First Time Landlord - Please help!

[Sean Treston]

I own a property in Philadelphia and I am now planning to rent it out (I moved in with my fiancé). I have been searching google for HOURS trying to find out how to do this. I started an LLC and planned to transfer the title to the LLC (and even got written permission from my mortgage company)....only later to find out that transferring the title in PA and Philadelphia would trigger a 4% transfer tax (which I cannot afford to pay). I hate PA!!

So now I'm in a stupor....I don't know whether to:

1) Use the LLC as a 'property manager company' (and then if I go that route, does that require a broker's license in PA)?

2) Lease my property to the LLC and then have the LLC sub-lease to the tenants (and then if I go that route, would I need separate bank accounts for both the LLC's rental business, my rental business, and then need to get business licenses and housing inspections for both me and the LLC. I couldn't find any specific information about sub-leasing in Philadelphia)

3) Rent directly to the tenant - seems like the simplest option at this point.

I originally reached out to Steve Babiak with this question (awaiting feedback) - he seems like the PA/Philly guru when it comes to this stuff. If anyone else has any recommended guidance though, I would greatly appreciate it. This issue is causing me so much anxiety at this point I just want to sell my house haha

I've come to love bigger pockets. I'm a newby but I've already read hundreds of different posts on here and I've learned so much from everyone. You guys are great!

Thank you very much for taking the time to read this message.

-Sean

[Steve Babiak]

I agree with others who say just keep it in your own name, get good insurance coverage, and forget the LLC for now. Your LLC was probably a single member LLC anyway, which means you end up getting the blame one way or the other for any type of mishap. And I'll venture a guess that you will be doing some work along the way your self too. Since you are now in Southampton, I'll guess that your rental is in NE Phila so probably not going to be lowlife tenant types there.

Now, you should set up a separate bank account for your rental property and also separate bookkeeping. Because this is in the City of Philadelphia, you will have to get a CAL - Commercial Activity License (used to be called a Business Privilege License) - in addition to getting a license for renting (housing inspection license IRC). The Phila Dept of Revenue will be looking to collect two distinct taxes - basically gross receipts tax and net profits tax from the CAL account number (usually the owner). So you want to not have any extra income showing up on your rental's books or else you pay the City in taxes.

Let's also discuss another reason to not have the property in your LLC: the need for funding - whether an equity line of credit, equity loan, or refi - funding from a bank will be easier to come by in your own name and more affordable as well. Especially important to somebody who has posted "cannot afford to pay" the 4% ... My guess is that you aren't sitting on enough cash reserves right now to cover major expenses that might pop up while holding a rental.

The other benefit of keeping it in your own name happens if you don't cut it as a landlord and decide to sell. You can still get the Section 121 exclusion on capital gains if you still own it since it was your main residence (you will have to comply with IRS timelines for that of course); the LLC won't get that benefit.

So maybe best for you to keep things simple at first.