Investor · Tampa, FL · Member since 2015 · 103 posts · 29 votes
Hi, I am looking to purchase more property (currently have 3 units), but I am at a point where I need to decide whether to put the properties in my own name or my LLC for tax benefits / perspective.
Here is my current situation.
I work full time 40hr/week w-2, and make about 100k.
I have an LLC (wrapped in an S corp) in which I own 1 condo, worth 60k, with $860/m rent.
7/1/2016 purchased a duplex in my own name, worth about 130k, with 1560/m rents.
I like the supposed protection of an LLC (although it might not actually protect you, different discussion), but I have experienced problems with banks getting financing for properties in LLC's.
Owning property in my personal name allows for easier financing, but more risk, requiring the future need for a personal umbrella policy.
From a tax perspective my thoughts are.... it is wise to put the future properties in my own name because I will be able to use the building depreciation against my personal income. thus paying less taxes at the end of the year.
If I were to put the properties in my LLC would I be able benefit from the depreciation?
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Sure, the LLC is a pass-through entity, so your profits/losses and other tax benefits would pass through to your personal tax filings. As far as getting financing, you could title the property in your name then quitclaim to the LLC for asset protection. I would not own any investment property in my own name. Period. To further, you may want to have your LLC be the Beneficiary of a Land Trust which holds the property. Search for Bill Bronchick Land Trust to see his take on this.
Investor · Kingston, WA · Member since 2008 · 1k+ posts · 1k+ votes
9y
Sure, the LLC is a pass-through entity, so your profits/losses and other tax benefits would pass through to your personal tax filings. As far as getting financing, you could title the property in your name then quitclaim to the LLC for asset protection. I would not own any investment property in my own name. Period. To further, you may want to have your LLC be the Beneficiary of a Land Trust which holds the property. Search for Bill Bronchick Land Trust to see his take on this.
Investor · Tampa, FL · Member since 2015 · 103 posts · 29 votes
9y
This is an extension to the last post, hopefully can get some more insight to put new properties in LLC or not. Everyone seems to agree that putting a property in an LLC helps with some added protection, however I am getting nothing but issues when trying to refinance the property. Some banks will do it, but they are only willing to refinance for 1-2% higher than a circumstance in which the title is in my name, additionally it is a short term rate, like 5-15 years which is risky if interest rates go up (which they are). The LLC has been such as hassle in general, I am considering quit claim deeding the property into my own name and getting some general liability insurance. Any thoughts?
Lender · Fremont, CA · Member since 2014 · 292 posts · 102 votes
9y
Yes, it is a hassle to have it a LLC's name as long as you have more properties. If it is just a handful, have it in your personal name and get a umbrella policy.
Have you ever considered investing in notes than having a rental?
Real Estate Agent · Newport, KY · Member since 2016 · 24 posts · 0 votes
9y
I have two properties, a triplex and a duplex, both in my name. Each has 1 million liability and then I have an umbrella with an additional 1 million. I THINK that's enough, but I'm also tempted to quit claim them into an LLC and separate from my personal residence, just in case. However, that means more expensive insurance, a separate bank account for the LLC, more work on taxes, etc. Worth it? I guess there's some risk that somehow a judge could find that a tenant who got drunk and fell out a window would put the blame on me, but would that go over 2 million? You take a liability risk every time you drive you car, too...I don't know, I'm torn here.
Investor · Tampa, FL · Member since 2015 · 103 posts · 29 votes
9y
Thanks @ramzi , yeah I don't have much of an option but to put them in my name and get some umbrella like you did. I think that's what alot of people do until they are bigger than 15 units or so.
From a tax perspective my thoughts are.... it is wise to put the future properties in my own name because I will be able to use the building depreciation against my personal income. thus paying less taxes at the end of the year.
If I were to put the properties in my LLC would I be able benefit from the depreciation?
Any thoughts?
You can depreciate the properties whether they are in an LLC or owned in your personal name and get that benefit. LLC's are used more for asset protection than any additional tax benefits, especially when first starting out.
When I first started out, I wish I had bought the initial properties in my name so I could have benefited from better financing. I also would have purchased a larger umbrella policy ($2M-$5M) as my de facto asset protection. EVERYONE should have a $1M umbrella whether they own properties or not. Then as I outgrew any benefit of financing properties in my personal name, I would have moved to the LLC protections.
Areas for you to look into (or have a real estate attorney look into) that aren't my areas of expertise but I'd like to share (I'll try to find the post I read with this information -
Some have mentioned that a quit claim deed can potentially set off the due on sale clause of a mortgage.
Also, a quit claim can make it harder to get a clear title in the future.
Investor · Lodi, CA · Member since 2016 · 7 posts · 2 votes
9y
I have 4 properties and none are in an LLC. I do have an umbrella policy. I've been a landlord for the better part of 38 years and no problems. Anyone else have any input?
Have you considered owning property out of state? I work for a wholesaler and have bought property from him myself. He sells quality rentals in Pennsylvania. The cash prices are 40K to 60K all in. He has contractors, realtors and management companies in place to handle everything. You can keep and rent them or flip them.
He's been in the business for 12 years and sold over 2,000 homes. I'm one of his project managers. If you are interested in "no hassle" text notifications about homes he has then text your cell number to (209)208-8210 and I'll put you on our "no hassle" contact list.
Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
9y
William Howley LLC Taxes flow through the entity to you no tax advantage there. I read on BP someplace the loan turn over rate for investors is about 7 years. That's because they re finance to cash out equity or sell the property. Are you really going to leave multiple thousands of dollars as equity in a property in order to keep a lower interest loan?? That's tripping over a dollar to save a penny isn't it?? Besides the tenant pays the interest not you. If you quit claim the property to a new loan it could trip the DOS clause. Why risk that? If you really do intend to use conventional loans for up to 10 properties then be prepared to have huge cash reserves after you reach 4 or 5 loans. Again same as equity you are tying up funds that could be put to work. I'm not advocating no reserves here but are all of your rentals going to be empty for 6 months at the same time?? Or will everyone of them need a new roof at the same time?? If that happens you will likely have other troubles as well. In a nutshell I'm saying at some point portfolio loans are going to become your main supply of leverage. Then an LLC makes some sense. You need to decide that for yourself. My loans are 25 yr amortization (faster equity growth) 10 year balloons at 4.65%. They don't care about reserves or how many loans I have ( please understand you DO need SOME reserves though for good sense!!!). They do go over each property to assure it will support itself. Personally I can see some good sense to both an LLC and commercial loans. I do both. RR
Insurance Agent · Member since 2015 · 191 posts · 124 votes
9y
I have read many similar forums over the past few weeks and found that while people debate the pros and cons of an LLC frequently there seems to be no discussion around the limitations of using personal umbrella and liability insurance to protect your rental properties. In this blog post I summarize some of the very significant gaps in coverage from a personal umbrella. I also point out that you can purchase a commercial policy while keeping properties in your name by starting a sole proprietorship (which is basically making up a name).
@William Howley to get to your question, yes there can be significant tax benefits to an LLC (particularly for rich people). For example you can contribute more money tax free to an IRA or a life insurance policy in an LLC than as an individual or sole proprietor. You can also choose to be taxed as an s corp while still an LLC which allows you to limit the amount of payroll taxes you pay. You can also rent and lease personal assets to the LLC which allows you to take depreciation, repairs and maintenance etc.Leasing also lowers payroll taxes. LLCs can in intertwined with all sorts of others entities that allow people to manage tax liability and decrease risk. That being said people like you and me who have a few properties will likely not benefit from these types of arrangements.