California: How to convert rentals from Personal name to LLC

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California: How to convert rentals from Personal name to LLC

Milin Parekh
Member since 2018 · 9 posts · 0 votes

I have 2 rentals in California: one Single family and one triplex both in California. both properties are under my personal name. I am trying to learn different asset protection strategies using LLC. and Land trust. Any suggestions.

I have following questions:

  1. 1) California: How to convert rentals from Personal name to LLC or Land Trust ?
       1.a) Deed: Should I use Quit Claim Deed or Warranty Claim Deed to convert rentals from personal name to LLC or Land trust?
  2.    1.b) Do Deed has to be notarized? 
  3.    1.c) Do Deed has to be registered with County as well?
  4.    1.d) Bank Account:I guess I will have to open separate bank accounts for each rentals whether its LLC or Land Trust?
  5.    1.e) LENDER: How to take care of Lender? Do I have to Inform Lender? Please guide me Process?
  6.    1.f) INSURANCE: Do I have to change Insurance? The moment I change Insurance , Lender will come to know automatically.
  7.    1.g) LEASE: DO I have to change rental agreement using addendum or change entire rental agreement? 
  8.    1.h) LLC Vs Land Trust: Should I open LLC or Land Trust for each rental?
  9. 1.i) Do you use any websites to download Deed or create LLC or Land Trust? Any Suggestions?
  10.            1.i.a) www.uslegal.com
  11.            1.i.b) www.rocketlawyer.com 
  12.            1.i.c) www.landlordology.com
  13. 2) Asset Protection Strategy for rentals: 
  14. 2.a) Do you think creating 2 different LLC's for each property and then cover as part of Wyoming Land trust.
  15.          Or 
  16.    2.b) Create Land trust for each rental and open another Main Land trust in Wyoming and house 2 rental land trusts within it.?
  17. 2.c) What are the best name strategies for Anonymity while creating Land trust or LLC? 
  • Thanks,
  • Milin
0Reply
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
6y

@Milin Parekh

I think you need to talk to some professionals about this and/or do some more research.

We've many discussion in threads in BP regarding moving personal property into a LLC. I think its messy. With some advice on BP, there appears to be a way to do it, but I think it leaves the LLC as an "alter ego" thus piercing your corporate veil. Unless you also refinance, you will have the mortgage in your personal name and Title in the LLC. You should be able to create a legal relationship between the two so that just the LLC is paying for everything. But, I personally figure you do this enough times and the LLC is an alter-ego. Low probability / high severity if you trigger the Due on Sale clause with your mortgage since you transferred Title. You need to make sure your Title Insurance Policy is fine with the change in Title and also your Homeowner's Policy is also updated because of the change in Title otherwise there is no insurable interest (I think that's the technical term.

If you don't know how to do a transaction in your State, you really need to talk to local professionals.

For sure, each LLC will need a bank account. Co-mingling funds and payments is sure way to pierce your corporate veil. Trusts shouldn't need accounts.

I thought WY formed LLC gives you anonymity... Keep that at the top. Did realize Trusts were formed by State...

Quite honestly, I'm part of the group that says you don't need to form LLC's for a couple (or even more) rentals. Besides, California charges some $800 per LLC regardless if its in-State or out of State. the costs keep adding up.

I believe Land Trusts are only for anonymity, not asset protection.

That's the really short of it.  Highly recommend that you get much smarter and do more research into each one of your lines in depth.  Just my layman's two cents.  Good luck.

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  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Milin Parekh:

    I have 2 rentals in California: one Single family and one triplex both in California. both properties are under my personal name. I am trying to learn different asset protection strategies using LLC. and Land trust. Any suggestions.

    I have following questions:

    1. 1) California: How to convert rentals from Personal name to LLC or Land Trust ?
         1.a) Deed: Should I use Quit Claim Deed or Warranty Claim Deed to convert rentals from personal name to LLC or Land trust?
    2.    1.b) Do Deed has to be notarized? 
    3.    1.c) Do Deed has to be registered with County as well?
    4.    1.d) Bank Account:I guess I will have to open separate bank accounts for each rentals whether its LLC or Land Trust?
    5.    1.e) LENDER: How to take care of Lender? Do I have to Inform Lender? Please guide me Process?
    6.    1.f) INSURANCE: Do I have to change Insurance? The moment I change Insurance , Lender will come to know automatically.
    7.    1.g) LEASE: DO I have to change rental agreement using addendum or change entire rental agreement? 
    8.    1.h) LLC Vs Land Trust: Should I open LLC or Land Trust for each rental?
    9. 1.i) Do you use any websites to download Deed or create LLC or Land Trust? Any Suggestions?
    10.            1.i.a) www.uslegal.com
    11.            1.i.b) www.rocketlawyer.com 
    12.            1.i.c) www.landlordology.com
    13. 2) Asset Protection Strategy for rentals: 
    14. 2.a) Do you think creating 2 different LLC's for each property and then cover as part of Wyoming Land trust.
    15.          Or 
    16.    2.b) Create Land trust for each rental and open another Main Land trust in Wyoming and house 2 rental land trusts within it.?
    17. 2.c) What are the best name strategies for Anonymity while creating Land trust or LLC? 
    • Thanks,
    • Milin

    Wish I knew the answers to all your questions. My advice: consult a CPA who specializes in RE tax and an RE attorney. They should be able to help you formulate the best plan based on your circumstances and where you are heading in your business. 

    1Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    6y

    @Milin Parekh

    I think you need to talk to some professionals about this and/or do some more research.

    We've many discussion in threads in BP regarding moving personal property into a LLC. I think its messy. With some advice on BP, there appears to be a way to do it, but I think it leaves the LLC as an "alter ego" thus piercing your corporate veil. Unless you also refinance, you will have the mortgage in your personal name and Title in the LLC. You should be able to create a legal relationship between the two so that just the LLC is paying for everything. But, I personally figure you do this enough times and the LLC is an alter-ego. Low probability / high severity if you trigger the Due on Sale clause with your mortgage since you transferred Title. You need to make sure your Title Insurance Policy is fine with the change in Title and also your Homeowner's Policy is also updated because of the change in Title otherwise there is no insurable interest (I think that's the technical term.

    If you don't know how to do a transaction in your State, you really need to talk to local professionals.

    For sure, each LLC will need a bank account. Co-mingling funds and payments is sure way to pierce your corporate veil. Trusts shouldn't need accounts.

    I thought WY formed LLC gives you anonymity... Keep that at the top. Did realize Trusts were formed by State...

    Quite honestly, I'm part of the group that says you don't need to form LLC's for a couple (or even more) rentals. Besides, California charges some $800 per LLC regardless if its in-State or out of State. the costs keep adding up.

    I believe Land Trusts are only for anonymity, not asset protection.

    That's the really short of it.  Highly recommend that you get much smarter and do more research into each one of your lines in depth.  Just my layman's two cents.  Good luck.

    2Reply
  • Katie L.
    Attorney and CPA · San Diego, CA · Member since 2017 · 590 posts · 422 votes
    6y

    @Milin Parekh

    There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.

    Any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. If you're going the umbrella insurance route, make sure it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

    This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

    Creating an LLC in California would cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation.

    You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.

    These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

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

    0Reply
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