Rental Property Investor · Member since 2019 · 42 posts · 13 votes
For example, I want to use the LLC when I do business with property managers, contractors, opening bank accounts, accounting, cash flow, taxes etc; but at the same time the properties for the mentioned transactions are under another entity
Can you do business with an LLC even though the property is not under the LLC? Are there ramifications there?
(The house will not be under the LLC as to not trigger due on sale, as rarely as that may happen)
For example, I want to use the LLC when I do business with property managers, contractors, opening bank accounts, accounting, cash flow, taxes etc; but at the same time the properties for the mentioned transactions are under another entity
Can you do business with an LLC even though the property is not under the LLC? Are there ramifications there?
(The house will not be under the LLC as to not trigger due on sale, as rarely as that may happen)
Yes, you can do business even if the property hasn't been QC'd to the LLC. No ramifications. Chances are that you wouldn't trigger the due on sale clause.
The lender can exercise the "due on sale" clause if the name(s) of the buyer are not the same name(s) as the members identified as the owners of the LLC. For clarity; as with a trust, lenders do not exercise the "due on transfer/sale" clause when real property is transferred to the SAME individuals in an official capacity (e.g. Joe and Jane Smith as trustees of Smith Trust). Typically, the same applies to LLCs where you and your spouse are sole members (single or multiple member LLC).
If you take out a mortgage personally and transfer the property to your LLC that you control, you should be exempt. Also, if your loan was conventional; Fannie Mae recognizes the legitimacy of a QC between the mortgage holders and the LLC so long as the LLC is controlled by the borrowers;
If the property was owned prior to closing by a limited liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six-month ownership requirement. (In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s). See for additional details.)
Regardless, you should always talk to your lender and tell them exactly what you’re planning and get their approval.
What your proposing is not an issue and is routinely structured this way by many investors. For example, properties are held in separate LLCs, and a management LLC is set up to handle tenants, accounting, rehab, etc. Ultimately you will need to remit the income back to the property LLCs (minus expenses and payments made on behalf of the LLC). Where investors can trip themselves up is when the money never flows back through the property LLC and is instead distributed out of the management arm to the investor. Granted, this is not a tax issue but an asset protection issue. A plaintiff could argue the LLCs were part of one joint enterprise and seek to ignore the entity's separate shields. Just make sure you run the money the right way and document the relationship between the entities, and you will strengthen your protection.