Can I create an LLC and sell my personal rental portfolio to the LLC?

[Kristina Taylor]

My mother has several properties that have been mismanaged or not managed at all and she has enlisted my help to get caught up, but I'm a bit over my head. Due to covid and the death of her parents, things really slipped. She didn't raise rents, left a unit vacant for 5 years, and didn't pay taxes on 2 of them for the last three years. At this point, 2 sf's are paid off, with the third, a triplex owing 100k, 2/3 rented. All three houses cashflow and she is not interested in selling at all as this is her retirement plan and main source of income, however due to excess cc debt, a high DTI, low credit score and lack of financing options, she is extremely cash poor.

she is at the point where she could and I think should declare bankruptcy on those cc's, and move the houses out of her name. in order to get financing, all houses need to be in LLCs, which they aren't.

in order to kill a couple birds with one stone, my mind goes straight to 1. Create an LLC 2. Get funding for 3 cash flowing properties with a DSCR loan 3. LLC purchases the properties and takes them out of her name. 4. She declares bankruptcy/pays off those cards with the cashed from the sale and moves forward investing as a business entity.

additionally, her personal residence is income producing as well since she rents out two rooms on Airbnb and runs her cleaning business out of an office there. 

my questions are

1. Is this even possible? ...or lendable?

2.What, if any, are the legal implications of this? We don't want to make it seem like we are hiding assets.

3.Should we move her primary-residence to the Portfolio as well? 

4. How do we set the LLC up to make sure it's not going to be considered when looking at bankruptcy issues.

5. Should we sell them for full market value to the LLC or should we just sell them for the price of the debts plus a little extra so the financing from the LLC isn't unmanageable.

please help me save my mom, this is her only retirement plan, she's 56 and although quite spunky and very handy, she's not the spring chicken she used to be and I'm maxed out trying to find a way forward for her.

[Greg Scott]

I see two key problems with this plan. 

1) "Selling" the properties to the LLC would create a taxable event, so you wouldn't want to do that. Transferring them into an LLC is fine.

2) I'm reasonably sure that declaring bankruptcy would result in the creditors going after the properties.  Depending on how you set them up, they may not be able to force a sale, but they might get a charging order against any distributions, which basically tanks your mom's retirement plan.

Two other ideas for you:

1) See if the DSCR loans would be enough to get her out of debt. If that is the case, I'd either skip the bankruptcy or talk to a bankruptcy attorney before going that path.

2) Instead of selling off the houses, what if she sold a portion of the LLC to you? You could move the properties into an LLC and then have you buy shares in the LLC for her. This would require hiring an attorney and create some long-term obligations, but may solve a number of your problems. Moreover, a multi-member LLC, when manged properly, often has more protection than single member LLCs. Talk with a qualified attorney.