How can I transfer a property I own from my name to my business

Question

Hello everyone, I live in Massachusetts and I want to acquire a multi family building using my FHA loan. What are the steps I will be required to follow to change the building from my name to that of LLC I plan on creating.

Thank you for your advice in advance

Account Closed · Answer

Talk to an attorney about doing a Quit Claim Deed. Keep in mind that there may be a clause in your mortgage agreement that if you change the property into some other name, they may have the right to call the loan due. It's called the "Due on Sale" clause. There may also be transfer fees involved. I know Maryland and Washington have those fees, not sure about Massachusetts where you seem to be from. Call an escrow company/attorney and they can tell you over the phone.

Ian Joshua Kawere · Answer

I would like to extend my appreciation and gratitude to each one of you who has taken out their time to share their knowledge with me regarding this post it has been very informative and eye opening.Thank you all.ian.j.kawere

Nikolay Advolodkin · Answer

@Joe Norman @Jason Regan I think the advantage of putting it into an LLC is that it protects your personal assets from a lawsuit. If the property is in your name then people that sue you can also come after your property/properties. The lawsuit doesn't only have to come from the tenant. It can come from a car accident or a guest that hurts themselves at your house party or numerous reasons... If it's an LLC, it's much harder because you need to pierce the veil. Also, the more successful you get, the more likely you are to get sued because all of your information is public record. Being a successful person with multiple properties opens you up to more lawsuits. I also heard that you can just talk to the bank and they can ask you to switch it back to your name instead of forcing you to pay everything (although I can't confirm this).

Brian Walters · Answer

I've asked similar questions and looked into this some. Agree with most here in that speaking to a lawyer is the best course of action.One thing I have learned from speaking to others is a LLC is a business, therefore not qualified for a FHA loan. If you were to purchase through the LLC from the start it would require the higher percentage down payment than a FHA would require. Also, as others have mentioned, the lender could require the full loan amount due on sale when it's moved from your name to the LLC.Definitely speak with local professionals before moving forward with something like this.

Joe Norman · Answer

To me, no its not worth the headache or the more expensive financing. If you do go that route then remember that each LLC needs its own bank account, its own set of books, etc. Any commingling of funds or businesses activities will weaken your ability to silo the RE in its own LLC.

Nikolay Advolodkin · Answer

Ugh, lawyers are so frustrating... I also spoke to a few lawyers and most of them recommended the exact opposite haha. Every property in an LLC. I'm actually glad to hear that there are successful investors that don't put their properties into LLCs. To be honest it's a bit annoying to create and manage so many LLCs. "Lots of people who want to buy and rent property use their own names. But I don’t recommend this option, because if you or one of your rental properties suffer a catastrophic financial loss (not likely but possible), your creditors will go after not only your business assets but your personal assets as well, which includes money you have in the bank, your home, car, and other possessions."McElroy, Ken. ABCs of Buying Rental Property (pp. 60-61). RDA Press, LLC. Kindle Edition. What do you all think of that? Not worth the headache?

Joe Norman · Answer

My understanding, after speaking with a couple of lawyers, is that this liability protection is more theoretical than it is practical when it comes to small scale REI. The advise I received, and that I follow, is to keep the properties in my personal name and carry a substantial umbrella liability policy.

Tom S. · Answer

@Ian Joshua Kawere A $2M umbrella policy costs around $1000/yr and covers all of the potential issues you mentioned: tenants, car accidents, etc.Respectively disagree that the more you do real estate, the more likely people are to sue you because your name is out there. I've been in the business for just under 20 years now, have had hundreds of tenants, and no one has sued me. Most of it is just running a good rental business. When you buy a place, there may be inspections by the insurance company, and maybe the fire marshal. If the fire marshal says new smoke detectors are needed for code, upgrade them. If the insurance company says a railing is missing on the stairway: fix it, take pictures, document it.

Colleen F. · Answer

@Ian Joshua Kawere you can file a homestead exemption in MA to protect part of the property value from lawsuits. Do this when you close. You should also get umbrella insurance. An LLC with a low money down FHA mortgage and if you don't have alot of assets might be more then you need. As others have said you can quitclaim it to an LLC but it might trigger due on sale clause meaning you need to get an investment loan with higher interest and 20% down.

Jason Regan · Answer

@Ian Joshua Kawere I agree with what people said here. There is the implication that the note is called due since its a "sale" technically. What about just holding in your name and getting a balloon insurance policy to cover them?