Best way to transfer rental property from personal to LLC

Michigan Real Estate Q&A Discussion Forum
5yFollow

Best way to transfer rental property from personal to LLC

Vincent B.
Member since 2020 · 11 posts · 15 votes

If one were to purchase a rental property as an individual, what is the typical process for then moving ownership of it to an LLC? Seems like that might be an issue for the bank that holds the mortgage since they would have given the mortgage to the person not the entity.

I'm sure this happens all the time so what is the general process?

0Reply
56 views

7 Replies

Jump to latestLatest
  • Ujwal Velagapudi
    Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
    5y

    Even in an LLC, you will still (most likely) be personally guaranteeing it, so it's not that big of a factor for a lender. You just have to transfer title and all to the LLC and notify the bank, they'll put the loan under the entity as well as you, and have you personally guarantee it. There are a bunch of threads on this to get multiple perspectives if you want to check those out too.

    0Reply
  • Aj Veen
    Real Estate Agent · Grand Rapids, MI · Member since 2019 · 3 posts · 3 votes
    5y

    I saw them discuss this on a podcast recently. They said the best thing is to talk to the lender, some require history in the LLC, some will call the loan, and some are happy to switch it.

    0Reply
  • Alan Lacey
    Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
    5y

    @Vincent Burr if it is standard Fannie Freddie mortgage it is violating due on sale as it is transfer of ownership. Some lenders on Fannie backed loans will let you convert loans for second homes and investment properties to a llc as Fannie provides the option to do that. Otherwise tou can do what most people seem to and just do it and hope your lender doesn’t monitor and if they do that they will let you deed back without calling note.

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    5y

    @Vincent B.

    See the below discussion thread. Same thing you are asking. The Due on Sale clause is the least of your worries in my opinion. The issues with your corporate veil, which is pretty much the whole point of the LLC, is jeopardized.

    https://www.biggerpockets.com/...

    If you really want to use a LLC, deed the Title over and refinance with a commercial loan. Now, the LLC holds the Title and also gave the mortgage.

    BP has many, many threads discussing LLC's... I can sendyou more if you like, but its posted basically every day...

    Good luck.

    0Reply
  • Vincent B.
    OP
    Member since 2020 · 11 posts · 15 votes
    5y

    After further research, it turns out that many people do this without triggering the Due on Sale from the lender by using a Land Trust. You transfer the property to the land trust and then the LLC owns the Land Trust. I'm sure I'm missing some finer details but that sounds like the crux of it.

    What is the downside to this approach? 

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    5y

    @Vincent B.

    That's the basics of it. Just the cost of getting the Land Trust paperwork created the first time. The LLC corporate veil is still potentially an issue. Now you really need commercial lending, and I'm not sure how lenders view it should you want to refinance. Basically, haven't heard much about Land Trusts, but most people try to use it for anonymity...

    0Reply
  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    5y

    I know that many people use the Land Trust to transfer title without triggering the due on sale clause, but you need to be very careful.  The loan documents are often drafted in such a way that any conveyance of title to another party would trigger the due on sale clause.  The fact that the conveyance through a transfer of the Land Trust is not on record does not mean that it will not mean that it will not trigger the due on sale clause, it just means that it is not on record (and you did not get caught).  You should always read the loan documents to make sure that any of the strategies above do not trigger the due on sale clause, otherwise you might be unintentionally committing loan fraud. 

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free