Retitling a property to an LLC - Chicago

Chicago, Illinois
Legal & Legislation
1yFollow

Retitling a property to an LLC - Chicago

Kyle Kulhanek
Member since 2024 · 4 posts · 2 votes

Hello - I'm new to Bigger Pockets, excited to get my real estate investment journey going.

I own a Condo in Chicago with a friend of mine (split 50/50), which I've lived in for about 5 years. I'll be moving out, and turning it into an investment property in a few months. We're looking to transfer this into an LLC for liability purposes.

From what I can tell, the best way to do this is to retitle the property, pay Chicago's expensive retitling tax, and set up an operating agreement, all of which likely requires a real estate lawyer (what $ base do we use on the tax, given we aren't selling it to ourselves, just transferring it?). 

Any advice for the best way to go about this, and save any $ on the process would be helpful!

0Reply
187 views

Investor-friendly agents in Chicago, IL

See the agents BiggerPockets members work with in Chicago, IL.

Most Popular Reply

Bob Floss II
Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
1y

@Kyle Kulhanek Are you planning to transfer the property into an LLC owned by both individuals on title? If so, there are no transfer taxes due.

1Reply
See this reply in the discussion

7 Replies

Jump to latestLatest
  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    1y

    Kyle,

    Before you do this call your lender or who ever is serviing the mortgage and find out if they allow a transition into an LLC or if they have a "Due on Sale Clause". You can put a mortgage into a "trust: without triggering a due on sale but again contacting your bank/lender is the best route to avoid any issues.

    Some banks/lenders or servicing companies change guidelines and even a trust may require other paperwork but the attorney usually facilitates that to be safe.  

    If you Bank/Lender does not allow it you can refinace the mortgage into a DSCR or true Portfolio loan program. These two allow you to close or change "title Vesting to an LLC" without triggering a due on sale. A DSCR refinance can also allow you to take some cash out if you want to use it to put down on another investment property and when you close simply close in an LLC.

    If you ever have any questions regarding this or in general feel free to reach out I enjoy helping and ensuring other BP members avoid lost time and money.  It can be painful not knowing and making the wrong move!

    [email protected]727-637-4289
    1Reply
  • Kyle Kulhanek
    OP
    Member since 2024 · 4 posts · 2 votes
    1y

    Jason, I appreciate the detailed note! I'll reach out to my lender to figure out what my options are. At that stage I may reach back out with some additional questions. 

    Appreciate the help!

    0Reply
  • Jarret Jarvis
    Real Estate Agent · Chicago · Member since 2021 · 178 posts · 64 votes
    1y

    Hi Kyle,

    Welcome to Bigger Pockets! It's exciting to hear you're taking the leap into real estate investing. Converting your condo into an investment property and transferring it into an LLC is a smart move for liability protection.

    You’re correct that retitling the property involves Chicago’s transfer tax, which can be substantial. Typically, the tax is based on the assessed fair market value of the property at the time of the transfer, even if it’s not a traditional sale. A real estate lawyer can help you navigate the specifics, including ensuring you don’t inadvertently trigger any unintended tax consequences.

    A few tips to consider:

    1. Check with your mortgage lender: If there's a loan on the property, transferring it to an LLC could violate the loan's due-on-sale clause. Some lenders allow exceptions for transfers to LLCs owned by the borrower, but it's worth confirming first.
    2. Explore transfer tax exemptions: Chicago doesn’t make this easy, but there may be exemptions or reductions for certain types of ownership transfers. A knowledgeable attorney can advise here.
    3. Create a solid operating agreement: Since you own the condo with a friend, a clear operating agreement is essential to outline responsibilities, decision-making, and profit-sharing for the LLC.

    To save on costs:

    • Look for real estate attorneys who specialize in investment properties and might offer package deals for the retitling, operating agreement, and filing the LLC.
    • Shop around for title companies that can handle the transfer smoothly and provide competitive rates.
    • Research DIY options for setting up the LLC if your situation is straightforward, though I'd still recommend a lawyer for the transfer process itself.

    Good luck with the process! If you’d like, I’m happy to connect you with professionals in Chicago who specialize in this.

    Best,

    Jarret

    0Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    1y

    Hi There @Kyle Kulhanek - Welcome to the BiggerPockets Community my friend!

    You got some solid advice above check with your lender and get in contact with an attorney like @Bob Floss II who can help setup the OA.

    Assuming there is no pushback from your lender, you should be able to do a quit claim deed to retitle.  Have you considered just keeping it in you names for now?

    What are your investment plans moving forward?

    [email protected]
    Quality Builders4.968 Reviews
    WebsiteView Page
    0Reply
  • Bob Floss II
    Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
    1y

    @Kyle Kulhanek Are you planning to transfer the property into an LLC owned by both individuals on title? If so, there are no transfer taxes due.

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Kyle Kulhanek To retitle your Chicago condo into an LLC for liability protection, start by forming the LLC with a clear operating agreement outlining ownership and responsibilities. Use a quitclaim or warranty deed to transfer the title, and be prepared to pay Chicago's transfer tax, calculated at $7.50 per $1,000 of the property’s fair market value. Ensure the property transfer doesn’t trigger your lender’s due-on-sale clause if there’s a mortgage. Note that legal and transfer costs are not deductible but can be added to your cost basis. Depreciation begins once the property is rented.

    It’s essential to consult with a real estate attorney to ensure compliance with local laws and to handle legal complexities. Additionally, confirm the transfer won’t lead to property reassessment, which could increase taxes. For cost efficiency, consider using a flat-fee attorney. While this guidance provides general steps, it’s not legal advice; an attorney will ensure the process aligns with your specific circumstances.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®4.9242 Reviews
    WebsiteView Page
    TaxMD® | Tax Planning Software
    WebsiteView Page
    0Reply
  • Paul Cijunelis
    Property Manager · Downers Grove, IL · Member since 2012 · 99 posts · 40 votes
    1y

    You should talk to a lawyer. You'll probably want to quitclaim it into the LLC. Read your mortgage paperwork for the due on sale clause. I have several really good lawyers we use, you can PM me if you want info on them ... and if you'd like to talk property management reach out. Chicagoland is extremely tenant friendly so understand that going in.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free