When do you put the deed in a LLC?

Question

Hello everyone.

I recently bought a house with cash and now I am doing a  refinance cash-out and putting the loan under my personal name (delayed finance).  My plan is to put the house under an LLC.

At what steps do you put the house under the LLC? Should I wait for the loan to close then put the deed under the LLC? Or should I let the mortgage broker/bank to put the deed under the LLC while still in escrow?

What are the pros and cons of each?

Thank you in advance!

David M. · Answer

@Megan Templeton

So, how would handle maintaining the corporate veil with having swapping Title to the LLC but mortgage still in a personal name?

Mai Vo · Answer

@Dan Marl there are so many pros and cons putting individual homes in LLC so definitely consult with an attorney.  For me, properties in LLC is just more book keeping and you have to file a separate corporate return which is more money.  You can increase your insurance policy and purchase umbrella policy if your concern is liability protection for putting it under LLC.  However, if you do change it to a LLC make sure you add the LLC as the additional insured on your insurance policy if you are keeping insurance under your personal name.

Megan Templeton · Answer

Hi @Dan Marl,Closing into the LLC will likely cause your loan rate to be higher. I recommend closing the refi in your name and moving the property into an LLC post closing

Thanks,

-Megan

David M. · Answer

@Dan Marl

No problem.  Basically, there are no great answers to those questions...  Just stay with homeowners/landlord insurance, umbrella ins. policy, and keeping the property in good repair.

David M. · Answer

@Dan Marl

There is that...  Take a look at this thread:  https://www.biggerpockets.com/...

So, in the interim time between deeding Title to the LLC and your refi (or potentially after you deeded Title), what just happened to your corporate veil?  Who is making the mortgage payments?  You or the LLC?  Who is taking the deductions (matters less when a single member LLC, but the situation still stands)?    Just deeding the Title over without any additional paperwork just seems "bad" to me.  Maybe in some States the jurisprudence says its no big deal.

Does that make sense?  I'd be happy to chat if you'd like.

David M. · Answer

@Dan Marl

Ideally, when you buy it.  At least you purchased with cash.  When you refi, you have the LLC give the mortgage.  LLC's, like any other legal entity, are not eligible for conforming residential loans.  So, you'll have to get some sort of commercial financing.

Just realize that lenders don't have any fiduciary duty to you, and they are in the sales business.  They don't know, generally, or are looking out for your LLC's corporate veil.  Having you the loan in your name and the Title in the LLC can screw that up --- co-mingling and alter-ego issues and all.

Yes, the commercial loans will be more expensive and generally worse terms.  But, that is the cost of getting the limited liability protection of the LLC.

Hope this helps.  I'd be happy to chat.  Good luck.

Megan Templeton · Answer

@David M.

I would recommend that you distribute money from your LLC to yourself and then pay the mortgage individually until the mortgage is no longer in your name.

Dan Marl · Answer

Hello David. You are right. Those are the questions I need to think about. Thank you!

When do you put the deed in a LLC?

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