Acct. wants to set up multiple LLC’s one per property. Then use Sub s as partner. Has anyone gone down this road. The properties are currently in my name and I will have to spend approx 10k to transfer. Having the the props in my name and using lines of credit on the props is killing my credit score. How do the banks treat individual LLC’s. Am I better off putting multiple properties in the an LLC to minimize paperwork
One LLC and equity stripping does the same thing. Equity stripping with MA business trust will also do the same thing. With the business trust, there is a chance the transaction won’t be subject to transfer taxes.
BLL - or anyone…
Can you explain “equity stripping”?
Also, when (if ever) does it make legal or financial (tax) sense to create your own management company LLC (or other entity) to manage your OWN properties? (Assuming that your properties held in different LLCs themselves.) Again I’m not talking about managing others’ properties - only your own.
Thanks.
Equity stripping is removing the value of assets without transferring the ownership. Loans are the most common method.
I would never do it. Smart planning is set up so that you don’t own the assets. You just control them.
if getting the properties out of your name is the only issue, refinance the properties into an LLC and pay off the HELOC. Will probably require a personal guarantee, but that shouldn’t show up on your credit.
If you have a lot of properties, putting each property into a separate LLC can be very cumbersome and expensive. Each LLC will have its own tax return and may be subject to an annual tax or fee (KNOW YOUR STATE LAWS). Having one property per LLC is best for asset protection purposes, but may not be practical.
Personally, I put about 10 SFHs or 10 units (of apartments) into each LLC. That can still result in a lot of LLCs if you have a lot of rentals, but it is better than having dozens of LLCs. It’s a tradeoff between maximum protection (one property per LLC) and maximum convenience (all your properties in one LLC).
You may be able to get around the transfer tax by quit claiming the property into your LLC (that is allowed here in my little corner of Ohio). Check with your local courthouse.
Mike
I would suggest to attend a local REAI meeting and talk to the other investors and see who they are using as a CPA. I feel your CPA is not very fimilar with rental properties for investors and may just be out to make more money for himself oppose to saving you money and giving you solid asset protection.
As for refi into an LLC. If your LLC has no history, that will not happen. I am not in the mortgage field but things are tight now. Even with a personal guareentee, I do not think a bank will allow a fresh LLC (need to be over 2yrs old) to hold the note and if it does the interest rate may kill you, plus the closing cost associated with each refi does not sound to economical here.
I tend to keep 5-10 properties in an LLC as well. I have an LLC set for each area I invest in so the homes in each LLC are near each other. Plus if It is a rehab, that is a different LLC b/c of expenses associated with the rehab.
Someone asked about a management company for your own properties. I use one. Actually my mgmt company collects all the rents and deposit the rents in the mgmt co account. All my business expenses generally flow thru the mgmt co as well, expect for rehab projects on new purchases. I have my mgmt co also pay for all my business and somewhat not business related bills. Basically all I pay for in my own name is my personal electric and home upkeep (but not cell or internet) and food shopping. Everything else is thru the company… Always use checks or check cards, its better for record keeping.
If you pay with checks, photocopy or print the scanned cleared copy online and file them in a binder just in case you have an audit your covered.
Andrew
Remember that LLCs not only have tax consequences but also have legal liability issues. Be careful with multiple properties in one LLC because your legal liability is shared by all properties. If something happens on one property and the LLC is sued, the entire group of properties is up for grabs. If you have proper insurance and run your properties well, this is unlikely to happen, but you should be aware of it. You have to weigh the risk of liability against the hassle of multiple LLCs and multiple tax returns and bookeeping. You should be talking to BOTH a CPA and lawyer to strategize from both perspectives.