Transferring ownership of a property?

Question

Hey everyone, I'm pretty new at this and am working on having my first deal done before the end of the year.  I have my strategy for acquiring my first property pretty much down, but there is something I am concerned about.

I was planning on starting an LLC and getting the property in the name of the business.  However my most likely source of financing (A bank that I work for) does not give mortgages to entities.

My question is, how difficult would it be to transfer the ownership of a property from myself to an LLC after the fact? Is it something that could be easily done, or should I search out another source of financing?

Rob Beland · Answer

Part of the problem with BP and similar sites is that people hear an idea like setting up an LLC and think it's absolutely necessary because so many people have done it at the advice of other investors that have been misinformed by the next investor. Even an attorney will advise you to do so in some cases but guess who they advise you to use to do all the paperwork? Them. They are making money. Not you. Even guys like Robert Kiyosaki are to blame. Look at what is said about his book "Own Your Own Corporation", "...legal secrets that the rich have used for generations to run their business and protect their assets." Really??? In this day and age there are secrets that the rich use to pay less taxes by way of setting up a corporation/LLC?

There is too much information out there and every situation is different. I've asked on several threads for somebody to give a reason to set up an LLC that will result in more money in the pocket of the investor than if he operated as a Sole Proprietor. I have never heard one. Maybe there is somebody out there with some unique situation that can answer the question but I doubt it. It's just not the case.

As far as liability, any investor and I will venture to say EVERY investor on this site that borrows from a commercial lending institution whether it be through an LLC or an S-Corp. is going to be personally liable for the debt of the entity. I used to work for the largest residential developer in Central MA and he had to personally sign for every loan from every bank he did business with. Go into a bank and show them how many millions of dollars you have in your LLC. They know you can walk out the door that day and shut down the LLC and liquidate it. Then where is the bank going to get their money? From you.

A lot of people talk about protecting your personal assets from liability and limiting your risk to what you put into the LLC. This is not the case. It's false. If you look at tort law which is what 90% of property owners will be dealing with (negligence) such as slip and falls, lawsuits about a railing that maybe came loose and somebody fell or lead paint or any of a million lawsuits, the law says that the LLC can and will be held liable as well as the "owner" of the LLC personally. You can't shield yourself from that type of a liability. You can bring your LLC paperwork to court with you and your Rich Dad Poor Dad book with highlighted excerpts but you better have a big savings account to defend yourself as well.

There are many people on here that are a lot smarter than me and I always hope to hear from them but I will continue to share my opinion that LLCs and S-Corps are a waste of money at the level of investing you see from 99% of the people here on BP. Buy insurance. It's cheap. Buy a lot of it. Keep your money in your own pocket.

Michael Worley · Answer

There is zero difference between an S-Corp's tax treatment, a Partnership and a Sole Proprietors treatment of income. They are all pass through entities. So from a tax perspective having an S-Corp or having schedule E income or having Schedule C income on your taxes is exactly the same tax paid.

The only difference comes into whether it's a passive stream of income (i.e. owned by you personally,  as a non real estate professional ) or an active stream of income (i.e. you own a business that makes money buying and selling property). The passive stream is exempt from SS/Medicare taxation (lumped together as FICA).

A C-Corp has the worst tax treatment of all, if you are using a C-Corp for tax treatment you're getting double taxed on all income.

Crystal Smith · Answer

@Rob Beland  the gentleman who started the post didn't ask if he needed an LLC.  He asked "how difficult would it be to transfer the ownership of a property from myself to an LLC after the fact?  Is it something that could be easily done, or should I search out another source of financing?"  I responded to his question regarding difficulty of transfer & being mindful of the due on sale clause.

Now to your question- what makes you think you need an LLC? Our reasons for the LLC(s) we have are as follows:

• Tax treatment- We have S-Corps for the properties we intended to hold for less than one year (short term capital gain) & a regular LLC for properties we hold for more than one year.  We do it this way because of the different/preferential tax treatments. These laws are always changing & we'll adjust as needed   
• Borrowing - Our business has multiple streams of income.  One of those streams occasionally requires us to borrow from sources that will only lend to businesses.  There's still a personal guarantee but the loan must be to a business
• Asset Protection- We take protecting ourselves seriously so we have multiple levels of protection.  The LLC is just one.  I won't argue whether its a strong protection or not, but this isn't a hobby for us so we use it.

To your question of how does any of this put more $ in our pocket.

• Taxes- Less money to uncle sam
•  Borrowing- We wouldn't have access to these funds that essentially produce income if we didn't have an LLC
• Asset Protection- Hopefully we never have to use it but why make it easy on anyone that wants to go after our assets

Lynn McGeein · Answer

If you search the blogs and forums on this site, you'll find a lot of info and opinions on this subject.  Here is a link to one:

http://www.biggerpockets.com/renewsblog/2014/09/02...

For us, we actually listened to our lawyer and set up the LLC, then found out how difficult it was going to be for loans and pass-through liability, anyway, so just dissolved it and went with an umbrella.

Rob Beland · Answer

Dont waste your money w an LLC. There is no reason for it unless you have a business partner(s). It will just cost you more money. Run your business as a sole proprietor. Why do you feel you need an LLC? And not because people here on BP do it or because of Rich Dad Poor Dad. How will an LLC make you more money?

Account Closed · Answer

@Rob Beland

That is great advice The only reason I used an LLC my wife and i worked in different parts of the country for awhile I did not need her signature on closing and title documents.It is convenient for setting up partnerships and such but not really needed at first It costs me $800 a year in California

Account Closed · Answer

I am setting up and LLC in order to get checkbook control of my IRA. Other properties are owned as a sole propriator.

Johanna S. · Answer

@Rob Beland

Wow what a great advice thanks!!

Glenn McCrorey · Answer

In Iowa, an LLC is $50 to initiate and $30 every two years after that.  If it offers any protection at all, why not do it?  An umbrella policy is also a good idea.

Transferring ownership of a property?

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