Transfer Deed to LLC in NJ - Worth It?

Question

Hi All,

I have a rental property that I've owned for ~5 years. I've been waiting to deed the property to my llc until I refinanced to avoid trying to get a loan in an llc. Rates etc. Just refinanced and cashed out and spoke to an attorney about doing the deed transfer. He informed me of the NJ transfer tax. Of coarse NJ taxes everything you do. It will be ~ $3,000 for the transfer tax. He actually recommended not doing it because of the cost. Instead he said make sure your insurance has coverage for slips and falls etc.

Does anyone have experience in NJ with this situation? What have you done? Beef up the insurance, pay the transfer tax and know the liability is no longer on you, or maybe both.

Thanks

Anthony

Anthony Jentsch · Answer

Hi Kasing,

I'm not looking for any tax benefits as I know the llc will just be a pass through. More concerned with liability protection. I may just each the 3k as long as I know i will be provided the liability protection that I'm expecting.

Anthony

Chris Seveney · Answer

Why are you wanting to transfer to a LLC, if you personally pay for it, bought it, financed it. How are you separating yourself from the LLC? The LLC must be completely seperate from you or it is worthless.

Kasing Ng · Answer

Hi Anothony, I am not a lawyer, so I'll leave the LLC and liability stuff to your attorney. His advice sounds fine.

On taxes, first, federally, moving your own rental into a single-member LLC does nothing. The IRS ignores the LLC, so no sale, no gain, same basis and depreciation, and it won't mess up a future 1031. The only real cost is the NJ fee. Worth asking your attorney what he based the fee on. NJ usually charges it on the mortgage balance the LLC takes over, and since you just cashed out, that balance is near its highest, which may be why it's around $3k. If that's the base, there's not much to do about it now, but it's worth knowing.

So it's a one-time ~$3k against having the property out of your name for good. Your call, but the federal side at least costs you nothing.

Brian Bowman · Answer

I agree with this 100% - its a small learning experence cost while getting to know your state. It stings but its a write off and not the end of the world while protecting yourself. The next level to this would be anonymity. Its not enough to have an LLC but you also want to have a registered agent open the LLC for you (keep your name off the docs) then have the ownership of the domicile LLC owned by an holding company in a "haven state" like Wyoming, Nevada or Delaware where they will never disclose your ownership. THEN -the portfolio would flow up to your revokable living Family Trust. - This is where you "Own Nothing and Control Everything" which is the ultimate protection playbook.

As I mentioned we love to work with investors who want to scale, get access to better financing with more leverage while consulting them on asset protection and tax mitigation plans - It's not just what you can buy, its also what you can keep, mitigate liability on and protect.

Generational Wealth is the goal and its only there for you if you protect it properly.

Brian Bowman · Answer

This is a bad idea, lenders won't lend to trusts and so in closing you would need to deed the property in and out of the trust so the personal guarantor isn't a trust then deed the property back after closing. This triggers the transfer tax twice ( Out and back in). This is not the fix.

Brian Bowman · Answer

@Anthony Jentsch Before you decide on the transfer tax, look at the loan you just closed. If that cash-out refi is in your personal name, deeding the property to your LLC can technically trigger the due-on-sale clause. Plenty of servicers never act on it, but call them and get their answer in writing instead of assuming. Your attorney can tell you how that plays out in NJ.

For this property, beefing up coverage (landlord policy plus an umbrella) is a reasonable middle ground while that loan is in place. Insurance won't give you the separation an LLC does, but it covers the most common claims without the $3,000 hit. You need to remember though that the umbrella policy must cover all your other assets as well because without the corporate separation if you get sued they can go after anything in your personal name.

The bigger fix is going forward. You held off on the LLC because getting a loan in one looked harder, but that's exactly what DSCR loans are built for. They close in the LLC, qualify on the property's rent vs. the full PITIA instead of your personal income, and don't report to your personal credit. Buy or refinance in the entity from day one and you never pay to move title after the fact.

With 12 doors and living in NJ you need to plan your exit strategy better so you don't get bit later. If your doing renovations ( fix and flip ) its even more important that you buy in the original entity you plan on holding in. Florida does the same thing its called DOC stamps and its expensive.

You need a Strategist a financial partner like us who would have told you this from the beginning and will help you grow with 12 doors the consulting team you have in place ( CPA's, Tax Strategist, Broker, Trust Attorney, Entity Attorney) is the foundation to prevent mistakes like these in the future.

We would be happy to do a free underwrite of your portfolio and let you know where we see holes or opportunity to scale.
Feel free to check us out, I've been doing this for over 30 years.

Brian Bowman | DSCR Kings

Jim Blackburn · Answer

I would consider talking to your insurance agent about adding an umbrella policy, which will cover a lot of your needs.

Anthony Jentsch · Answer

Hi Ashley,

I haven't decided yet. I probably will eat the 3k and do it. I will be speaking with another attorney to get a 2nd opinion. All of my research has told me for liability purposes to transfer it to the LLC. Unfortunately because I just refinanced and cashed out my loan balance is at its highest and that is what is used to determine the transfer tax amount.

Erik Estrada · Answer

How about changing title to a trust instead?

Erik Estrada · Answer

I agree with your attorney. $3k is a hefty price to change title to an LLC. You might be better off keeping it in your personal and getting more rentals. Then you can strategize putting homes in a series LLC. If this is a one off property, $3k is a lot to justify..

Transfer Deed to LLC in NJ - Worth It?

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