LLC vs. Personal Ownership for a 5-10 Property Portfolio – Refinancing, Insurance

[Ying Tang]

Hey everyone,

I’m trying to figure out the best way to hold a portfolio of 5–10 rental properties (not quite there yet, but that's the plan). I’m debating whether to keep them in my personal name or transfer them into an LLC. Here are the specific concerns I have:

1. Holding Structure:

How do you all hold your properties? Do you keep them personally or under an LLC? What factors influenced your decision?

2. Refinancing & Due on Sale Risk:

I’m considering refinancing my properties to get the benefits of an LLC (liability protection, easier transfers, etc.), but I’m worried about triggering the due on sale clause. Has anyone refinanced into an LLC? How likely is it to actually trigger due on sale issues in your experience?

3. DSCR Financing Trade-Offs:

If I refinance using a DSCR-based loan (which I understand often carries a higher rate), has anyone experienced significantly higher rates after moving properties into an LLC? How do you weigh that cost against the benefits of LLC ownership?

4. Insurance Costs:

The insurance premiums for my rental properties are already high (I received a quote of around $2,500 annually for a duplex valued at roughly $430k – almost double what the seller originally paid). If the properties are owned by an LLC, do insurers like State Farm still cover them, or do I need to look for a specific commercial landlord policy? Are premiums typically higher for LLC-owned properties?

I’d love to hear your personal experiences and any advice you have on structuring your portfolio for refinancing and insurance efficiency. Thanks in advance for your insights!

[Erik Estrada]

Quote from @Ying Tang:

Hey everyone,

I'm trying to figure out the best way to hold a portfolio of 5–10 rental properties (not quite there yet, but that's the plan). I'm debating whether to keep them in my personal name or transfer them into an LLC. Here are the specific concerns I have:

1. Holding Structure:

How do you all hold your properties? Do you keep them personally or under an LLC? What factors influenced your decision?

2. Refinancing & Due on Sale Risk:

I'm considering refinancing my properties to get the benefits of an LLC (liability protection, easier transfers, etc.), but I'm worried about triggering the due on sale clause. Has anyone refinanced into an LLC? How likely is it to actually trigger due on sale issues in your experience?

3. DSCR Financing Trade-Offs:

If I refinance using a DSCR-based loan (which I understand often carries a higher rate), has anyone experienced significantly higher rates after moving properties into an LLC? How do you weigh that cost against the benefits of LLC ownership?

4. Insurance Costs:

The insurance premiums for my rental properties are already high (I received a quote of around $2,500 annually for a duplex valued at roughly $430k – almost double what the seller originally paid). If the properties are owned by an LLC, do insurers like State Farm still cover them, or do I need to look for a specific commercial landlord policy? Are premiums typically higher for LLC-owned properties?

I’d love to hear your personal experiences and any advice you have on structuring your portfolio for refinancing and insurance efficiency. Thanks in advance for your insights!

 Hi Ying, 

Most conventional lenders will not allow you to close in an LLC. There are some instances (Mostly Portfolio Style Banks) where they can allow it. But it typically won't be on a Fannie/freddie Mac loan.

The DSCR loan is not too far off in rate compared to a conventional loan. The main drawback is the Prepayment Penalty Period on the loan. Some DSCR lenders have a no PPP option however the rate and/or the cost will be higher on these. Closing in an LLC is allowed on these loan types.

Most Insurance carriers should allow you to have the Insured Name as your LLC. In terms of a cost standpoint, the insurance is typically higher on a Rental (Do not quote me on this, just giving you information based on my dealings with insurance on the mortgage side). I am sure you should be able to work out a deal with your insurance agent on a policy covering multiple properties.

As for the benefits for closing in an LLC compared to personal name, I would suggest contacting a tax professional and attorney, to see what will suit your needs.