House hacking with conventional lending transferring to LLC?

[Steven Mitchell]

I'm going to house hack in the next several months and going to use the FHA or 203k loan to start my investing. My eventual goal would be to keep reusing the FHA loan multiple times over the next several years with everything eventually be transitioned into my own company. However, I understand that most conventional loans through banks don't want you to put units on LLC and will activate the "due on sales" if you do. So I'm I correct first off? Secondly if that's an issue, how to I put my properties under asset protection?

Steve

[Bob Okenwa]

@Steven Mitchell

When transferring the deed of a property to another person or entity, there is a possibility of the bank calling the loan due. Lots of people say it is unlikely, but you don't want to be the one to find out the hard way. You should look into an umbrella insurance policy to get protection if you do not have an LLC. Above all, you should confer with a local real estate and/or business lawyer for the best advice.

[Andrew Postell]

@Steven Mitchell based on your description I would certainly suggest you speak with a loan professional right away. There are a lot of rules to using FHA loans multiple times in the same geographical area and there are time limits as well. If you were thinking of refinancing out of the FHA loan each time I would also recommend running this by a mortgage professional. Conventional loans have strict LTV requirements on refinancing and it could be tricky getting them to work. Your plan could absolutely work, but do run it by a professional to double-check.

As far as changing the title to an LLC this occurs all the time with no recourse from the bank. The "due-on-sale" clause is important but most don't know what it states and most don't know how it applies. This paragraph of your note states that the bank MAY call the note due. And if they do they MUST give you 30 days to fix the problem MINIMUM. And that's even if it is legal in your state (some states it is not permitted). The truth is that a bank makes a TON of money on your loan. They will not call a note due if you pay on time. This clause does help a bank foreclose on your if you aren't paying on time. Just pay on time and you will be ok.

[G. Brian Davis]

Hi @Steven Mitchell,

Glad to hear you're about to do a house hack! Great way to get a head start in rental investing.

I wouldn't worry about asset protection right now. Focus on the fundamentals: calculating cash flow accurately, finding and identifying good deals, finding a good support network, etc. 

Asset protection is more advanced stuff, and not critical to success at this stage. The fundamentals ARE critical to success. 

I've also found that LLCs are poor protection anyway. 

You might also consider conventional loans if your credit is good - that way you're not limited to just one at a time, and you don't necessarily need to refinance to get rid of mortgage insurance.

Please feel free to PM me any time with questions, and best of luck!