Thinking of moving my 2 Florida rental properties into LLC

[Carlos C.]

Hi Everyone!

Who is the appropriate professional that I would need to consult about legal aspects and benefits of moving my rentals into LLC? I want to understand what benefits it truly brings since seems like my insurance probably would go up after they get transferred.

Another reason I'm looking into this is because I've been trying to add my Property Manager as additional insured, but my current company (Citizens) won't do it.

Thanks everyone!

[Randall Alan]

Quote from @Carlos C.:

Hi Everyone!

Who is the appropriate professional that I would need to consult about legal aspects and benefits of moving my rentals into LLC? I want to understand what benefits it truly brings since seems like my insurance probably would go up after they get transferred.

Another reason I'm looking into this is because I've been trying to add my Property Manager as additional insured, but my current company (Citizens) won't do it.

Thanks everyone!

 Hi Carlos,

One word of caution regarding what you are thinking of doing...

This caution depends on how long you have owned the properties.  In Florida, you get grandfathered on property taxes based on when the value you paid when you purchased each property.  They can only increase property taxes by a certain percentage each year.  I think it was called "Save our Homes" at one point.  (I know the gist of all of this - but not the specifics... but enough to point it out to you...)

So be aware that if you transfer the property to an LLC - your county will likely treat this as a transfer of ownership (like they should)... the LLC is completely separate from you - even if you are the sole owner. This has the nasty effect of resetting your property valuation. If you JUST PURCHASED your property - this is no big deal (other than all the fees you will get charged by the county on the transfer). But what a lot of people don't know is that if you have owned your property for say 5-10 years - all that deferred appreciation your county tax appraiser has been tracking all those years - but not able to pass it along to you due to the caps on increases - goes out the window. So if you bought the property for $100,000 - but it is now worth $250,000 - you are probably being taxed on maybe $80-90,000 for the property value. Transfer it to your LLC, and whatever the just value of the property (usually about 20% below retail) becomes your new tax basis... so maybe $210,000 on the example above. It could be thousands of dollars more in property taxes - depending on how long you have held them.

It puts us in a hard place. We would like to transfer ours as well into LLC (we have 25 properties) - but they were bought in 2018-2021 and have gone up in value by about 3 fold. The hit on property taxes would be huge... so we continue to hold them in our own name, with a lot of liability insurance to try and protect us. We know it's not as good as the LLC... but it seems to make the most financial sense to us given the possibilities.

Hope it helps!  You can reach out to your local property tax people and they can explain it in more detail.  You can also look up the property on their website and they will show you the savings you have based on the grandfathering.

Here's an example where you will see $227,000 of cap differential on a property we own. So we pay taxes on a value of $408,356... but if we were to transfer it to an LLC taxes would be based on $635,000:

As for your question - a real estate attorney would likely be the best person to talk to.

All the best!

Randy