Tax Implications - First 2-Family Rental Property

[Shack R.]

Hi all, pretty new to the forums.

My brother and I have opened up an LLC and have put an offer on our first 2-family for a rental. We have some questions on loans/tax implications for the business that we're hoping to get some feedback from others on.

• We are able to get a co-signed personal residential loan as an investment property.  20% down and 4.5% APR.  Alternatively, we're able to get a loan against our LLC with us as personal garuntee's on the loan for 20-25% down and 5% APR.  Besides the liability protection, how do these 2 options affect taxes?
• If we go the personal loan route, we can still run the management of the business through the LLC - again, interested in tax implications for this scenario if anyone does this.
• The personal real estate lender notes that you can deed the property to the LLC after purchase. However, the Lawyers seem to agree that this would void the mortgage because of the "Due on Sale" clause in mortgage loans. Found online:
  • Can I purchase an investment property and hold the property in an LLC or corporation for liability purposes? Fannie Mae and Freddie Mac do not allow for their loans to be closed in the name of an LLC or corporation. To get around this, many investors close initially with their names on the title and mortgage, then transfer the title into an LLC for liability protection. There are differing legal opinions as to whether the deed transfer triggers a “Due on Sale” clause which could void the mortgage, but in practice I have never seen this happen.
  • I've also had people tell me: 
    • "As long as you do not transfer beneficial interest in the property, the due on sale clause does not get triggered. He cited the example of a parent putting their home in a trust for their children. If you and your brother buy the house and are the principles in the LLC, this would not come into play."
  • Who is right and who is wrong?

In general, we just want to be set up right and obviously with the minimal up front and ongoing costs, with the best tax implications at the end of the year.

Thanks all for sharing your experiences.