All Forum Posts by: David Gotsill

@Norman Alsumairi - If you look through the real estate association information for the jurisdiction of the property, you should be able to find standardized form contracts for simple (i) purchase and sale and (ii) option to purchase transactions.  

Unless there is something particularly unique about this arrangement, it's likely that a standard form contract will suffice.  That said, if I were you I'd still have a discussion with an attorney, letting them know the history of the deal and what you feel are the risks from seller.  I'd speak on the phone to 2-3 before engaging one, as it's a good chance to get to know them and choose one with whom you can build a long-term relationship.  Getting a cheap contract is far less valuable than knowing someone you can turn to when an unexpected issue arises.

@James Gould -

Those are some interesting questions, and I like the creative thinking.  

I wonder what the tax consequences would be for the foreign owner in transferring to the domestic/foreign entity?  And would those be any different than transferring directly to the US citizen child?  In some jurisdictions (e.g., California), I know that an owner can transfer property to/from an entity without triggering transfer taxes if beneficial ownership is identical pre/post transfer, but I'm not sure if the same can be said of capital gains taxes.  Is the transfer of an interest in a company the transfer of intangible property?  If so, wouldn't skirting tax laws by gifting stocks/shares rather than cash/real property be too easy?  That aside, what you suggest makes sense, I think, so long as the transfer of the entity can be accomplished over time such that in no particular tax year does the transfer value exceed the gift tax threshold.

Good luck!

Simple answer: you can.  But I'm more interested in what you're trying to accomplish?  What benefit do you think you're getting?  And/or what risks are you avoiding in holding it in your own name?  And what do you mean by house hack?  That expression is used to mean a lot on this forum, most commonly a live-in flip.  

@Tony Kohnle we can only speculate, but my guess would be individual preference. Two people decided to hold jointly, and one of those people, for whatever reason, be it asset protection, estate planning or otherwise, elected to hold through an LLC. As you note, financing could also play a role.

@Laura Espaillat -

I'm not a NC lawyer and have not seen the deed.  I'd recommend you get the deed and speak to a local attorney.  That said, a quick look at the deed should provide the answer.  My reading of the NC Statute (pasted below) is that unless the deed specifically provides for right of survivorship, then the interest goes to the heirs of the deceased rather than the tenant-in-common.  So, (if my understanding is correct) if the deed does not state that DF has the right to survivorship, then D's interest has gone to P.

§ 41-2. Survivorship in joint tenancy defined; proviso as to partnership; unequal ownership interests.

(a) Except as otherwise provided herein, in all estates, real or personal, held in joint
tenancy, the part or share of any tenant dying shall not descend or go to the surviving tenant,
but shall descend or be vested in the heirs, executors, or administrators, respectively, of the
tenant so dying, in the same manner as estates held by tenancy in common: Provided, that
estates held in joint tenancy for the purpose of carrying on and promoting trade and
commerce, or any useful work or manufacture, established and pursued with a view of
profit to the parties therein concerned, are vested in the surviving partner, in order to enable
the surviving partner to settle and adjust the partnership business, or pay off the debts which
may have been contracted in pursuit of the joint business; but as soon as the same is
effected, the survivor shall account with, and pay, and deliver to the heirs, executors and
administrators respectively of such deceased partner all such part, share, and sums of
money as the deceased partner may be entitled to by virtue of the original agreement, if
any, or according to the deceased partner's share or part in the joint concern, in the same
manner as partnership stock is usually settled between joint merchants and the
representatives of their deceased partners. Nothing in this section prevents the creation of
a joint tenancy with right of survivorship in real or personal property if the instrument
creating the joint tenancy expressly provides for a right of survivorship, and no other
document shall be necessary to establish said right of survivorship.

@Shane Elias-Calles - 

In general this is possible, and often referred to as a "wrap around loan", "wrap around mortgage", or just a "wrap". (Kudos to whoever can come up with the best rap using dorky REI jargon like "wrap")

Using this terminology, you'll be able to find plenty of educational resources, such as the below (which I have not vetted):
https://www.fortunebuilders.com/wraparound-mortgage/

Good luck!

@Samuel Liapis

Did the hard money lender explain why they require you to hold in an LLC?

Perhaps you're be required to pledge the membership interests in the LLC to the lender. That way, if you default on the loan they can exercise the pledge and take ownership of the LLC, without having to go through the real property foreclosure process. Would be a good move for the lender, but a bit less ideal for the borrower. However, since it's hard money, one cannot expect to have one's cake and eat it too.

What's more, I'm not sure that a conventional lender would lend to you in your personal name if you received title via a quitclaim deed. They might require a proper grant deed from the LLC to you. You could ask a local (to the property) title company/lender if they have any input. Also, I think that transfer from the LLC to you would trigger transfer taxes to the LLC (maybe the same with a quitclaim, not sure), and also require the LLC to recognize gains for tax purposes. Would need to check with a tax professional there.

@Daniel Mills - Dan - any thoughts on this thread? 

@Haus Kauffmann - Welcome to BP.

There are some potential benefits to holding a property in an entity rather than in your personal name, even if there's no change in tax treatment.  As you are aware, there are costs and inconveniences as well.  A couple of items for your consideration (there are others, these are just my top pics):

Limitation of Liability. This is probably the main reason REIs hold property in an entity such as an LLC, which is to limit their personal liability. Oversimplified, as the owner of the LLC you're only liable for the amount you invested in the LLC. Why does this matter? For example, if your tenant is somehow injured on the property and the property owner is found liable for the injuries (e.g., landlord knew the stairs were unsafe but did not remedy, and they collapsed). If the owner is an LLC, the most the tenant can collect is the value of the LLC (typically the value of the property and your invested equity, minus the mortgage). If you personally own, the tenant could go after your personal home, your car, etc. As a personal owner you can effectively mitigate the risk with good insurance, but that comes at a cost (less cash flow) or by hiring a third party property manager to undertake some of the risks. Also, since you're abroad, not sure how easily tenant could go after you. As with most things, there are exceptions to the outline above, but this is the general idea.

Transfers. You can transfer ownership of the LLC, in full or in part, without going through title or having to pay any transfer taxes.

Good luck!

@Samuel Liapis - Good luck with the first BRRRR. I hope it goes well.

Not sure about all of the details of your situation, so it's possible that a Series LLC is just what you need, but I would think it unlikely. As @Jon Reed suggests, a standard LLC is likely a fine choice.  (Note: I am a lawyer (eww), but this is not legal advice.)  Jon aptly notes those certain formalities need to be followed for the benefits of an LLC to be realized.   Since LLC set up and maintenance comes with certain costs, you want to be sure you also get to keep the benefits.

One comment in your post caught my attention - that you "need an LLC for certain financing". What financing is this? Are you already speaking to a lender? If so, you should run your proposed LLC approach by the lender for any comment before you jump in (for example, recently had an Alabama lender that insisted we form a Delaware LLC, even though it was an Alabama property). Additionally, some lenders will refuse to lend to an LLC. That's why you hear about people quit claiming to an LLC - the bank would only loan to the individual (not the LLC).

In short, it's unlikely that any benefit of a Series LLC justifies the additional costs and effort. FWIW, many states don't have yet have established law on treatment of Series LLCs, so in those states there's even a risk the Series all gets rolled into 1 LLC anyways. Remote risk, but depending on your behavior/use it's possible.

@Account Closed

Based just on a quick look at Arizona statutes, my guess is that although electronic signatures are generally valid, the process is more involved than simply typing in the name.  That's why you see Docusign or Adobesign in broad use.  Also, in some rare instances the recipient will insist on wet ink (i'm thinking of deeds and guarantees, in particular).  

See the link below.

https://law.justia.com/codes/arizona/2005/title41/00132.html