Realtor · Southern NJ · Member since 2017 · 188 posts · 68 votes
I'm hoping someone can give me some advice. When buying an investment property here in NJ to either to flip or hold, my plan was to move it into my business name (newly formed business) after closing (simple deed transfer). I purchased the property in my name and with a mortgage in my name only, but the business has another partner.
When going to have the deed changed, that is a pretty simple process but the other items (insurance, mortgage, etc) seem to be more complicated. They either restrict this from happening or require me to get more expensive commercial based policies.
I hear about people doing this all the time but it doesn't seem as straight forward as i had hoped unless I'm misunderstanding something. Any advice or recommendations would be appreciated. Thanks.
I am in a similar position and did some research then contacted my RE attorney.
What I heard was that you can perform a quit claim deed and transfer the property and insurance into an LLC.The challenge is with the lender, typically lenders to a conventional loan will not allow transfer to LLC but you may want to call and ask.If they approve get it in writing so you have a legal document.
If you try to perform this without informing the lender, they may call the loan.This will typically happen when they are confirming that you have insurance on the property.If they see the insurer as XYZ LLC, red flags will go off.
In speaking to my attorney, he advised that I contact my lender and inform them which I did and they refused.Sooo my solution is to renovate a unit (tenant moving out) and refinance to a commercial loan.
I am in a similar position and did some research then contacted my RE attorney.
What I heard was that you can perform a quit claim deed and transfer the property and insurance into an LLC.The challenge is with the lender, typically lenders to a conventional loan will not allow transfer to LLC but you may want to call and ask.If they approve get it in writing so you have a legal document.
If you try to perform this without informing the lender, they may call the loan.This will typically happen when they are confirming that you have insurance on the property.If they see the insurer as XYZ LLC, red flags will go off.
In speaking to my attorney, he advised that I contact my lender and inform them which I did and they refused.Sooo my solution is to renovate a unit (tenant moving out) and refinance to a commercial loan.
If you don't mind I have a few follow-up questions.
1) Was the commercial loan a complicated process? My business entity has just been created so it really doesn't have any asset.
2) Is the commercial loan much more expensive than a traditional mortgage?
3) I'm assuming you had to then transfer your home owners policy to a commercial insurance policy. 3a) Did you have any trouble getting the commercial policy?
3b) Was it much more expensive than the home owners policy needed on a traditional mortgage?
If you have a personal mortgage on the property, your mortgage company will not agree for you to deed the property into a business entity and would trigger the due-on-sale clause on the mortgage. You have a buy it under the business entity's name from the get-go but then it will have to be a commercial mortgage.
If you have a partner, it is simpler to just add the partner's name onto the deed which secures his equity stake on the asset.
I was told that I cannot purchase a property in my business name. I'm assuming b/c it has not history or capital.
Interesting about the deed. That may be the way I have to go.
Ideally I wanted the profits (either from a flip or a rental) to go into the business which we share, if my partners name is on the deed but not the mortgage or insurance, do you have any recommendations on the best way to accomplish this? If I have the deed in both our names but the mortgage is in my name only, who will the check be made out to on the sale?
The check will be made out to the parties on the deed. However, if you stop paying on the mortgage only you will be on the hook. Now if the partnership is you get the mortgage, your partner puts the down-payment then at least both of you have skin in the game.
You can always buy a property under a business name, but it will be a commercial mortgage and a 20% or more in down-payment. I have clients in NYC who buys investment properties and they all create an LLC to put the property in but again they put down sizable down-payments.
Discuss it with your Broker if you really desire to have it in a business entity. Also, it won't hurt to discuss it with your accountant especially when it comes time to sell. Best of luck.
Not to get into the weeds of lending, but the problem isn't necessarily with the lender, but the guarantor (Fannie Mae, Freddie Mac, FHA etc...). They don't allow loans to entities so the lender doesn't necessarily have anyone to guarantee the loan once it's originated.
I would add that you should and make sure the protections of an LLC are really worth the hassle and cost of a refinancing into a commercial loan. I'm not sure if you would qualify because of the newness of your corporation, so you'll probably end up with a portfolio lender. Rates for a no-seasoning on title, no-income portfolio loan, assuming good credit will be in the mid-7's with points on a 30 year amortization vs. the 5's at a bank.
Feel free to PM me if you want a deeper dive into the numbers.
I talked with my banker about this same thing. I just formed an LLC and wanted to transfer a property that I had into the LLC. They told me to do a quit claim deed and transfer the property into the LLC. He said I would keep the mortgage in my name but the deed would be in the LLC. I asked if I could transfer the mortgage into the LLC and he said if I refinance the financing would be commercial and it would be higher interest rate and more expensive. I guess I am using a local bank that knows me so maybe that is why they said I could transfer the deed and keep the mortgage in my name.
I told him I wanted to keep all my business dealing in the LLC and he said it was tough with no history. I guess if you want to build a history you need to bite the bullet and get the commercial financing.
Any other newbies run into this problem and find a solution?