How to get property into LLC?

Question

I hear its smart to have Rental properties in LLC, but banks don’t like to lend to LLCs. You can quit claim a property into an LLC but is that that best process?  Whats the best legal process to get the property into an LLC?

Ned Carey · Answer

@Brian Plajer yes you can do that. However if you do that the bank can call the loan. They usually won't but they can. It has been reported here on BP that members have had it happen to them.

Next unless you have title company do a title search and issue title insurance you will have none. The title policy you bought when you purchased the property will no longer apply because you no longer own it, your LLC does.

The two things I mention above may never be an issue but you should realize they are risks.

Banks and other lenders lend to LLCs all the time. However you have to talk to:

• the right bank or lender
• the right person at the bank
• apply for the right loan product.

Peter Walther · Answer

As I've posted previously, conveying title to property does not "void" an existing policy.  The policy continues on under the same terms and conditions.  That is one of the unique features of title insurance as opposed to casualty insurance.  Once you are an insured you're always an insured.  If you sell your property and then it's sold again and again and the fourth owner down the road discovers a defect and sues his grantor for a breach of the deed warranties and that grantor sues his grantor who sues his grantor until they get to you, you're still an insured so you should submit a claim to your title insurer.  As most policies state, the coverage continues so long as the Insured has an interest in the property or liability for a breach of warranties.

The question is, if you convey to an LLC is that LLC an insured under the existing title policy?  To answer it, look in the definition section of the policy and find "Insured".  If your LLC meets that definition it's an insured, if it doesn't, it's not.

Ned Carey · Answer

@Ted Sung yes you are right. Banks do charge more for Commercial loans. Yes that hurts cash flow. It is just one of the costs of doing business. You can buy property in your own name and do it more profitably, but you add some degree of risk.

This is a personal decision. I know what is right for me. That may not be right for you or others reading along. I just try to do my best to make people aware of the trade offs.

John Underwood · Answer

I waited till I had about a dozen properties before I worried about LLC's. Ned brings up a good point about voiding your current title insurance policy by moving these into an LLC.

If you have a mortgage, insurance and an umbrella policy, then you already have 3 layers of protection.

I don't have mortgages so yes when I got enough properties that I could replace my income as an engineer, then I got an attorney to set up all my asset protection.

John Underwood · Answer

Yes that is the easiest way.

Why do you think you need to put this property in an LLC?

You likely don't need to do this if:

1. You have correct type and amount of insurance.

2. You have a mortgage.

3. You take care of of your property and tenants.

Optionally you can get an umbrella policy for added protection.

Brian Plajer · Answer

Thanks Ned, I have heard that as well, which is why I was confused about the best way to legally do it. It sounds like My options are no LLC or set up an LLC in advance and have the LLC purchase the property although the LLC would have no assets, income etc.  which may lead to unfavorable terms

Jim Spatzenfeld · Answer

The best move is to never have the property in your personal name to begin with. Use a lender who lends to the LLC. Might be a percent more in interest but just alone not having the debt on your credit report might be worth it.

Marco Bario · Answer

@Brian Plajer - QC deed is how I've seen it done and have done it myself.

For liability protection also consider the power of a high-value insurance policy. In a lawsuit, your insurer will bear the brunt of the exposure and pay for the defense.

Bob Malecki · Answer

Yes, a QCD would work best. I buy in my name for bank financing then QCD to my LLC for liability protection

Ted Sung · Answer

Hi @Ned Carey, doesn't bank / lender charge more for LLC (i.e., commercial) loans? At least that's what I've been told which makes it less feasible if one is trying to invest for a cashflow scenario. Thanks!

How to get property into LLC?

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