Convert personal property to LLC?

Question

I have two rental properties that I feel may be better positioned in an LLC (rather than my personal holdings) - can anyone clarify that with me and also give me a quick low-down on how to move them into the LLC (would I have to refinance?). THANKS!!

Dave Versch · Answer

Suppose you own 10 properties under the same LLC.  A tenant in property number 4 decides to sue the owner of the property (your LLC) for a million bucks.  You have liability coverage of 300K on that property.  If the same LLC owns 9 other properties, there's nothing stopping the tenant in property 4 (and his ambulance chasers) from going after the other 9 properties.  Doing one property per LLC limits your liability significantly, although it will obviously increase your costs.  I think holding 2 or 3 properties per LLC is a happy medium.  You limit your liabillity (as opposed to holding it all in one entity), and your costs aren't too bad that way either (as opposed to one per LLC).

Nick J. · Answer

If you have mortgages on those properties in your name, get ready for the flood of people throwing out the 'due on sale clause' phrase.

step by step, this is what I would do:

create an LLC
convey ownership with 'warranty deed' NOT 'quit claim deed' from yourself to your LLC and record it 
then start paying for the mortgage from your LLC just as if your doing a Sub2 deal
After 6 months re-fi using your LLC's name

you should also re-do you tenants lease in your LLC's name.

Kelley Roberts · Answer

I've also heard of creating an S-Corp and making it your management company. You don't pay the management company and you have it put a lien on all your property for the value of the property. Then if you have a tenant who wants to go after the LLC that owns each property and actually win a lawsuit they will have another lien on the property from the S-Corp that they will have to payoff before they can take anything. Does anyone have experience with this and know more about how it works?

Will Barnard · Answer

Each person should do what is comfortable to them, but making a blanket statement that each property should be in it's own entity is just guru nonsense. Even stating a "happy median" is 2-3 properties is simply not true for all situations.

Richard Warren · Answer

I have moved properties from my own name to an LLC.  I did not need to refi.  The lender did not have a problem with it but I did have to submit additional paperwork.  Since it was a sole member LLC that was owned by the same person as the one on the mortgage (me) they had no problem with it.  However, every lender is different.

:cool:

Account Closed · Answer

@Kelley Roberts waw , did you try this trick ? the lien of S corp ? it sounds smart idea !!!!!!

Brandon Graves · Answer

Account Closed, how accurate is about the S corp lien on the LLC properties?

Account Closed · Answer

@Brandon Graves I'm not sure about the lien portion of the S corp. I've never heard that, but that could also be specific to the passive income LLC. They may follow different regulations than active income LLCs as they are in a different tax bracket.

Robert E Bogino · Answer

I am also in the same boat as switching my properties over to an LLC.  I spoke with an attorney he said there are plenty of was to avoid the "due on sales clause", so that should not be a major concern.

Has anyone used a "series LLC"?  That seems much easier than starting a separate LLC for each property.

Convert personal property to LLC?

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