Investment in rental properties through LLC.

Financing, Hard Money Lenders, Private Money
1

Hi

I am looking for some examples where folks have invested in rental house using multi-owner LLC. For example, scenario is “ A, B and C want to buy a house for rental RE investment. They want to use only A’s credit for getting loan for 1st rental house so that they can use B’s credit for getting loan on 2nd rental house.”

Question:

  1. Is quit claim of A enough to transfer title to LLC’s name?
  2. What are the steps involved in transferring title to LLC name ?
  3. Since mortgage is on A’s name, How can LLC claim tax benefit?
  4. Has anyone done this before? what was your situation and experience?

Thanks.
Raj

2

Most people just quit claim to their LLC but this does not allow the LLC to deduct mortgage interest. It can manage the properties.

If you are originating the loan in your LLC, the credit of all members/managers will be a factor and the LLC needs to be seasoned.

3

Thank you for reply. Correct, all 3 members in LLC has good credit. Since LLC is new LLC can not originate loan. Instead of having all 3 members on loan we want only one member to use his credit and buy 1st rental house. Then for 2nd rental house we will use second member’s credit. In all cases LLC (all 3 members ) will keep paying monthly mortgage.

Is this possible? what are the steps one need to do to make this happen so that title gets transfer to LLC name and also lender do not call for loan.

4

finance inside the LLC with personal guarantees. you have to get away from a “bank” and look for a lender who understands what investors do. yes, they are out there and yes, they will finance to an unseasoned LLC with a guarantee.

quitclaim doesn’t transfer anything. you need a real deed to transfer the property to the LLC

yes, the LLC can deduct the interest and other expenses as long as the owner of record (with the bank) does not. no double dipping. Insurance needs to be in the name of the LLC, as do all other expenses. if anything is in your personal name, submit an expense report to the LLC for reimbursement. avoid comingling.

note that transfer of title to the LLC probably violates the DOSC, although I’ve never heard of a bank calling a loan for this reason, just be aware that technically they can. I’ve heard recommendations that you notify the lender in writing (certified mail) that you intend to transfer the property. at worst, they’ll ask you not to; at best you have the defense that you properly notified them and they implied agreement if they didn’t notify you otherwise. Odds are Betty-Sue in the records department will just file it and no one will be the wiser.

avoids this if you get financing inside the LLC.

5

Be careful of just filing the quitclaim. The lender will be notified if a change in title has occurred and it may trigger a due on clause and lender may call the note. It’s best if you inform your lender of your intent to transfer title and get an ok from them in writing.