Transferring Properties to LLC

[Ryan Pritchard]

Hello Everyone,

I am looking to get some advice from some more experienced investors. I have three rental properties that I would like to get moved to an LLC and out of my personal name. However, when I checked with the bank to make sure they were okay with that, they said they didn't approve the transfer and could trigger the due on sale clause. I am not sure where to go from here. I have heard of other strategies using a land trust, but would like some guidance if possible.

Thank you all so much! 

Ryan

[Aaron Byrne]

The bank is probably concerned about the change as it would, effectively, transfer title of the property to a new borrower (the LLC). I believe the company is considered, in the eyes of the law, an entirely different entity than yourself personally, and carries with it an entirely new set of lending considerations for the bank. I have heard that folks often quitclaim their personal ownership in the property to an LLC post-closing and just not tell the bank until they go to resell the property down the road. That is a potential risk you take however, as the bank would likely be in its right to trigger the due on sale clause if it ever found out since a transfer of title took place.

I do believe land trusts would be an exception to the due on sale clause. I have heard they are relatively simple to form, with the main items needed being: 1) a trust agreement forming the trust, and 2) deeds transferring title of the rental properties to the trust. I am not an attorney, however, and recommend you seek professional advice on the subject prior to moving forward. These trusts are legal in some states, but may not be in the particular areas of interest to you personally. There are also likely tax implications, so be sure to seek help from a CPA to fully understand those repercussions as well.

Best of luck!