LLC?, S-Corp?
I am about to purchase my first property. Do you buy/sell and rent investment property under your own name? Or have you set up an LLC, corp, or other such entity.
My limited understanding of all this is that it is very difficult/impossible to get a mortgage under anything but my own name.
But should I/do others buy the property in there own name but rent it out/manage it through an LLC or other bussiness entity?
you should have no problem taking title to the property in a single member LLC; and due to the structure of the LLC, you will personally guarantee the loan, and it will most likely even show up on your credit report.
If you want standard mortgages, most will require that you close the deal in your own name (some people later transfer to LLC, and do not worry about DOS clause). Or you just get commerical loan for the LLC in the name of the LLC. You will probably personally guarantee these, but they do not show on your credit report (multiple LLC loans through 4 different banks don't show on mine). Nothing wrong with the commerical loans, just most are adjustable and on shorter repayment terms (15/20yr).
"some people later transfer to LLC, and do not worry about DOS clause"
Sorry - This is all very new to me and I'm learning as I go. How do you transfer the property to the LLC in the future and what is a DOS clause?
Thanks for the Help!!!
Due On Sale.
Not to worry about the due on sale clause? How does that work? My attorney said to make certain that my lender would allow me to put a property into a LLC without a DOS before I tried it. He specifically said that I would not want to have the bank suddenly ask me to pay the loan in full. Now maybe the bank would'nt find out, but that sure seems like a big gamble. You could also consider a land trust if this is an issue. That gets the property out of your name, but lenders are prohibited by federal law from calling the loan just for placing it in a trust. You also are shielded from liability since you don't own the property, the trust does.
This is from www.legalwhiz.com and it helps clear up the DOS issue. As cs5hardtop mentioned above, some folks simply take out the mortgage in their own name and then transfer the deed to the name of an LLC or a land trust. This gets around the problem of seasoning, but of course, lenders don't like it and you may not be able to get further loans from them.
11. If i transfer property held in my name individually into an LLC or land trust or corp., will this trigger a due on sale? - Top
A land trust is a revocable, living trust, which is an exemption to the lender's ability to enforce a due on sale (assuming, of course, you remain the beneficiary of the trust). A corporation is definitely a separate entity, so a transfer to it would trigger the due on sale. An LLC that is single-member, that is, with you as the sole owner is a gray area. Under the federal tax code, a single member LLC is treated like a trust; it is not a separate entity like a corporation or partnership. Thus, in theory, you could argue that a transfer of property to a single member LLC is not a change of "ownership" at all. This is yet to be court-tested, and I doubt we'll see it in court until interest rates rise dramatically and lenders start enforcing due on sale clauses. - Updated: July
Thanks for the information. It sounds like I can decide what to do about an LLC after I have closed on the property.