my personal account and then pay it form there? Do other people have properties in their own name and in an LLC? How do you handle it? Thanks in advance for any help/advice.
Co-mingling funds and using the LLC as an alter-ego are surefire ways to pierce your corporate veil and lose your limited liabiilty protection, the main purpose of having a LLC.
If you want to "consolidate" your activities, I would transfer Title from yourself to your LLC (same or new one which is whole different discussion) and simultaneosly refi into a commercial loan since legal entities are not eligible for residential lending (hopefully you aren't "frankensteining" it).
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
5y
@Christopher Helwig I have properties in my name and an apartment building in an LLC. I just keep them separate, carry lots of liability ins. and I don't give it a second thought. They were acquired at different times and circumstances; it is what it is.
Co-mingling funds and using the LLC as an alter-ego are surefire ways to pierce your corporate veil and lose your limited liabiilty protection, the main purpose of having a LLC.
If you want to "consolidate" your activities, I would transfer Title from yourself to your LLC (same or new one which is whole different discussion) and simultaneosly refi into a commercial loan since legal entities are not eligible for residential lending (hopefully you aren't "frankensteining" it).
A probable solution is to create an operating LLC. Personal property stays in yr name + LLC1 holds the real estate and LLC2 collects the rents on behalf of you and LLC1.
Yes, that's a good idea. Use a Mgt LLC. OP just has to put the contracts in place between the entity holding Title and the Mgt LLC to make it legally "clean." Also, the existing leases would have to be re-signed with the Mgt LLC. That could simplify the cash flow operation he asked about.
Professional · Baltimore, MD · Member since 2011 · 37 posts · 52 votes
5y
Hey @Christopher Helwig, if the reason that you're keeping the 2 in your personal name is the rate, you should consider refinancing. The FNMA product used to be a no-brainer because of the rates, but now you can get a 30-yr fixed rate, 30-yr amortization in an LLC. Rates are in the low-mid 4s (buydown available down to 3.75%, actually). The program was designed to be in an LLC. I think that banks are going to lose a TON of business over the next few years to this program. Hope thats helpful.
Investor · Milan, Lombardy · Member since 2017 · 13 posts · 0 votes
5y
@Jack BeVier are you seeing those rates for loans to LLCs from larger national lenders? Any examples you have seen? I have the same issue with properties held by small bank in LLCs but the rates aren’t that competitive.
Professional · Baltimore, MD · Member since 2011 · 37 posts · 52 votes
5y
Yes some national private lenders are offering this debt service coverage ratio product. My company Dominion Financial closed 160 of these loans last month. Most of our business is refinancing out local banks that arent serving real estate investors well anymore.
If I create a new LLC to manage all my property, Who is liable if I get sued? Would it be the management LLC or is the owner ultimately labial (in this case either myself or another LLC)?
Well, layman's advice here: the mgt LLC should be the landlord on the lease. So, depending on the issue the LLC should be sued. But, I hear it's common that they will name the owner(s) of the LLC as well — the "name everybody" on the suit principal.
There is lots of ambiguity given the talk on how easily the corporate veils are pierced (which sounds likely as most people don’t seem to protect it well).