Titling your properties in an LLC

[Wesley W.]

Hi folks,

I've asked this question obtusely before, but I'm still not sure how to make this work.

I just finished reading Brandon Turner's blog regarding "I'm not the owner." In Brandon's article he mentions holding his properties in an LLC.

When I first started setting myself up for a RE portfolio, my wife and I - on the advice of our CPA - created an LLC.

Now, as we search for lenders to finance our first deal (duplexes, to start) - they universally tell us that we CANNOT title the property with the LLC; it must be in our own personal names despite "personally guaranteeing" the loan.

To me, this defeats the whole purpose of forming the LLC to begin with. I spoke with a mortgage broker that told me that basically I could transfer the title into the LLC after closing, but I would have to change it back in order to sell or refinance. Each time, generating additional attorney fees and closing costs.

The broker also mentioned that titling in an LLC about this creating a "commercial" closing - which my attorney says is many magnitudes more expensive - but she had to get back to me on that.

Here's an excerpt from an email from my attorney:

Mortgage lenders will allow a LLC to borrow and take title in its corporate name. It just won't be at the rate that you might get as an individual. Aside from the two (2) transactions that you are envisioning, if this is deemed a "commercial" closing", the legal fees for the same are significantly more expensive.

I'm also worried about the specter of the "due on sale clause" rearing its ugly head as interest rates climb and lenders sift through their portfolios they might see that the title was transferred, then compel us to take action.

I've heard from other investors (both on BP and locally in Upstate NY) that just keep title in their own name and just buy "Cadillac" insurance policies for each property. Again, this makes the expense of forming an LLC silly.

There must be a way. Am I talking to the wrong lenders/attornies/investors?

Thanks for your help!