Turning already personally owned property into LLC
Good morning everyone,
My name is Kevin Carrillo. I have a 30 year mortgage on a 4 bedroom house in the Dallas TX area. I live in one of the rooms and rent out the other 3. After stumbling upon BiggerPockets on Youtube, I am confident into taking the next step towards financial freedom. I figured the first step is opening an LLC and EIN for my house and start building business credit. Wanted to see if this was a good idea considering pros and cons. I understand the biggest downside would be now paying taxes on revenue but Im willing to do that to build the credit to potentially help me obtain my 2nd property.
Thought?
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#2 Real Estate Agent Contributor
- Real Estate Broker
- Coppell, TX
You would likely loose your homestead exemption and therefore pay more property taxes.
Also you would likely loose your personal property capital gains exemption which will cost you a ton more money.
Also your lender might call your loan. Often your residential loan terms prohibit deed transfers, so make sure to check with your lender #1 and your CPA #2 before you do this.
Not sure how building LLC credit helps you more than building your own personal credit, but I have no idea about this. You might want to discuss with a commercial lender before you do this too to make sure what you want to do makes sense to them and accomplishes what you intend.
You should be paying taxes on any net revenue (i.e. profit) regardless of whether you hold the property in your name or through an LLC.
As I understand it, the LLC formation is to limit your liability should one of your tenants decide to sue you. I wouldn't personally worry about this until you have some equity built into your current home.
Once you turn the property into a rental, you can begin depreciating the property and do a cost segregation study to accelerate the depreciation. This would reduce your tax liability up-front and give you extra cash-flow. Talk to your CPA/tax professional before making the change as mentioned above. You may have to move out of the house.
