Transfer a Conventional Mortgage to an LLC: Risks vs. Upside

[Steven Taylor]

Hello Folks,

We have decided to hold an investment property in an LLC and are discussing financing strategies for the property and would like some advice.

Option 1: Get a commercial loan for the property under the LLC name and most likely pay a higher rate.

Option 2: Get a conventional loan under our name and transfer the property to the LLC.

We have heard the risks associated with Option 2 are:

1. The mortgage could be called because of a due on sale clause.
2. The property could lose its insurance coverage.
3. The LLC would not provide the protection we are looking to obtain due to a risk of "piercing the corporate veil" because we purchased it in our name originally.

I would appreciate any advice from folks who have first-hand experience with these scenarios!

Thanks,

Steven

[Grant Thompson]

Hello Steven,

I know people who have taken both routes, personally I find it easiest to keep it all under an LLC at time of acquisition and not to worry about the hassle. Depending on loan size and lender, the rates can be pretty similar between commercial/hard money loans and conventional investment property loans.