Real estate investors often start out buying properties in their own names, but moving these properties into a limited liability company can be a smart move down the road. Transferring properties to an LLC helps wall off your personal assets from lawsuits or claims tied to the property, makes it easier to manage multiple investments, and gives you more options when it comes to tax planning. You can also set up custom ownership arrangements through operating agreements, such as unequal profit sharing or different voting rights for members. However, keep in mind that if you have multiple members in your LLC, you’ll likely need to file separate tax returns, which means higher accounting costs.
How It’s Done
Setting up an LLC involves filing the proper paperwork with your state’s Secretary of State in the state where the property is located. You’ll need to create an operating agreement, get an Employer Identification Number from the IRS, and open a bank account for the LLC. Before actually transferring properties to an LLC, talk to your title company to make sure your insurance will still be valid, and check with your mortgage lender about the “due-on-sale” clause in your loan. This clause technically allows the bank to demand full repayment if ownership changes, but most lenders are fine with transfers where you’re still the beneficial owner—you need to get their written approval first.
The transfer itself involves recording a deed with your local registry and having it notarized, plus executing a bill of sale to transfer any personal property and contracts associated with the property. It is important to consider all aspects when transferring properties to an LLC. Once that’s done, you need to let vendors, service suppliers, and your insurance company know about the address change, which is essential to keeping the LLC’s finances entirely separate and maintaining the asset protections of an LLC. The process involves more than just filing a deed, so working with a real estate attorney can help ensure everything is done correctly when transferring properties to an LLC.