my new Fourplex LLC?

Question

Hey everyone,My offer on a four plex was accepted yesterday, so I am super excited about the deal.I spoke to my mortgage broker and let her know that I wanted to do the mortgage in my soon to be created llc. She tells me that I cannot get a conventional mortgage loan in the llc name as it is not allowed. I am confused about this as everywhere I read that you should protect your assets by having the property in the llc. She tells me that most people just transfer to the llc after closing the mortgage. Doesn't that mean I have to do another closing to get it to the llc? Also I know that the mortgage company can demand payment in full if the property is transferred but was told that it very rarely happens so long as the bank is getting the money every month. Has anyone else been in this situation? Any ideas would be great.Thanks Neil Whitney

Neil Whitney · Answer

Account Closed My insurance is obviously my first line of defense. I just put a pile of cash on this four plex and have reserves for repairs and cap ex, however I don't have enough reserves to cash out or else i could have just paid cash. I have other properties as well and am putting them into separate LLC's as it does help limit my exposure for a small investment. One accident away from losing everything at once if its all in my name personally. I was curious how most investors are doing the llc when they currently have a mortgage in their name.

Neil Whitney · Answer

yes I will have the insurances on the properties in the LLC, all accounts will be seperate from my personal accounts, it is important so as not to pierce the corporate veil. I guess here is another question, since I am qualified for the property personally already, if the mortgage company hit me with a due on sale clause, worse case could I not just transfer back into my name personally from the llc?Thanks everyone for the info!

David Farrar · Answer

A LLC is the way to go. Yes you can transfer after the closing. The that being said it is best to have a few different insurances in case someone wants to sue because they slipped on the sidewalk. Congrats on the purchase. Don't forget in in a couple of years to use a 1031 exchange and get a even bigger unit complex.

Jim Blackburn · Answer

You close in your personal name, then quit claim the title to LLC which protects you from personal liability from slip and fall, etc on the property. You can not however be released from liability on the note.

Raquel D. · Answer

I'd be wary of doing anything that triggers a due-on-sale clause, which is what can happen when a property in someone's individual name is transferred to an LLC. Would you have cash to pay off the loan if it got called? If not -- maybe not worth the risk.

Frank Chin · Answer

Most banks who do conventional mortgages does not hold the mortgages but sell it, to FANNIE MAE and other investors, investment syndicates. Such loans call for these loans be in the name of individuals not LLC's. Otherwise, the bank cannot sell the mortgage.And believe it or not, LLC's and S Corps do not protect you from personal liability. I bought a business from a husband and wife owners, with the business held in an S Corp. A customer sued the S Corp for negligence, along with the husband and wife owners, a lawsuit for several million dollars.I spoke to the manager of the business, whom I kept on, he heard the owners as individuals worked in the business as individuals, and they're sued in their individual capacity as managers. I have since done research into it, So if you personally managed the rentals, such as failure to shovel after a storm, someone slips and falls, the LLC and you personally will be sued. Under similar circumstances, if you hire a property manager, the PM and not you, would be sued for negligence, along with your LLC. I read of lawsuits where the manager of a supermarket had a dispute with a customer, assaulted the customer, the supermarket was sued, as well as the manager personally.The other theory is in the eyes of the law, if the business is held in an LLC, the LLC is a mere pass through entity, and corporate shield can be easily pierced.I followed the lawsuit, as my employees had to take time off, go to court to testify. Apparently, the plaintiffs did not know the owners already sold the business and moved to Florida. This, they found this out 2 years too late, and one of the plaintiffs attorney exclaimed "sh*t, we're screwed" when he heard it. Reason is the business was sold for a good million, the owners took the money and bought a home in Florida.Turns out Florida homestead laws protects the home, so if you put the entire million into you home in FL, you protected. Some years ago, I read of a CEO of a major company in a similar fix, sued by stockholders, bought a home, actually an estate worth $137 million, shielded his personal fortune that way, and raised some eyebrows.Apparently the liability insurance for the S Corp didn't cover the husband and wife personally, so they had to separately hire their own lawyers. I since learn they could've bought insurance to cover the S Corp and themselves personally, had their insurance agents advised them appropriately.The end result was the plaintiffs finally settled with the S Corp insurance company as they felt they have little luck going after the owners in Florida.I held all my rentals personally and always bought good liability insurance.