Hello to all! Fantastic forum! Several questions for the pros here…I will break them up into manageable (for me) chunks.
My wife and I have owned a 3 unit NOO home for 4+ years. We know we should have this in an LLC and are going to do just that. Our mortgage holder is a private investor. Does the recorded mortgage need to be modified to reflect the new LLC ownership? Will this remove this liability from our credit report? Will it help establish credit for the LLC and could it help or hurt us if we refi with another lender? I would think that all utility billing and rent payments should have the LLC named also. Thanks in advance for any replies.
quit claim deed - transfer ownership of title to LLC.
credit report question is a good one - i’m interested in reading responses - i’m guessing - if private investor is your financer - that depends on them updating credit bureaus (but not sure)…also does your private investor know about this and do they have an opinion?
this does present them with interesting circumstance…as if you transfer ownership to LLC with quit claim deed - LLC would own the property, not you…thus making it possible for LLC to default on loan and not pay back investor…
i’m thinking you’ll have to sell the LLC the properties, using the private investor to front the money for the “transaction”…he/she might require you to personally guarantee loans…
credit will only improve for LLC if it is reported using EIN of LLC and not your personal Soc number(s).
and as far as it help/hurting you to refi with another lender - i’m not sure what you mean by that.
all bills related to any investment should be in LLC name if you want to deduct it as a business expense.
check all this with your CPA and real estate attorney.
no way no how will a bank allow you to transfer the mortgage. they made it based on YOUR creditworthiness. Nor will they allow you to transfer the property. Technically this violates the DOSC. However, people put property into LLCs all the time and I’ve never seen a mortgage called for this reason as long as it’s performing.
however, a private investor may be agreeable to this, although it would probably require a personal guarantee. It would be ideal since it gets both the property and the mortage out of your name. Think if it as a “sale” to the LLC. Assuming that the investor reports to a credit bureau, it would remove the mortgage from your credit since you no longer “own” the loan. If the LLC defaulted, the investor would look to you personally as the guarantor for payment.
a quitclaim doesn’t transfer anything. you need a general or warranty deed to transfer property.
Thanks, guys.
My current lender is happy with our present arrangement and would have no problem with me transferring the property and mortgage to the LLC or paying him off via refi.
He does not report to any credit bureaus. Would having him report as such, after transferring the mortgage into the LLC, take what seems to be the standard “2 year timespan” until I could successfully borrow in the name of the LLC only? I am on the right track a far as trying to build credit for the LLC? Additional info which help provide a more accurate assessment…I have approx. 40% equity in this property and would like to refi to build out another unit under this same roof and/or look for another rental to hold. I am self-employed in an unrelated biz…any refi will likely be non-conforming.
when you think about managing the LLC that you found and are an owner of - think BIG. thinking BIG will propel you to do things like a business would. thinking small will get you to do things that are small-minded…
credit it only built if your lender is reporting it to a credit bureau. i mean, if there’s quality record-keeping, you might be able to use that as a reference when presenting to a bank for a loan…i’m not sure.
I’ve not been able to find out exactly how my financier can report to the credit bureaus. Any idea?
We (wife and I) understand that we should keep the rental holding LLC as a disregarded entity for tax purposes. But what happens with the current depreciation schedule once we transfer the property? Does it continue from the point that it is at now or reset for another 27.5 years?
let me know when you find that answer though. doesn’t sound like too hard of a question for a cpa to know - my guess is, if LLC buys property from you - sale transaction - of course it “starts over”…because the property now becomes property of LLC and therefore a depreciating asset of business.