Transferring Rental Into LLC
Hi All,
Let me first explain my situation. I bought a SF home (in my own name) and rented it out last Nov. on a 1 yr lease. Since that time I've become edumacated about the business (partly due to this site...thanks!) and formed a LLC in my home state. Just this past week I received my federal EIN number. So my plan is to set up a bank account (I currently co-mingle funds...I know it's a big no no) and start operating like a real business.
So first question - Do all of you set up a business checking/savings account for each LLC? My credit union charges quite a bit for one whereas my personal account is free. Is there a good bank that I should use instead of my CU? Also, do most of you get a debit card and checks? I ask because I'm not sure how that works...in the top corner do I put my LLC name and address? If so, how do I sign receipts?
#2) I want to quit claim my rental over to my LLC. Please explain exactly how I do this. I really don't know but think it's just one form isn't it?
#3) My tenants lease is due to expire in about 70 days, about 30 days prior I planned on having her sign another 1 year lease. (She told me during the move in that she planned to stay 5-7 years). Well I want the lease to now have the LLC's name on it and not mine. Is this OK? How do I sign this? Does it need to be noted anywhere in the lease that the property was transferred/sold? I don't plan on changing anything besides the rent and who she makes the check out too.
Really sorry this is so long! Please help though!
If you have a note on the property the quit claim may activate the due on sale clause. Additionally, a property in the name of an LLC may not qualify for the type of mortgage you have. Many lenders consider this commercial and charge higher rates.
Insurance rates should remain the same. Never seen a differnce there.
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Hope this Helps!
Bill[ Edited by telemon on Date 08/25/2004 ]
telemon,
Thanks for the response. I'm not quite sure though what you mean by my LLC not qualifying for my mortgage. The property already has a mortgage so why would the LLC need to qualify for it. Unless this has something to do with the due on sales clause. My understanding was that mortgage companies don't really even care about that clause as long as they are getting paid. From my research I believe a warrenty deed keeps title in my name but is like a promise that I will transfer title to the new owner (my LLC) when the property is sold? Is this correct? By frogger saying I should do this instead of quit claim it was only because of the due of sale clause. Would using this type of deed hold the liability in my lap instead of putting it in the LLC?
Thanks again!
Great thread. I've been trying to get info on all of these questions. Hopefully the more senior folks here will keep dropping useful nuggets on us!
My understanding on this, and please correct me if I am wrong, is that you should use a land trust. Again I hope I am not mistaken but I am pretty sire you put the property into a trust with you as the beneficiary and the LLC as the trustee. This won't trigger the DOS clause and helps limit your liability more. Now I could be mistaken on who is the trustee and ben. I want to set mine up so that my lawyer is the trustee and the LLC is the benificiary. corrections on this anyone?
Joe
[addsig]
Any more suggestions from the higher experienced and Gurus????
This is how I have it, if I,m doing something wrong, please LMK so that I can make changes. It depends on your state. CA is a grant deed state, we just grant the property from the individual owner to the LLC, since the members of the LLC are the same original owners ther is no reassesment on taxes or due on sale. AZ is not a grant deed state, my attorney there does quitclaims to move properties into LLCs. Find out what your state does. Also, don't forget to do a living trust and make the living trust the member of the LLC, not you. Properties in a LLC are considered commercial so you need a commercial insurance with its own umbrella.
It is highly unlikely that moving your title over to the LLC will trigger the due on sale clause in your mortgage. HOT TIP - don't tell the lender, they'll never know as long as you are the sole shareholder.
Also, you don't need an EIN for your LLC, that's too much work. The IRS considers sole member LLC's to be "disregardable entities" - you don't even have to file an LLC tax return. Just report it on your schedule E as usual and enjoy your form protection.
Chance in Indy
An EIN isn't necessary, but you'll need one to open a business or commercial account. I've found insurance harder to get when property is in an LLC too.
EIN...you'll have to have one to open a bank account for the LLC, probably also for any state tax returns.
[addsig]
Thank for great info on LLC's and real estate. In reference to a free businness account look up Washington Mutual Bank. (www.wamu.com) They offer a Free Business Account with free Check Card, free online service and bill pay. They also have a "no annual fee" Business Credit Card. Only drawback you may have, would be if they are not in your state. If that doesn't cause an issue for you they can still open the account for you. You will have to pay for checks, but with free bill pay who needs checks!
ew86 has it correct as to structure (get the book and understand the logic).
As to Tax ID. If the LLC is a 1 member LLC it does not need a unique Tax ID. In this case he Tax ID for the bank account is you SSN.
If the LLC has 2 or more members then there much be a unique Tax ID and an annual tax return needs to be filed.
I have a single member LLC and there was no problem opening a bank account with my SSN.
Depending on why you are setting up a LLC, you might want a separate Tax ID so that it is slightly less obvious that you and it are the same entity at some level. This is not real protection as any review of your tax returns will show the LLC.
John
[addsig]
Thanks John for confirming what ew86 said. It seems to make perfect sense to me to set it up like that. Can you put more than one property in a trust? Or should I set up a new LLC/trust for each property? I know how to form a LLC, now I just need to learn how to set up a trust...
Edcanfield,
Yes, you can have more than 1 property under one property. In the trust, you specify what property(ies) under that trust. It comes down to protection you want vs. cost/time.
I set Land Trust by myself and my trustee is my sibling. My bank offers free notary. In this case, I think it's worth to create separate Land Trust for each property. Many people use Trustee company. It can cost you about $125-$175/yr.
As far as LLC, yes you can have multiple properties under 1 LLC. Again you have to weight Protection Vs. Cost//Effort. In AZ, to setup LLC only costs you $50+ads, no annual filling, no yearly franchise fee. In CA, I believe you have to pay $800 to setup a LLC and there is annual fee and filling. If you use statuary agent, another $100-150/yr for each LLC. In my opinion, in CA case, you can use one LLC for multiple properties, then buy "Umbrella Policy" .
My husband and I recently purchased a multifamily and are worried about triggering the due on sale clause if we transfer to our LLC. If we were to go the land trust route (with LLC as beneficiary) does that not violate the DOS clause? Or is it ok? I think I need to read Bronchick's book.
Quote:
On 2004-09-23 09:12, nycnewbie wrote:
My husband and I recently purchased a multifamily and are worried about triggering the due on sale clause if we transfer to our LLC. If we were to go the land trust route (with LLC as beneficiary) does that not violate the DOS clause? Or is it ok? I think I need to read Bronchick's book.
My understanding is that placing your property in a land trust will not/can not trigger the DOS clause. This is one of the main reasons I'm looking into it.
ew86,
Thanks for the tip about the bank and land trust. I will see if mine offers the same.
Do you know if the Land Trust has the same kind of asset protection as the LLC?
I'm fairly new to LLC's but in my opinion I think it best to put each property into its own LLC. If you are going to protect your investments from your personal property you may as well protect your investments from each other and pay the $40 (at least in KY) and form a new LLC.
Quote:
On 2004-09-22 12:15, edcanfield wrote:
Thanks John for confirming what ew86 said. It seems to make perfect sense to me to set it up like that. Can you put more than one property in a trust? Or should I set up a new LLC/trust for each property? I know how to form a LLC, now I just need to learn how to set up a trust...
Does anyone know if a married couple is considered a single or double member of an LLC?
Your inusrance needs to be in the name of your LLC, which is the owner.
You need to notify your homeowner's insurance company. Otherwise, you are buying insurance in your name for a property you don't own. I just transferred title of my house to my LLC and it didn't cost me anything more for the insurance.
Land Trust will not trigger DOS.
Do you know if the Land Trust has the same kind of asset protection as the LLC?
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Land Trust and LLC are two different protections.
Land Trust protect your privacy (ie: public records show your trust and trustee. It requires extra efforts to find who is the beneficiaries of a trust). Also Land Trust allows you to transfer a property ownership without triggering DOS.
LLC separate your property from other entities. If you get sue the worst can happen is you loss whatever under that LLC. ie: they can't after your personal assets such as your house, cars, retirement funds,.