Transferring Properties To A LLC
Hi, I own one condo already and will be buying another one shortly. Both are under my name and with personal mortgages.
I would like to setup a LLC for these rental properties.
What is the process & expense of transferring these properties to my LLC?
Can it remain under my personal mortgage?
Would I still be able to deduct depreciation & mortgage interest under the LLC?
get in touch with a title company and get a quitclaim to pass the property to the LLC. Set-up the LLC with your accountant or lawyer. Cost is variable per state, should count on spending $1000.
I just checked with my attorney on this. Its more like $1,000 - $3,000 in California, depending of course, if you want the work done by a reputable lawfirm.
Quote:
On 2004-01-21 16:47, jfoley wrote:
get in touch with a title company and get a quitclaim to pass the property to the LLC. Set-up the LLC with your accountant or lawyer. Cost is variable per state, should count on spending $1000.
I think that the transfer will trigger the Due on Sale Clause. I have purchased several properties IN the LLC name, but have still had to sign personally.
I think the best way to get around this would be to purchase in the LLC name initally which should meet your end goal of protection.
Another option is to transfer it into a Land Trust, then make an LLC the benificary of this trust. You then have anominity, protection, and this will NOT trigger the DOS clause.
[addsig]
2004, that is a Good question...I have a friend that would like to do the same thing.
Telemon,
What is a Due on Sale clause? And if you don't mind, could you provide a little more feedback about what exactly a Trust is ,and the benefits if any, of possibly using that by itself (as opposed to an LLC).
Thanks!
This should not trigger the dos clause. We buy subject to all the time and deed property from one preson to another all the time with no problem. If it were a problem how do divorce cases ever quit claim property for the settlements. My 2 cents.
Sire
We set up LLCs via www.thecompanycorporation.com
I have never spent more than $300, but have never done one in CA....
As owner of the LLC the due on sale clause wouldn't apply. And CA is probably the most expensive state to do this in.
If you need to form the LLC, get it formed in Nevada. California is probably the most expensive to do anything in it.. Corporations are leaving, people still losing jobs and the RE prices still claiming up... What do you think a traffic ticket for driving 20mi/hr over the limit (60/40) and with a driving license expired by several days because the replacement was not sent but DMV, COST IN CALIFORNIA?
$ 500.00!!! And that I call legal piracy and true banditism. The way they structer the cost is about $200+ for tickets and over 100% for penalty and that's when you got there on time??? Shocked? I am too but what can you do. Here, they have a lot of people with guns in courtrooms.
Omega,
I understand where you are coming from with the Nevada LLC thing. Hoewver when you are doing business in a state other than Nevada with your Nevada Corp, you still have to pay the fees etc with the state you're doing business in as a foreign LLC you now have the costs of two states licensing, and one of them is still California (Expensive!) Just starting out, This might not be for everyone if they are trying to keep operating costs down. They can always upgrade the level of protection they have as their assets and need for protection grows.
If you placed the LLC as a beneficiary of the Land Trust would you still need to file as a foreign Corp
Minara,
I "THINK" the answer to that one is no. IMO the Land Trust is doing the business in Cal, not the LLC. Better ask an attorney on this one.
[addsig]
I have to agree with jeff12002 on this one. Not only would one have to pay the costs of licensing in two states when forming a Nevada LLC for properties he or she owns out of state (in my case, I own properties in California), he or she would also want to locate a good attorney in Nevada to provide adequate legal representation in case the Nevada LLC was ever sued.
The purpose for forming an LLC after all, is not to save costs, but rather, to provide you with adequate legal protection if you are ever sued.
I believe that you get what you pay for. If for example, you incorporate in Nevada but fail to locate a good attorney it may end up costing you a lot more than the cost to incorporate if someone suceeds in suing you.
Am I being to paranoid? Perhaps, but paranoia is the reason why we go out and purchase umbrella insurance, transfer our properties into a trust, or form an LLC to give us legal protection.
There are plenty of resources for locating an attorney. The Martindale Hubble website, for example, or the state or local bar associations, but I wouldn't want to wait until I was being sued to locate someone. If this is your solution to avoiding the cost of forming an LLC where the properties are located, than I wish you the best of luck. You will need it if you are ever sued.
Quote:
On 2004-01-22 17:58, omega1 wrote:
If you need to form the LLC, get it formed in Nevada. California is probably the most expensive to do anything in it.. Corporations are leaving, people still losing jobs and the RE prices still claiming up... What do you think a traffic ticket for driving 20mi/hr over the limit (60/40) and with a driving license expired by several days because the replacement was not sent but DMV, COST IN CALIFORNIA?
$ 500.00!!! And that I call legal piracy and true banditism. The way they structer the cost is about $200+ for tickets and over 100% for penalty and that's when you got there on time??? Shocked? I am too but what can you do. Here, they have a lot of people with guns in courtrooms.
We formed our LLC in Nevada in September, but since we live in California, we have to register as a foreign corporation which doesn't cost that much (around $200) but in lovely California, there is an $800 minimum tax for foreign LLC's that you have to pay WHEN YOU FORM YOUR LLC. Of course, with holding rentals I'll get it back and I won't ever have to pay it again since I have a GREAT CPA. But we formed the LLC in Nevada because in all the years since the inception of the state of Nevada (1890 or something), they've only had TWO instances of "piercing the corporate veil." In California, the rate of "piercing the corporate veil" is about 87%. And isn't asset protection the main reason we want an LLC? I'll take Nevada, thanks! (geez....can't WAIT to move to Montana!)
[addsig]
When forming a LLC you don't have to go through an attorney and pay their huge fees. It can be done off websites and through the library or other "free" places. The state fees for LLC still apply but how much should you pay an attorney to tell you where to sign your name and where to mail your check?
If you need help contact your local non profit group that specializes in helping small business get off the ground.
Q
Bacx to the original comment. You are personally on the note and that will probably not change unless your LLC has:
1. long history
2. substantial verifiable assets and income.
3. the bank allows the LLC to assume the loan.
AN LLC is simple to form yourself but why bother? for filing fees and $79 you can get several websites who specialize in it to do it for you and you don't have to learn how to do something you don't need to know how to do.
Now, you can pass these properties through to your llc as follows.
You let your lender know that you are putting your properties into trust for "personal financial benefit" get yourself a trustee and put them into trust making sure that the trust is designated as an "additional insured" etc. on your insurance policy.
Then you can shift the "beneficial interest" from yourself to your LLC (or whomever) and this will not trigger the DOS clause as the transfer of beneficial interest is not recorded etc.
Randall
[addsig]
Interesting. I didn't realize there was an 87% chance of piercing the corporate veil in California. What is the source that provided you with this information, and furthermore, who helped you set up your Nevada Corporation? I might want to talk to this person, or take this route myself, since I am currently trying to transfer properties I purchased in my own name into a Land Trust/LLC.
Things have sort of been at an impasse for me because my attorney told me that the Due On Sales Clauses on my present loans (or on any properties I am planing to refinance) might cause the lenders to call my loans due when I transfer the titles into a Land Trust and then deed them into an LLC. I am not really sure how to get around this. What lender, after all, would not want to secure a loan with a DOSC?
My research has lead me to belive that more and more lenders are calling loans on people who try to flip properties quickly to make a fast buck. I have recently heard that Country Wide Home Loans is doing this. Also, for those who are interested, I will provide a link I recently found to Robert J. Abalos's website, which provides some very inciteful legal information about DOSCs:
****Must Reach Freshman Investor status before posting URL's***
While this website contains contrarian advice to creative investors, the information Mr. Abalos provides is certainly worth reading.
All the research I have done on this subject, has not only left me more confused about what to do, it has also left me wondering if incorporating into an LLC is really worth it since I have already purchased adequate commercial umbrella insurance.
I am sure that some of the readers on this website could provide further input on how to incorporate into an LLC, but I would like to know if anybody has actually had a lawsuit filed against their LLCs.
Perhaps I am a little paranoid about trying to form an LLC, but I feel that I need the hand holding of an attorney. I am also reluctant to believe that an LLC created by a generic form, such as Nolo's Quick Legal books or Qucken's Family Lawyer 2004 would provide adequate legal protection from a lawsuit.
At the present, I am wondering if it might be more beneficial to incorporate in another state with laws that would offer greater asset protection, or if I can create an out of state land trust that could offer any additional protection.
If any of you gurus have further advice on how to get around the Due On Sales Clause issue than please advise, I would gladly accept any assistance you can give me in helping me figure out how to incorporate into a Land Trust/LLC and legally preserve my anonymity without all of my mortgages being called due.
Quote:
On 2004-01-26 13:58, Shirley wrote:
We formed our LLC in Nevada in September, but since we live in California, we have to register as a foreign corporation which doesn't cost that much (around $200) but in lovely California, there is an $800 minimum tax for foreign LLC's that you have to pay WHEN YOU FORM YOUR LLC. Of course, with holding rentals I'll get it back and I won't ever have to pay it again since I have a GREAT CPA. But we formed the LLC in Nevada because in all the years since the inception of the state of Nevada (1890 or something), they've only had TWO instances of "piercing the corporate veil." In California, the rate of "piercing the corporate veil" is about 87%. And isn't asset protection the main reason we want an LLC? I'll take Nevada, thanks! (geez....can't WAIT to move to Montana!) <IMG SRC="images/forum/smilies/icon_mad.gif">
Regarding the Due on Sale:
I recently financed a Duplex (in FL) and this very large and popular lender said they would NOT issue the loan if we used an LLC, we could only get the low interest rate program if we Titled our investment property in our own names. (even though it said "investment property" on the loan app.) and even though we were personally liable for the loan anyway, didn't matter.
I think she said it had to do with selling the loan or something (maybe a Ginny or Fannie Mae thing, I don't know).
But, since she cared how the property was titled, I would think transfering title to an LLC *could* trigger a Due on Sale.
However, many, many investors and realtors etc. have told us the way they do it is just transfer the property to an LLC with a quitclaim deed shortly after closing (titled in their own name). The local investors I know say that since loans are sold in bulk, the lenders don't really check or care as long as the payment are coming in. But, that does shift the risk, because without written constent from the lender., the lender could force a "due on sale". (Say if interest rates doubled, they might be more interested in calling in a loan for any reason they could find).
It's important to consider as much as you can before you re-title.
My 2 cents.
Kevin
Quote:
On 2004-01-22 16:30, norrist wrote:
We set up LLCs via http://www.thecompanycorporation.com
I have never spent more than $300, but have never done one in CA....
In CA i spent 450.00 For my corp.
So back to the origanal question by 2004, its all about the quickclaim?? And what about the mortgage and interest writeoffs he asked about??
I set up a C-Corp in CA thru a "friendly" lawyer and paid $289. I looked into a NV C, the cost was going to be about $1500. I would have had to register as a foreign entity in CA too, which would have triggered CA corp. tax anyway. Lawyer "friend" gave me this article to read about the myths of inc. in NV:
http://www.ungerlaw.com/resources/articles/art_debunk.html
The myth about piercing the corp. veil in CA being easier than NV would appear to be just that, a myth.
This suppose to be the forum about creative RE and other RE related stuff? To me doesn't look creative:
"The purpose for forming an LLC after all, is not to save costs, but rather, to provide you with adequate legal protection if you are ever sued. "
"We formed our LLC in Nevada in September, but since we live in California, we have to register as a foreign corporation which doesn't cost that much (around $200) but in lovely California, there is an $800 minimum tax for foreign LLC's that you have to pay WHEN YOU FORM YOUR LLC."
Com on guys, we still live in USA, right? I can live in TX and buy a property in CA. Does it mean that I have to register with CA my LLC or Corp.? Maybe but I still wouldn't and they cannot make me because I have my office in Dallas. Get an office in Nevada ( at list an address) and you'll be fine.
BTW, C-Corp means double taxation.
Think creative.
[addsig]
I am in the process of studying this process as well. If you have many properties it's worth to set it up yourself. You can purchase "Land Trust" and "LLC" from William Bronchick. Each cost $245 each. Check http://www.legalwiz.com. You might be able to find the training material on ebay.
If you decide to do it yourself you can join http://www.prepaidlegal.com. They offer 2 different packages. Each cost less than $25 per month. As part of their service, you can ask designated lawyer to review your documents for free. You can cancel the membershipt anytime.
What would be the advantage of quit claiming a property to an LLC besides lawsuits?