All Forum Posts by: Mike S.

Originally posted by :

Where is disagree is that it gets you around the due on sale clause in your mortgage because it doesn't unless you personally continue to occupy the property (which you won't be if its a rental) 

 Most mortgage will let you rent your property if you live at least one year in it before moving out.

When you deed your property into the land trust, you need to still be the beneficiary of the trust initially. As such the Garn St Germain Act will protect you against any due on sale clause.

When you later change the beneficiary to your LLC, it could technically trigger the due on sale clause, but because this assignment is a private document that is not recorded, the lender won't know about it. If it become a problem and they require proof of it, you can always reassign the beneficiary to you. This assignments of beneficiary are private unrecorded documents that would just need the trustee and your signature.

Do not use a quit claim deed. Use a warranty (or special warranty deed) instead to avoid risking loosing your title insurance.

Also with your lender you may trigger the due on sale clause. To avoid that, create a land trust where you are the initial beneficiary. Deed the property to the land trust. Then later assign the beneficial interest to the LLC. Don't forget also to change the name insured of your insurances to the land trust with you and the llc as additional insured.

Consult an attorney to draft the operating agreement of your LLC. It will be the same for all the other LLC you will open. You can open the LLC yourself. Also have a look at the series LLC that could lower your cost.

Regarding book keeping, once you learned how to do it with one LLC it is the same for the others. If your LLC are single member disregarded entity, they don't file any tax return as they are directly entered in your personal tax return. One or many does not really make that process more difficult, if you keep good books it is only a matter of adding the numbers together...

But it is true that LLC still have costs. Also they may limit your ability to obtain better rate mortgage as you may only have commercial rates available.

Thanks @Ashish Acharya and @Michael Plaks for the answers.

I should have been more specific in my initial post.

I own my home free and clear, so the new cash out mortgage will be 100% for the LLC.

Also the LLC is a multi-members, so it is not a disregarded entity.

Can I make a private note to have the LLC assume the mortgage directly, even if technicaly my lender does not allow it?

I am looking to inject (contribute) some money into one of my LLC to finance some new acquisition this year.

I am refinancing my home (that is under my own name) and will use the cash out as contribution into the LLC.

It is my understanding that while you can't deduct new mortgage or refi anymore on your personal home, you can still deduct all its costs when it is used for investment (by deducting from the investment income/gain).

What would be the proper way to document this transaction in addition to the schedule recording the contribution in the LLC book?

Should the LLC take over all the payment of the mortgage directly? Should the LLC pay me for the monthly payment and record the interest as expense and the principal as distribution?

In the same token, how to expense the closing cost, appraisal, points, ...?

Can I also expense the additional insurances required by the lender?

Or should I loan the money to the LLC mirroring the same conditions as my lender? But then I would have to pay income taxes on the interest received without being able to deduct the interest paid?

First avoid using quit claim deed, use instead a warranty deed to avoid future title insurance issue.

Second, by putting your property in a land trust where you are the initial beneficiary, you would not trigger the due on sale clause (Garn St Germain Act). You would then later assign the beneficial interest to your LLC. As this assignment is private it would not trigger the due on sale clause. Also you will avoid all the recording fee of all your deeding back and forth.

Sometimes it is better to severe all relation to a prior entity to avoid any delayed liability. Also, the operating agreement of your prior LLC is probably not focused on your new activity and would have to be rewritten.

For all these reasons, and due to the low cost of creating an LLC, I would probably start a new one.

The only reason for me to keep an old one, would be for credit worthiness purpose, but if you change activity, lenders won't be fooled by it either.

LLC (taxed as partnership or pass-through disregarded) are mainly used for asset protection. They are usually tax neutral.

C Corp are often used to get fringe benefit and retirement plans.

S Corp are used usually for flippers to limit the self employment taxes.

Also, check your state statutes, as some will allow you to have a management company without needing a management or broker license if you are managing only your own properties.

I own my $350k home condo free and clear, I may be interested to clear some cash out of it to reinvest in some additional investment properties.

I am looking at a fixed rate 20 or 30 years mortgage.

It has been a long time that I have looked at personal property mortgage, and most of my usual lenders are only doing commercial/investments properties.

Do you have some referrals to a good mortgage broker or maybe a bank or credit union that has currently good terms in the area?

Is there a comprehensive list of all the books that were recommended by all the podcast guests? I’m often listening to the podcasts in my car and can’t really take notes and I would like to add some of the guest’s suggestions on my reading list. It would be nice to have a summary list available somewhere on the website. My quick search for it did not return any relevant hits.