Own Nothing but Control Everything!!

[Kimberly Rice]

I recently attended a real estate investment class and was advised to never purchase real estate in my name but form an LLC or S-Corp And use this to purchase instead. Does anyone else follow this advice?

[Jonathan Towell]

Yes. Always buy real estate in an LLC. I don't often hear about people using S-Corps, but that is a question for the CPA.

The reason: if someone injures themselves on your property, it will be harder for them to come after your personal assets if that property is in an LLC.

Side note: The title "own nothing but control everything" isn't quite accurate as you still own the LLC which owns the property. But, I see what the title is getting at.

[Cody Barrett]

I think the major obstacle is obtaining conventional financing through your LLC. Creative financing is another story though ; )

But yes, working through the LLC is a great idea. Ask a lawyer to confirm that is what is best for your investing strategy though.

[Larry H.]

With our investment properties financed with a 30 year conventional loan, we had to do the loan in our personal names. We contacted the assessor's office and they gave us a couple forms we had to get notarized, paid another recording fee, and transferred the title into our LLC. The recording fee was only about $80. We have two properties and transferred the title on both of them at the same time.

I asked our CPA about LLC vs Corp. and he told me he would do it in a LLC. He said he wouldn't do it any different than we did. He also told me some attorneys recommend getting a separate LLC for each property. So if you have 5 properties and something happens at 1 of them, the other 4 aren't at risk. I see the reasoning behind it, but we are going to stick with only 1 LLC.

[Larry H.]

I also know an investor who does not have all of his properties in a LLC, but has some in a trust. I'm not real familiar with trusts and felt better going the LLC route.

[Steve Vaughan]

Larry. Make sure you haven't negated your hazard or title insurance by quitclaiming  your interest out of the insured asset.

Much more likely to need the insurance than protection from the 1 in 18 million slip and fall suit everyone seems to fear. Cheers!

[George P.]

I have 30 or so llc and they are all tied to the trust. and most have mortgages, which is the ultimate reason that Noone will want them. 

good luck to whoever tries. 

[Brent Coombs]

Originally posted by @Steve Vaughan:

Larry. Make sure you haven't negated your hazard or title insurance by quitclaiming  your interest out of the insured asset.

Much more likely to need the insurance than protection from the 1 in 18 million slip and fall suit everyone seems to fear. Cheers!

Steve, I couldn't quite tell whether you were reminding Larry TO quitclaim, or were warning him NOT to quitclaim his interest out of the insured asset? Can you please re-phrase it (for my benefit)? Cheers...

[Kimberly Rice]

Thank you for the response. Awesome. They also mentioned that a trust would then own the LLC or S-Corp. Larry H thanks for the details. At this point, I too have conventional loans and my next quest involved if anyone had transferred the titles to the LLC, so thanks for that bit. Also, Steve V., can you re-phrase- for my benefit as well. Thanks guys, I really appreciate it.

[Kimberly Rice]

Asset protection.

[Tom B]

I've been told before that an LLC is used for holding, and S-Corp is used for operating.

[Steve Vaughan]

"Steve, I couldn't quite tell whether you were reminding Larry to quitclaim, or were warning him NOT to quitclaim his interest out of the insured asset?"

@Brent Coombs , @Kimberly Rice , @Larry H. - Larry already quitclaimed out of his personal name.  His original property hazard insurance is in his name as well as his title insurance policy.  I was advising that anyone who does this to first check with both to ensure they will still be covered. 

There is also a small risk of having a DOS violation problem with the mortgage co. Things to consider. I buy my 5+ unit commercial apt buildings in LLCs, but don't quitclaim little houses into them for the above reasons. Just what a laymen has done. Not an attorney. Do what you want :)

[Matt Motil]

Originally posted by @Steve Vaughan:

"Steve, I couldn't quite tell whether you were reminding Larry to quitclaim, or were warning him NOT to quitclaim his interest out of the insured asset?"

@Brent Coombs , @Kimberly Rice , @Larry H. - Larry already quitclaimed out of his personal name.  His original property hazard insurance is in his name as well as his title insurance policy.  I was advising that anyone who does this to first check with both to ensure they will still be covered. 

There is also a small risk of having a DOS violation problem with the mortgage co. Things to consider. I buy my 5+ unit commercial apt buildings in LLCs, but don't quitclaim little houses into them for the above reasons. Just what a laymen has done. Not an attorney. Do what you want :)

I agree with Steve here. Insurance companies love nothing more than to take money and not pay it out. When you go and make a claim in a year and the title is in XYZ, LLC and the insurance is in your personal name, they will deny your claim. I would bet my next paycheck on it. They will say that they are insuring the person named, not some company and they weren't notified that the title transferred out of their client's name.

Most banks now will call the loan due when they realize the title has transferred. They aren't sitting down at the county recorders office, so how do they know title was transferred? When you charge the name on the insurance. The new insurance documents will list the mortgagor as an additional insured and they will get a copy. When they see that the title has been taken out of your name, they don't care if you're moving it into an LLC for asset protection or if you've sold it to some third party investment company. They will call the loan due or tell you to switch it back to your own name within a certain time frame.

[Kory Thaut]

@Kimberly Rice @Larry H. The quitclaim deed does void the original title insurance.  It would be advised to have instead drafted up a warranty deed.  The quitclaim is very popular b/c it's so easy for one to draft up and do on their own for a couple bucks.  

[Kimberly Rice]

Ok. So Matt is there any way around this or do you just move forward with hopes the mort company doesn't call the loan due? What about the umbrella policy as an alternative?

[Al Wilson]

Yes, we always make investment purchases in an entity. Good luck.

[Larry H.]

this info is good to know. The title attorney is the person who told us to go the route we did. He never mentioned, and I never thought to ask, about it voiding the title and insurance policies. I will follow up with the insurance company to find out more. 

We tried to do the loan in the LLC name, but the mortgage company wouldn't do it that way.

[Larry H.]

Just to update, I just called my property insurance company and asked them if changing the title voided the policy. They said it did not, but I needed to add the LLC as an additional covered party, just as if I were adding an additional person that needed to be covered.

I still need to find out about the title insurance  

[Steve Vaughan]

The insurance issue is rarely addressed. Sad the advisors, attorney's we rely on,  who recommend doing this don't either. Was the deed of transfer also recommend via quitclaim? Weakest deed available.

Thanks for the update about adding the LLC as addionally insured on your hazard policy. I hope you will help spread the word to all the other 'sophosticated' investors that ask about doing this, Larry. There are tons of them daily on here.

[Kimberly Rice]

Thanks for the replays, lots to think about and consider.

[Michael Hunter]

One other direction that I did not see mentioned here is adding more personal insurance coverage, i.e. an umbrella policy. In most cases I have gone the LLC route for reasons listed but I have also been advised in the past that simply having the appropriate coverage for the risk being taken can be a solution. I have personally owned properties where I was operating a business and owned them personally not in an LLC. Everyone will have to talk to their team of advisors about their situation and strategies to understand fully what legal and tax benefits they can get from different methods.

[Don Konipol]

Title insurance is NOT voided by transferring title.  The INSURED's interest in the property is protected forever by the title policy.  What's not protected is the interest of the party the title was transferred to.

So lets say you transfer title to an LLC you own. Then a title issue arises. Theoretically the LLC would have to make a claim against you (the insured) and the title policy would defend your claim to title , which correspondingly defends your LLC' s claim. Here's the big IF. Your LLC must have a legal claim against you resulting from the transfer of deed. A quit claim deed just says that the seller is selling whatever interest in the property he has and is not warranting title, so a quit claim deed might not establish sufficient liability. A special warranty deed warrants title beginning in your period of ownership, so while somewhat stronger still might not establish sufficient liability if the title claim arise from some issue before your ownership. A general warranty deed warrants title inclusive and through your period of ownership, and so is most likely to cover a title issue, but would not cover a title issue arising after your transfer to your LLC.

[Sean Kuhn]

Why not just get a 1 or 2M umbrella insurance policy and forget about the LLC?

[John S.]

@Don Konipol, in that case, if you do conventional financing and get title under your name, and then quit claim to your LLC or other entities, would you essentially always be covered by title insurance? I assume you will only have issue from the past history titles but since you are insured from the time of purchase then you should be good.

I was also concerned like Steve, if quit claiming, removes your title insurance.