Pooling personally owned assets into LLC

[Jim Klapmust]

I am working on a plan to work with my two brothers to collaborate on a property investing portfolio. Here is the scenario and questions I have about how to manage this process successfully.

I own four SFR. One of my brothers has two SFR. The third brother has no rental properties, but can be considered the cash investor in this deal. I bought my SFRs as primary residences over the past decade as I had moved around for jobs and life events (married, kids, etc). My brother who owns two SFRs did the same. Our initial plan is to pool our assets, under a LLC, and then invest in property together. In other words, our business plan would be to consolidate under one company to establish assets in a portfolio for future financing needs and larger deals.

I have read through the forums about the Due On Sale clause, going into business with family members, the need for umbrella insurance, the need to speak with a lawyer, etc. But here are my general questions:

• 1.What is the best strategy for honestly going about moving assets out of my name and into an LLC and avoiding an issue with the lender and the due on sale clause? I see several options: refinance with private/portfolio lenders without the clause, or call my lender and ask nicely (ha ha) to amend the contract, or pressure my lender into putting it in writing because I'll take my business elsewhere (essentially threatening refinance with another institution and strike the clause during negotiations).

• 2.Referring to question 1, the reason for moving the assets is to establish an LLC with something of substance, so that it can be leveraged in future deals. Are there better strategies than this, or is it recommended to pool assets like this?

A few things to note, all properties have perfect payment history and all have traditional financing. All are cash flowing, but not all are what I’d call “investment grade.” Remember, I bought these as primary residences and held on to them for a myriad of reasons, and I think it would be best to continue to retain them.

I’d appreciate your thoughts, and I am happy to go into further detail. Thanks!

Jim