Mortgage to LLC

[Brian Zellner]

Relatively new investor, and just bought my first house with a mortgage. My other properties are in my LLC's name because I purchased them in cash. How hard is it to transfer this property into that of the LLC after closing?

[Don Konipol]

Quote from @Brian Zellner:

Relatively new investor, and just bought my first house with a mortgage. My other properties are in my LLC's name because I purchased them in cash. How hard is it to transfer this property into that of the LLC after closing?

This is a field in which there is a lot of misinformation.  So I’ll try to clarify since asset protection is an area I studies and practice in depth.

Theoretically, should you own a property in your name (personally) you can and will be held personally liable for any liability arising out of that property.  Should title be in the name of an LLC you control, you will only be held liable personally for liabilities for which you, personally were the direct cause and liabilities you personally accepted responsibility for via a personal guarantee. 

The posters that state there is no difference assume that you will maintain sufficient insurance coverage to handle any claim.  However, any claim for which the insurance provider denies coverage, or any claim in excess of the amount of insured liability, will be incurred personally under personal ownership but only to the LLC under LLC ownership. 

99.5 % of the time there will be no difference.  BUT, investing in enough properties, your odds of needing this basic and relatively inexpensive protection is increased exponentially.  I recommend (and I utilize) a SERIES LLC where each series separately holds title to each property and is not liable for any claims arising from a property held in a different series of the same LLC. There is only one LLC formed, and hence only one time cost of formation; further accounting/tax prep fees are less because tax returns are filed for only one entity.  Further, ownership of each series is separate and hence can differ from the other series. 

As a side note, there is a common (incorrect) believe amongst investors that entity protection is not worth it because a good plaintiff attorney can easily “pierce” the corporate veil”, meaning get the court to agree to declare you as personally liable as an “alter ego” of your entity.  This was never “easy”, and the burden of proof was on the plaintiff.  However, under extreme instances where certain commingling actions took place, some suits were successful.  This has been eliminated 98% by the use of LLC structure instead of corporations.  Since LLC don’t require the formality of meetings, votes, board of directors, resolutions, etc like corporations do, the only charge someone attempting to “pierce” the LLC can bring is commingling funds.  This usually isn’t sufficient, but even if it is simply open a separate LLC bank account and deposit only property revenue and pay property expenses only from this account.