SAN DIEGO: How do I transfer my commercial property to my LLC?

Question

So I finally closed on my first commercial property in San Diego on 12/31/12.  The escrow placed the property under my name and my wife's name but I understand I need to move the property to a LLC for asset protection.

Using Legalzoom I finally got my LLC formed a few days ago.  But how do I transfer ownership of the property to the LLC?

Do you know which form I need to use from the san diego assessors office to make the transfer?  Is it the quit claim form?  I called the assessors office but the rep I spoke to did not know and just referred me to their website.

http://arcc.co.san-diego.ca.us/services/all_forms.aspx#recording

Thank you for your help!

Steven Hamilton II · Answer

James W.,

That website does not look very professional. Also, note that it probably has not been updated since 2010.

You can definitely use an S-corp to hold properties.

-Steven

James W. · Answer

my understanding is a S corp is used if for running a business and a LLC is for real estate property.  I have my current business (not real estate related) under a S corp.  Are you runnning a real estate company or just holding properties to collect rent?

I found an article about this subject:

http://bizadvisor.com/limitedliabilitycompanyforrealestate.htm

Joel Owens · Answer

James not trying to offend anyone but if you just bought that property of that scale and are going for more I wouldn't be using legal zoom to do my documents.

I also would not be making decisions about asset protection and structure from talking to my real estate broker or CPA.

While they may have ideas from experiences they have had it's best to have a specialist for each part of your team. I do not give tax advice or asset protection advice as that is not my expertise. I instruct my clients to meet with the appropriate experts to get their questions answered before making a purchasing decision etc.

Each person overall goals and structure is different which is why general advice on these topics will not have the same guidance and direction as sitting down and planning with the expert in their field.

When I do deals for clients they have their own CPA or tax attorney, legal and asset protection attorney, 1031 company or I have someone, engineer for site inspection,phase one, cost reserve stable etc.

There are 2 main components being the tax structure and asset protection structure. You have to find the balance of the tax structure you like along with the asset structure. With the kind of money you have you would have money well spent spending a few hours with an asset protection attorney.

They can talk about what is best today and how to modify things in the future when things change. Remember the asset part will often be at odds with the taxes part so the balance has to be found.

James W. · Answer

Hi John, that is awesome I just noticed you are in San Diego also. Just wondering what do you do for all of your properties?  Do you put each in a separate LLC or do you own them as a sole proprieter?

Maybe I will just do a hybrid and just put all my future properties into one single LLC.

John Mireles · Answer

James:

The problem with putting each property in a separate LLC is that you're then stuck paying $800 per year to the state for each and every LLC. THen you'll need a separate liability policy for each LLC plus one for yourself. The costs begin to add up so you need to decide if the cash out of pocket is worth the extra (often illusory) protection. My suggestion to you is to form a relationship with a knowledgable attorney now so that as issues come up and your wealth grows, you can pick up the phone for some guidance.

Keep in mind that attorneys tend to be conservative and like to recommend things like LLC's. It puts money in their pockets for doing the work and it protects them too. (If the worst case did happen and they advised you not to get an LLC, you might sue them for legal malpractice.) I use Joan Walsh at www.fosterwalsh.com in San Diego. She's good, straight to the point and specializes in small to medium sized businesses and their owners.

Steven Hamilton II · Answer

James W.,

That is not true.  Not everyone thinks that; however, they are trying to gauge your situation.

High net worth depends upon how long it takes you to accumulate what you define as high.  You mentioned that you have a business and that alone to me in my situation says consider the LLC by at least talking to an attorney.  If a tenant knows you have a good net worth or earning potential then that can make you a target.

The issue here is that CA has a HIGH annual franchise tax for the LLC.

-Steven

James W. · Answer

the person I bought the commercial property from had the property in a LLC and my broker said to put each commercial property in a separate LLC.  My CPA however seems to think I can either way.

I am planning to accumulate a lot more properties in the future.

So a LLC is only worth it if you are "high net worth" not high earning?  I assume if everything goes well, someday I will be high net worth.  How much money is considered "high net worth" before a LLC is necessary?

James W. · Answer

no offense taken, sounds like everyone thinks a LLC is a waste of money.  the unfortunate part is I already formed the LLC so should I just tell the secretary of state to inactivate the LLC?

John Mireles · Answer

James:

Not trying to bust your chops, but there's a difference between being in the top income bracket and having a high net worth. Attorneys look for the big, easy money. Garnishing your wages, significant though they may be, is not something any plaintiff attorney is going to want to do.

Also, the property may be worth $1.5 million, but what kind of equity do you have in it? What kind of equity do you have in your home? What kind of cash and securities do you have on hand? If you're worth millions, then you should be having this conversation with your lawyer and not waste your time with advice from someone internet guy who may or may not know what he's talking about (even if I did handle claims for an insurance company in my previous career).

Having said that, you can bump your limits up by a million and then add an umbrella policy which would provide excess coverage to all of your policies (home, car, investment property). One more thing, before you go spending money on an LLC, you should bump your auto liability limits to the maximum (generally $500k) because that's where the real liability is. Hope that helps.