LLC Transfers Mortgages and Multi State Planning

[Jim Froehlich]

Fellow BP Members,

This post is looking for inputs (or links to other threads I may be missing) regarding three inter-related issues (I do have an Attorney, Mortgage Broker, and Accountant...but sometimes I gain more clarity by reading a good BP post from accomplished investor).

Example Scenario: I own two rentals in two different states (Rental A, 2-family and Rental B, 1-family) both as personal investment properties. Rental A has an 8% hard equity loan against it (less than 50% of value), which was used to purchase Rental B (free and clear), which is now fully rehabbed and ready to rent. These two will both be partially managed by, and subsequently left to, one of my sons someday. My idea was to create a Manager-managed LLC for each, with Operating Agreement showing me as 99% owner and son as 1% owner and then take a note (either HELO or 1st Mtg) on Rental B and pay off Rental A [because my Mtg Broker in Rental B state is great].

I want my son to take 100% ownership of both properties if I die, but essentially be powerless for now (until his contributions of time/effort or money start kicking in).  So given that...questions...

1. What problems (or paperwork) should I expect from current lender for Rental A when I transfer Rental A into LLC (i.e. due on sale clause)? My 1% member has great credit, but low income relative to the asset.

2. By placing Rental B into LLC BEFORE taking a mortgage out (or equity line out), am I likely making it harder, easier, or same to get this property financed (traditional commercial against residential property) ?? [keeping in mind rental income won't start until next month on Rental B]

3. Does anyone see advantage to maybe just doing a Single LLC in one state (with one of the rentals being listed as a Foreign-entity)? Both my accountant and attorney recommend separate LLCs for each, especially if I decide to use the single-family as a short-term rental.

4. (opinion bonus) Is it worth the extra $2,000-2500 to hire two attorneys in two states to set up these LLCs/OAs versus utilizing some services I see where it can be set up for about $200 each if you add in EIN/OA work and maybe $125/year for registered agent in that state? [don't mean to sound cheap on the new LLCs, but rehab costs/time have been about 30% more than anticipated!]

Thanks in advance for any ideas/opinions!