Switching Title of the property to an LLC

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Switching Title of the property to an LLC

Michinori Kaneko
Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes

Hi, I just went into contract for my first rental property a week ago. the property i'm purchasing is already in contract with my personal name, as I read many articles about how setting up an LLC is overhyped. I had every intention to form an LLC eventually when my portfolio got larger (and my potential liability gets larger), but now i'm leaning towards having my own business account segregated from my personal accounts right away. Because of tight closing timeline i don't think I have enough time to setup the LLC and change all the paper work. So here are few questions I have:

1. Is it easy to switch title on the property from myself to an LLC I form at a later date? My property is financed via conventional loan. 

2. Obviously, my first few cashflows will be done via my personal accounts.  Is there an issue from keeping business separated from personal, if I maintained a really detailed excel file that lists all cashflows that's related to my business until my LLC is setup and I have a business checking/savings account setup?

3. which state should I form my LLC at? I live in NY, but my investment property is in Indiana.  I read an article online that even if you register your LLC out of state, you will still need to register the LLC at your local state as Foreign LLC (and you end up paying fees for both states).  

Thank you for your help in advance. 

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Johann Jells
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
8y

We ran our RE from a separate personal account for many years. No problems. As for banks calling the loan if transferred to LLC, there was a a podcast guest this past year who said it was basically unheard of, as long as they get their money they don't care. It was not a problem for us moving our buildings to the LLC. I can see a bank being annoyed if you already have an LLC, purchase personally, then move it immediately. But I'd still like to hear from someone who had their loan called.

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  • Antoine Martel
    Rental Property Investor · Miami, FL · Member since 2017 · 2k+ posts · 911 votes
    8y

    1. Yes.

    2. You can keep it in your personal bank account for now as long as you keep track of it elsewhere

    3. Form your LLC in Wyoming.

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  • Dick Stevens
    Rental Property Investor · Haverhill, MA · Member since 2017 · 290 posts · 185 votes
    8y

    You can't move your property into an LLC if you have a conventional mortgage. Property must be held in a personal name or you risk the bank calling the loan.

    You can use whatever accounts you want.  A separate checking account for the property can be setup in 20 minutes at the bank.

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  • Michinori Kaneko
    OP
    Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    8y

    Thank you.  

    @Antoine Martel why do you suggest Wyoming?

    @Dick Stevens this is very helpful thanks. If I talk with my bank and I have good financials, then maybe they would allow me? I will speak with him first before doing so.  Thank you!

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  • Amanda H.
    Rental Property Investor · Des Moines, IA · Member since 2018 · 15 posts · 2 votes
    8y

    1. You can do a quit claim deed from your personal name into your LLC any time. However, you'll probably have refi into a commercial loan. Can't keep conventional personal mortgage after changing to Business ownership.

    2. If you change to LLC, you need to operate 100% via the LLC name or you risk personal responsibility which is exactly what you're trying to avoid by establishing an LLC. You'll need rents paid to the LLC, checks written from an LLC bank account, insurance policies in the LLC name...everything.

    Just to note, there is no harm in keeping it under your personal name until you grow. If you do, I highly recommend taking out a personal liability umbrella policy for at least $1M should something happen. Most people only have $300k in personal liability on their homeowners insurance. 

    Good luck!

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  • Antoine Martel
    Rental Property Investor · Miami, FL · Member since 2017 · 2k+ posts · 911 votes
    8y
    Originally posted by @Michinori Kaneko:

    Thank you.  

    @Antoine Martel why do you suggest Wyoming?

    @Dick Stevens this is very helpful thanks. If I talk with my bank and I have good financials, then maybe they would allow me? I will speak with him first before doing so.  Thank you!

    Wyoming is very cheap to create an LLC. It's a non piercing state as well.

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  • Benjamin Small
    Rental Property Investor · Jacksonville, FL · Member since 2016 · 20 posts · 5 votes
    8y

    Research the requirements of incorporating your LLC in a different state than the one you are doing business in. States usually require some sort of additional filling in the state you are doing business in addition to the LLC formation paperwork in whatever state you are incorporated.

    I thought about incorporating in Delaware but doing business in Florida and decided to just incorporate in Florida. 

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  • Johann Jells
    Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
    8y

    We ran our RE from a separate personal account for many years. No problems. As for banks calling the loan if transferred to LLC, there was a a podcast guest this past year who said it was basically unheard of, as long as they get their money they don't care. It was not a problem for us moving our buildings to the LLC. I can see a bank being annoyed if you already have an LLC, purchase personally, then move it immediately. But I'd still like to hear from someone who had their loan called.

    2Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    8y

    What would be the advantage to doing the LLC? If it's just a matter of keeping the funds separately, all you have to do is setup a separate personal checking account and have all the income and expenses go in and out of that one. So it's still separate from your normal funds. That's what I do. That account of mine is even called "Rental Properties". There's no comingling between that account and my other ones.

    If you switch to the LLC at the last minute, your financing will likely go down the tubes.

    No one on BP should be the one to advise you on what state to set up an LLC. That should be done with your accountant, at a minimum.

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  • Michinori Kaneko
    OP
    Rental Property Investor · NY · Member since 2018 · 571 posts · 332 votes
    8y

    Thanks everyone this was very helpful! 

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