How to cut costs on the exit?

Question

We are looking at a couple deals where we will buy, fix, and sell a home to an investor who is a close friend of ours.
What is the cheapest way to transfer title to them?

One creative idea we had was that the property would be purchased by an LLC that we open up front, and then we could sell 100% of the LLC to the investor, thereby potentially avoiding some fees.

What is the cheapest way to go about this?

Will Barnard · Answer

Ben, Jon is correct, you can have a new entity within 24-48 hours if need be. You may have to pay some rush fees, but it is certainly done all the time.

Jon is also correct that if you do get the entity, you will have to draft an amendment to contract to change the vesting to he new entity.

Jon's comment regarding holding the title "open" is referring to a binder policy. Simply ask escrow to order a title binder and the small cost saves you a ton on the back end.

Jon Holdman · Answer

Don't know about CA, but forming an LLC in CO takes about five minutes.  I suspect CA is similar.  It does cost $800 in CA, though, vs. $50 here.

But if you already have an accepted offer in one name, you would have to amend the contract to change the name.  Depending on the seller, that may be difficult or impossible.

For the title insurance, when you buy, do a "hold open".  Then, use the same title company when you sell.  They can do an add on for the amount of value you've added and you'll only pay an incremental amount for the additional title insurance.

Ben Bakhshi · Answer

Does it matter if we buy the property in an individuals name at first and then push it over to the LLC? I don't know if we'll have time to form the LLC before closing.

Will Barnard · Answer

here in Los Angeles County, if you use a trust and transfer beneficial interest in the property, they constitute it as a change in ownership and thus, transfer taxes are due. To avoid this when wholesaling, I name my buyer as the beneficiary right off the bat and only the trustee changes from me to whomever the buyer chooses. Since the trustee is not the true owner of the property, transfer taxes are not incured on the grant deed change.

Steve Babiak · Answer

And don't expect that to work in Pennsylvania; the PA Dept of Revenue has already decreed that transfer taxes may be due on the value of real estate when businesses change ownership ...

Will Barnard · Answer

That is one way, the transaction becomes a business transaction and not a RE transaction. The entity holds an asset (the property) and then you sell the entity which holds the asset.

This avoids escrow/title fees, and transfer taxes, and other costs.

Just make sure you form an entity in the same state your property is located.