LLC or Trust to hold investment property?

[Kevin S.]

Hi members,

What is the preferred way to hold investment properties?  My attorney(estate planning attorney) suggested two options.

1. LLC or...

2. My JRT (joint revocable trust) that I already have and buy umbrella policy.  

On BP forum it's usually mention of LLC or personal name with umbrella policy, don't remember mention of JRT.

What would you recommend and why?  Thanks in advance!

[Bob Stevens]

How many do you have? 

[Kevin S.]

This will be my first...What do you suggest?  Thanks.

[Bob Stevens]

Quote from @Kevin S.:

This will be my first...What do you suggest?  Thanks.

 Do one, then worry about how to set it up. It may take you months to get one. Worry about getting a deal closed, everything else is easy, 

You can transfer to an LLC after,

All the best 

[Kevin S.]

Quote from @Bob Stevens:

Quote from @Kevin S.:

This will be my first...What do you suggest?  Thanks.

 Do one, then worry about how to set it up. It may take you months to get one. Worry about getting a deal closed, everything else is easy, 

You can transfer to an LLC after,

All the best 

 Hi Bob, I am closing on the property in about 10 days and lender is asking what would I title the property under.  Trust was one of the option given.  Since I never heard of Trust mentioned on BP I got curious and put the question out here.  Appreciate your input.   

[Bob Stevens]

Quote from @Kevin S.:

Quote from @Bob Stevens:

Quote from @Kevin S.:

This will be my first...What do you suggest?  Thanks.

 Do one, then worry about how to set it up. It may take you months to get one. Worry about getting a deal closed, everything else is easy, 

You can transfer to an LLC after,

All the best 

 Hi Bob, I am closing on the property in about 10 days and lender is asking what would I title the property under.  Trust was one of the option given.  Since I never heard of Trust mentioned on BP I got curious and put the question out here.  Appreciate your input.   

Ok now that makes a difference. IMO LLC, I have used them for 20 years, I am NOT a tax expert, I would ask your accountant, and NOT get this advice online 
All the best 

[Shawn McCormick]

@kevin 

@Kevin S. If you are financing, you may be limited to closing in your name. If you are paying cash or seller finance etc, you'll have options. 

I close in a land trust or transfer to a trust after if I'm financing. A land trust provides anonymity (you can hold and transfer properties outside of public records) Then I have my LLC be the beneficiary of the land trust. So liens and lawsuits become more difficult to pursue. I have two great contacts here in Orlando if you need.

[Kevin S.]

Quote from @Shawn McCormick:

@kevin 

@Kevin S. If you are financing, you may be limited to closing in your name. If you are paying cash or seller finance etc, you'll have options. 

I close in a land trust or transfer to a trust after if I'm financing. A land trust provides anonymity (you can hold and transfer properties outside of public records) Then I have my LLC be the beneficiary of the land trust. So liens and lawsuits become more difficult to pursue. I have two great contacts here in Orlando if you need.

 Thank you Shawn.  I will DM you later for the info!!

[Nick Belsky]

@Kevin S.

Personally, I would put everything in the right kind of revocable trust, but there are complications.

As a broker, I deal with a whole lot of lenders who claim they will close in a trust but don't really understand them.  The idea that Trustee has ownership in the properties is what gets most of them.  The trust will own the property, not the Trustees.  I can't count how many times lenders try to assign a percentage of ownership to a Trustee when numerous attorneys have explained to them that it doesn't work that way, etc... Many lenders struggle with umbrella policies as well.  They like to see a single policy with a single property so the costs associated with it are crystal clear.  I'd say about 60% of my capital resources will work with umbrella's but not without obstacles.

I use a holding company, an LLC, to purchase properties, then once completed with renovations, I either sell or hold them as rentals. Once I refinance to a perm loan, I will then QCD the property to the Trust. That way I avoid all the lender hurdles while they try to understand what they are and how they work. So long as you are a Trustee/Beneficiary of that Trust, you are still on title, so if they try to give you crap about it, it is very easy to prove that.

A better way would be to get a non-recourse loan, then QCD to the trust, but the pricing for non-recourse has yet to recover from what I've seen in the lending market so far.

I don't have any experience or insight into a JRT... or what the advantage would be over an entity when doing JV...

Cheers!

[William Chu]

@Kevin S. If you have the first property just make it simple to get umbrella insurance would cover enough. Until you have a hand full of properties the you can have LLC or trust.

[Kevin S.]

Quote from @Nick Belsky:

@Kevin S.

Personally, I would put everything in the right kind of revocable trust, but there are complications.

As a broker, I deal with a whole lot of lenders who claim they will close in a trust but don't really understand them.  The idea that Trustee has ownership in the properties is what gets most of them.  The trust will own the property, not the Trustees.  I can't count how many times lenders try to assign a percentage of ownership to a Trustee when numerous attorneys have explained to them that it doesn't work that way, etc... Many lenders struggle with umbrella policies as well.  They like to see a single policy with a single property so the costs associated with it are crystal clear.  I'd say about 60% of my capital resources will work with umbrella's but not without obstacles.

I use a holding company, an LLC, to purchase properties, then once completed with renovations, I either sell or hold them as rentals. Once I refinance to a perm loan, I will then QCD the property to the Trust. That way I avoid all the lender hurdles while they try to understand what they are and how they work. So long as you are a Trustee/Beneficiary of that Trust, you are still on title, so if they try to give you crap about it, it is very easy to prove that.

A better way would be to get a non-recourse loan, then QCD to the trust, but the pricing for non-recourse has yet to recover from what I've seen in the lending market so far.

I don't have any experience or insight into a JRT... or what the advantage would be over an entity when doing JV...

Cheers!

 Appreciate your response, Nick.  What did you meant by "right kind of revocable trust"?  

I am using conventional loan.  Do you think the type of loan make any difference as far as how I hold the property?  Thanks.

[Kevin S.]

Quote from @William Chu:

@Kevin S. If you have the first property just make it simple to get umbrella insurance would cover enough. Until you have a hand full of properties the you can have LLC or trust.

 Thanks for your response, William.  How do you determine the amount of Umbrella coverage?  

[William Chu]

I don’t know your location and your landlord insurance policy. You can get an umbrella insurance cover up 1 million dollars in just under $200 per year. It will cover whatever happens for your rental and your auto even your primary residence. So depending on where is your rental at. If you are inexpensive area it should be more than enough! Usually your landlord insurance will cover most up. If not enough then umbrella insurance kicks in. Umbrella insurance more likely cover 1 mil per occurrence. So in this case if you have a few more rentals you’ll be fine. Is this make sense to you?

[Kevin S.]

Quote from @William Chu:

I don’t know your location and your landlord insurance policy. You can get an umbrella insurance cover up 1 million dollars in just under $200 per year. It will cover whatever happens for your rental and your auto even your primary residence. So depending on where is your rental at. If you are inexpensive area it should be more than enough! Usually your landlord insurance will cover most up. If not enough then umbrella insurance kicks in. Umbrella insurance more likely cover 1 mil per occurrence. So in this case if you have a few more rentals you’ll be fine. Is this make sense to you?

 I am in Florida.  I keep hearing that umbrella insurance is cheap but I don't find that being the case.  I have had umbrella insurance (without being a RE investor) for many years now and 1M umbrella is costing me about $1400/yr.  I was recommended by the same insurance agent that I should get more because of my net worth.

Do I need landlord insurance on top of home owner's insurance? Home owners ins cost about $2000/yr on the SFH I am buying for LTR. Landlord insurance supposedly cost 25% more than home owner insurance! If that is the case that's about $5000/yr which is insane. Plus umbrella policy! Thoughts?

[Ashish Acharya]

When deciding how to hold investment properties, it depends on your priorities. An LLC is great for liability protection, as it shields your personal assets if something goes wrong with the property. On the other hand, a Joint Revocable Trust (JRT) is more about estate planning—keeping things private and avoiding probate, though it doesn't offer the same liability protection unless you have an umbrella insurance policy. Some people use both: they hold the property in an LLC and then put the LLC into a trust. It's best to consult with your attorney and tax professional to figure out what works best for your situation.

Usually, there are NO tax savings with both.

[William Chu]

Hahaha you need to shop around even 5 mil policy still under $500. 

[Nick Belsky]

Quote from @Kevin S.:

Quote from @Nick Belsky:

@Kevin S.

Personally, I would put everything in the right kind of revocable trust, but there are complications.

As a broker, I deal with a whole lot of lenders who claim they will close in a trust but don't really understand them.  The idea that Trustee has ownership in the properties is what gets most of them.  The trust will own the property, not the Trustees.  I can't count how many times lenders try to assign a percentage of ownership to a Trustee when numerous attorneys have explained to them that it doesn't work that way, etc... Many lenders struggle with umbrella policies as well.  They like to see a single policy with a single property so the costs associated with it are crystal clear.  I'd say about 60% of my capital resources will work with umbrella's but not without obstacles.

I use a holding company, an LLC, to purchase properties, then once completed with renovations, I either sell or hold them as rentals. Once I refinance to a perm loan, I will then QCD the property to the Trust. That way I avoid all the lender hurdles while they try to understand what they are and how they work. So long as you are a Trustee/Beneficiary of that Trust, you are still on title, so if they try to give you crap about it, it is very easy to prove that.

A better way would be to get a non-recourse loan, then QCD to the trust, but the pricing for non-recourse has yet to recover from what I've seen in the lending market so far.

I don't have any experience or insight into a JRT... or what the advantage would be over an entity when doing JV...

Cheers!

 Appreciate your response, Nick.  What did you meant by "right kind of revocable trust"?  

I am using conventional loan.  Do you think the type of loan make any difference as far as how I hold the property?  Thanks.

 There are a number of reasons folks want an IRrevocable trust but if you plan financing and vesting directly to the trust, revocable is the path of least resistance.  Very few lender will lend to irrevocable trust.  Even for Fannie/Freddie products, to qualify, the trust must be an Inter Vivos Revocable Trust.  Anything else will not qualify under the current guidelines.