Is it time to move rental to an LLC?

[Amber Krueger]

I'm pretty fresh in the real estate world, but am looking to expand over the next couple years. My first property was a condo that I lived in and rehabbed. There is a HELOC on this property that will be used for a future property. I'm now renting that out and rehabbing a single family which is my current residence. I'm looking to purchase a multi-family that needs some lipstick in the near future! I have an LLC already established for yoga business that, due to Covid and my attention being focused on RE, is pretty null and void. I'm wondering if I should put my condo under the LLC and get a credit card under that entity to begin building business credit for a future loan or continue with things as is. Thanks for the feedback!

[Evan Polaski]

@Amber Krueger, also be cognizant that transferring the property out of your personal name could cause issues with your financing. Your primary mortgage in theory could be called with the transfer, although that is a) unlikely and b) depending on who your lender is (not your servicer, and likely Fannie or Freddie) you may be able to do so without any issues. More so your HELOC could be pulled with the transfer.

As Filipe noted, there are pros and cons to holding in an LLC. I hold my properties in an LLC, but I combined all of them (had been up to 8 units) in the same LLC. There are real risk mitigation qualities to an LLC, but there are also many more hurdles you need to jump through, both logistically and financially to do it right. Separate bank, credit card, signing all docs in name of LLC with you as member, etc. From a financial perspective, you are booking all investments in the property from your personal cash as an equity contribution and anytime you pull money from the LLC, that is an owner distribution.