Property taxes, conventional mortgage, Deed in LLC

[Andrew Ginnetti]

Hello BP, first time poster here, and long time podcast consumer.

Have listened to BP podcast for a couple years and finally things came together to purchase my first true investment property. It was a 1031 exchange replacing a rental which was originally my first primary residence; this is where the question begins.

Due to 1031 requiring same tax payer ID on both sale and purchase as part of the exchange, I purchased my rental with a conventional mortgage under my name with the intention to then transfer Deed after closing to an LLC (already created). However, something I didn't consider until now is practically how property taxes and mortgage work if I said that I'd escrow them with the mortgage?

The problem as I see it is this: Mortgage is in my wife and my name, the Deed will be transferred to my LLC and therefore my state (Washington) will expect taxes paid by that entity, and same with my rental insurance.

With this convention can I escrow property taxes and Insurance with my mortgage or do I need to coordinate self escrow?

Thanks and love BP!

Andrew Ginnetti

[John Barrett]

@Andrew Ginnetti I think this is just an order of operation type of problem. I would complete the sale and purchase via the normal 1031 process (escrow & title, facilitator, agents, etc). I would obtain traditional financing for an investment property. This will include standard escrow reserves for your tax and insurance. Once everything is up and running smoothly, you can work with your legal council to transfer the property into your LLC without violating any of the governing rules. You will need to maintain your LLC and follow the associated rules but other than that your mortgage company will handle insurance and taxes via escrow.

I would challenge you to really think about whether or not you need an LLC at this point in your investing? There are additional complicating rules / requirements for operating your LLC in a compliant fashion that could make this option less attractive for you if you only have one or a couple rental properties. Rather, you could look at simply getting an umbrella insurance policy on top of your existing home owners policy to provide the protection you are looking for.

Best of luck,

John