All Forum Posts by: Sean Morrison

This is a very common question, but everybody seems to want to avoid asking their bank. Most banks, especially local ones, are happy to talk you through everything. After all, they want your repeat business.

Rentals should be held in an LLC. Talk to a local attorney about setting that up. If you have a mortgage on the properties, they often have a "due on sale clause" which could trigger if you move to an LLC. It's not always a big deal if you talk with your bank. If they don't let you, there are ways to get through that but they are more complex.

Consider a 1031 exchange. It's very different from the Opportunity Zones, but can help you defer the capital gains.

If you create an entity outside of NY, but own real estate in NY, you will still need to pay NY taxes and file as a foreign LLC in NY. You'll end up paying all the same fees and taxes in NY, and also pay the other state's fees. Best practice is to have the LLC in the same state as the real estate.

You typically want the entity that owns the property to be within the same state as the property. That's because real estate laws are very specific to the state and courts will apply local laws regardless of where your LLC or trust is located. However, other entities associated with the owning entity can be somewhere else. The question is whether the LLC or the trust owns the property. If the LLC owns the land, there is no reason an out of state trust could not own the LLC.

Partnership is a very broad word. As a legal term, it means two people working together but sharing liability. Another approach is to partner up with somebody within a legal entity, like an LLC. In that case, the LLC is a separate person, but the owners are partners with each other. Banks and others will look at your deals very differently depending on how you structure this stuff. Definitely worth more research.

It doesn't sound like you're putting anything in an LLC. If I understand correctly, one of you is putting the property in your own name, and the other is hoping the partnership doesn't break down later. At minimum, you will want to investigate this much further. A partnership leaves both partners exposed to liability, and you will need a complex and tailored agreement to ensure both partners are protected. You may benefit from an LLC or some other form of joint venture agreement.

You'll want to talk to a business attorney who has worked with real estate investors. Legal Zoom and Rocket Lawyer can put together a bare-bones agreement, but they usually don't hold up well in court if there are numerous partners or special arrangements, which is what it sounds like you have.

The LLC is important, because you don't own 25% of the property, you own 25% of the LLC. The LLC is a separate entity owning the property. The LLC could certainly try to get a loan for 25% of its property's value, but the LLC would need to sign off. Since it's a holding company, I am assuming you don't have an operating agreement, so the default would mean both partners need to agree to such a loan.

Your partner could make a personal loan to you, with your 25% stake as collateral. That is probably the simplest solution. The LLC could also make the loan if it had any cash.

You could theoretically use your 25% interest in the LLC as collateral for a loan without your partner, but it would be difficult to find somebody who would lend for that.

I was looking at the MLS for Mississippi and found some properties listed as being sold by the Secretary of Agriculture. They are quitclaim deeds. I couldn't find anything about the program or why Ag. would have them or sell them. I'm especially interested to hear how they acquire them and whether there could be serious problems with the title.

@Bob Norton is out of New Orleans, but he focuses on real estate investors. If you don't need to sit in an office with the guy, he can help you anywhere in the country.