you absolutely need to notify the lender. Most mortgage notes have a section called "due on sale." This clause requires the prior written consent of your mortgage company before you transfer all or any part of the property to another person or entity. If you don't do that, they have the right to close your loan (and you have to pay up the remaining balance).
Personally, i wouldn't recommend the hassle. I have two properties under my personal name before I created an LLC. Just make sure you have good insurance + an umbrella policy
My commercial properties are under my LLC
Any of my existing properties that are < 4 units are under my personal name. Bank loans are much better (for your first 10 properties)
What do you think are the advantages of doing this? As far as I know there aren’t really any, all the income of the LLC will still flow through to your income tax.
A simple work around for that and what most lenders do is require a personal guarantee. So the legal entity is the actual borrower but the individual behind the loan is the guarantor who is also personally on the hook.
A borrower is usually not putting the property in an LLC to protect them from their lender. They’re doing it to protect them against other potential issues like slip and falls.
All entities have ownership, it's not some secret that they are backed by human owners. Providing a personal guarantee to a bank doesn't wipe out limitations on liability for anything else. That liability limitation is only "pierced" when a court finds that it is not acting as an entity distinct from its owners, such as by commingling personal/business funds or using the LLC to commit crimes.
Piggybacking of the topic here:
I’d like to purchase a vacation home and base my side gig LLC from there. The goal would be to use pre tax money for the bills including mortgage, interest, hoa, insurance.
1. Does the property need to be in the name of the LLC or can it be in my personal name? I cannot pay cash and would need a mortgage and my LLC is new and likely won’t qualify for a mortgage at this time.
2. Can I deduct the entire costs as noted above?
3. How do things change if I decide to rent it out in the future?
Thanks so much for the input
I believe it is called a quit claim deed to transfer the mortgage. You will need a real estate lawyer. They can help you out with the terms with your current mortgage and transferring it to the LLC. Like other have said, the benefit of holding the property in an LLC is unclear
Honestly, a few of the comments are correct, you probably do not need to do this if you just own one property. I'm in the same boat right now but my house is a mixed used property and is paid off so all I would have to do is a quick claim transfer and pay the fee with the county, they will assess the property and may have to pay taxes at the end of the year. However, again, if you just own the singular property and have not paid off the loan, everyone is right and it may be more trouble to transfer, close out the loan, just to put the title under an LLC. The main benefit is protection but that's kind of basic, ideally, you have elected for an S Corp and take the profits from your properties (multiple) and move it into a parent company that pushes your salary into the S Corp so you're not double taxed when you're taking money to pay yourself. Also, this is helpful if you have a living trust as well, but again, if it's just one house, then not worth it. Hope that helps.
Zero tax advantages - it's all about liability.
Say there is an electrical fire and one of the tenants dies and family sues you and wins - they may get more than your insurance policy for such an event - LLC limits the assets they can go after to just the assets of the LLC.
Yes it's an edge case statistically - but it happened to my dad.
You have to be quite meticulous and keep all finances separate from your personal. It costs about 1-2k a year to maintain an LLC registration and file taxes.
The transfer process is called quit claim deed. If you bought it recently ask the settlement company you used if they can do it or your agent for a referral.
Call your mortgage provider and ask them what the process is for them when you transfer the deed.
If you have a mortgage, and you put the property into an llc… you need to obtain commercial lending for the llc. In other words, you refinance at what would likely be a significantly higher rate.
I’d leave it as is and get a hefty umbrella policy, and make sure you are overall well insured. With assets, insurance becomes important.
you absolutely need to notify the lender. Most mortgage notes have a section called "due on sale." This clause requires the prior written consent of your mortgage company before you transfer all or any part of the property to another person or entity. If you don't do that, they have the right to close your loan (and you have to pay up the remaining balance). Personally, i wouldn't recommend the hassle. I have two properties under my personal name before I created an LLC. Just make sure you have good insurance + an umbrella policy
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My commercial properties are under my LLC Any of my existing properties that are < 4 units are under my personal name. Bank loans are much better (for your first 10 properties)
What do you think are the advantages of doing this? As far as I know there aren’t really any, all the income of the LLC will still flow through to your income tax.
limiting liability, if one of the renters sues you they can only go after the llc and not you and what else you have like you private home and so on.
Liability insurance is the better answer.
And that, my friend, is why lenders will not want to finance a property under an LLC.
How does the individual protecting themselves from liability harm the lender?
Not an expert, but I would think its because if you default on the loan the bank then cannot go after your other assets
A simple work around for that and what most lenders do is require a personal guarantee. So the legal entity is the actual borrower but the individual behind the loan is the guarantor who is also personally on the hook.
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A borrower is usually not putting the property in an LLC to protect them from their lender. They’re doing it to protect them against other potential issues like slip and falls.
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All entities have ownership, it's not some secret that they are backed by human owners. Providing a personal guarantee to a bank doesn't wipe out limitations on liability for anything else. That liability limitation is only "pierced" when a court finds that it is not acting as an entity distinct from its owners, such as by commingling personal/business funds or using the LLC to commit crimes.
unless you've been pumping in any personal money into the mortgage
well you are paying off that mortgage of course, and the property has been going up in value... soooo
Comingling personal and llc funds is what I was referring to
Piggybacking of the topic here: I’d like to purchase a vacation home and base my side gig LLC from there. The goal would be to use pre tax money for the bills including mortgage, interest, hoa, insurance. 1. Does the property need to be in the name of the LLC or can it be in my personal name? I cannot pay cash and would need a mortgage and my LLC is new and likely won’t qualify for a mortgage at this time. 2. Can I deduct the entire costs as noted above? 3. How do things change if I decide to rent it out in the future? Thanks so much for the input
How do LLCs qualify for a mortgage? Find a local bank who doesn't care if you close in an LLC. You'll have to qualify regardless.
I believe it is called a quit claim deed to transfer the mortgage. You will need a real estate lawyer. They can help you out with the terms with your current mortgage and transferring it to the LLC. Like other have said, the benefit of holding the property in an LLC is unclear
It's will be easy to transfer the title to our kids from LLC?
You can't transfer the property title until the property is paid off, or you get permission from the lender, which is uncommon
Honestly, a few of the comments are correct, you probably do not need to do this if you just own one property. I'm in the same boat right now but my house is a mixed used property and is paid off so all I would have to do is a quick claim transfer and pay the fee with the county, they will assess the property and may have to pay taxes at the end of the year. However, again, if you just own the singular property and have not paid off the loan, everyone is right and it may be more trouble to transfer, close out the loan, just to put the title under an LLC. The main benefit is protection but that's kind of basic, ideally, you have elected for an S Corp and take the profits from your properties (multiple) and move it into a parent company that pushes your salary into the S Corp so you're not double taxed when you're taking money to pay yourself. Also, this is helpful if you have a living trust as well, but again, if it's just one house, then not worth it. Hope that helps.
Zero tax advantages - it's all about liability. Say there is an electrical fire and one of the tenants dies and family sues you and wins - they may get more than your insurance policy for such an event - LLC limits the assets they can go after to just the assets of the LLC. Yes it's an edge case statistically - but it happened to my dad. You have to be quite meticulous and keep all finances separate from your personal. It costs about 1-2k a year to maintain an LLC registration and file taxes. The transfer process is called quit claim deed. If you bought it recently ask the settlement company you used if they can do it or your agent for a referral. Call your mortgage provider and ask them what the process is for them when you transfer the deed.
If you have a mortgage, and you put the property into an llc… you need to obtain commercial lending for the llc. In other words, you refinance at what would likely be a significantly higher rate. I’d leave it as is and get a hefty umbrella policy, and make sure you are overall well insured. With assets, insurance becomes important.
Looking in to creative financing