Starting an LLC and selling my personally owned rental to it

[Jeremiah Greco]

First time poster here,

I've been renting out my first home for the last 4+ years (same tenant). Just recently, I moved from Virginia (where the rental is located) to Florida. I was trying to sell the property to the tenant, but their credit is pretty poor. I wanted to get the equity out of the house (only 7 years left on the 15 year mortgage) and buy a rental down here in Florida. Just yesterday, I started considering starting an LLC, and selling the rental to the LLC. This would help me recover my VA benefits (which I used to purchase the home), and get a considerable amount of the equity out of the property. With this situation in mind, I have multiple questions:

1) Are there any reasons I shouldn't do this that I'm not considering?

2) What state would you recommend starting an LLC, I hear Nevada is great due to "series LLC", but I'm wondering if that would matter to me if I have to personally co-sign loans in order to finance new purchases. It seems like the I would still be exposing myself to liability unless I was able to buy all of my property for cash.

3) Would I just sell the house for the same price I paid for it originally to avoid taxation on any profits?

4) Since I would have to get a real estate investment loan, I understand I would need 20-25% down. If the house appraises at $200k, and I sold it to the LLC for $150k, would that meet the requirement? Or would I still have to pay 20-25% down?

Thanks for your time!

Jeremiah

[Brett Peters]

Hey Jeremiah, all good questions. 1.) You will have to pay transfer tax from both sides of the transaction. For example if the transfer tax is 5% of value that amount would normally be prorated 2.5% and 2.5% buyer and seller, but you would pay the entire amount because you are both! You are also going to be seeking a commercial loan once it's in LLC which would lower your refinance amount by typically 10% vs a personal refinance. 2.) LLC aren't complete safe havens, you should look at it more as a shell Corp that will place walls between assets. 3.) Selling below market is not wise. Due to the fact your next loan will be based upon the appraisal value of the property which will take into account what it sold for! In other words you are skipping over a dollar to pick up a nickel...take the hit. 4.) I would suggest a HELOC instead of an investment loan. The HELOC can be taken multiple times and can be done at closing. An investment loan will lead to the lender assessing the business itself which will be new and have no real track record. In other words if they dont see 2 years of business tax returns they will most likely tell you to kick rocks. (My best advice is consult a local mortgage broker) Best wishes...Brett