Results 1 to 6 of 6
  1. #1
    Join Date
    Apr 2018
    Posts
    14

    Default LLC Ownership of Rental Property

    My question involves business law in the state of: New York

    I have two questions regarding LLC ownership of rental properties for personal liability protection.

    1) What is the proper way to take an existing rental property that one personally owns, and transfer ownership of that property to an LLC that you also own?

    2) Same scenario above except, you are buying a brand new rental property. Is it best to have the LLC buy the property itself, or to buy the property personally and then transfer ownership of the property to the LLC.

    Thanks very much in advance, not looking for anything crazy specific, just trying to get a general understanding of how this process.

  2. #2
    Join Date
    Mar 2013
    Posts
    18,015

    Default Re: LLC Ownership of Rental Property

    Quote Quoting PHD_4_U_N_Me
    View Post

    I have two questions regarding LLC ownership of rental properties for personal liability protection.
    I think you need to understand something about LLCs before you go through the effort and expense of creating one.

    (Paraphrasing Taxing Matters, one of our erudite contributors)

    "The LLC form of business, like the corporation, protects the owners of the business from personal liability for the debts of the business. For example, if the LLC enters into a contract with a third party and breaches it, the LLC is liable for that, but the LLC members are not unless they personally guaranteed the contract, which is something that lenders and astute business people often insist upon. The LLC member is always responsible for his own debts and wrongs, including liability for the negligent acts he performs for the business (and for which the LLC might also be liable). There is also the possibility of “piercing the corporate veil” (google it) which is an even bigger risk for single member LLCs.

    The LLC form of business does not protect the LLC from being sued. What it does, when the LLC is operated properly, is prevent the owners from being liable for the LLCs debts simply because they are owners. Owners of sole proprietorship and general partnership businesses are personally liable for all debts of the business just because they own the business. Owners of LLCs, LLPs, and corporations are not liable just because they own the business.

    But the LLC does not protect owners of the business from everything. For example, an owner of a LLC will be personally liable for any loans/credit of the LLC that the owner personally guarantees. Most lenders/businesses that extend credit to small business will routinely demand those personal guarantees. You are also always liable for your negligence. So if you are negligent while doing work for the LLC and someone is injured, both you and the LLC are liable for that. You protect against that possibility with a good insurance policy. Also, the law makes owners of businesses personally liable for a few specific obligations of the LLC, like certain tax obligations for example. So where does the LLC protect you? You will not be personally liable for contracts that the LLC enters into that you do not personally guarantee. You will also not be personally liable for the debt that arises from the negligence of other employees/owners of the LLC. Again, this assumes you run the LLC properly so that a creditor cannot successfully pierce the corporate veil to go after you personally."

    So, you see, an LLC doesn't really do that much for a single member LLC that you imagine it does.

    I had three rentals for 20 years. Never had an LLC. Had proper liability insurance. Never lost a minute of sleep.

    Quote Quoting PHD_4_U_N_Me
    View Post

    1) What is the proper way to take an existing rental property that one personally owns, and transfer ownership of that property to an LLC that you also own?
    Quitclaim deed from yourself to the LLC. Though, if you have a mortgage, better read and understand your mortgage contract and make sure the transfer isn't a default.

    Quote Quoting PHD_4_U_N_Me
    View Post

    2) Same scenario above except, you are buying a brand new rental property. Is it best to have the LLC buy the property itself, or to buy the property personally and then transfer ownership of the property to the LLC.
    Again, a lot depends on where the money is coming from. Same warning about mortgages.

    But if you are paying cash, no reason the LLC can't buy it. It's done that way all the time.

  3. #3
    Join Date
    Oct 2014
    Posts
    8,025

    Default Re: LLC Ownership of Rental Property

    Quote Quoting PHD_4_U_N_Me
    View Post

    1) What is the proper way to take an existing rental property that one personally owns, and transfer ownership of that property to an LLC that you also own?
    There several ways you can do it. I'll mention the two most common ways for doing it if you want to really do it right.

    First, you enter into a contribution agreement with the LLC in which you agree to contribute the property to the LLC in exchange for more member interest in the LLC, which the LLC formally approves and records that approval in its records along with a copy of the agreement. Then you execute a deed transferring the property from you to the LLC and have that deed recorded. This could be a quit claim deed. At the time you execute the deed, the LLC issues to you the additional member interests and records that in its records. As you are the sole member of the LLC, the issuance of additional member interests will not affect the control of the LLC.

    The second is to sell the proeprty to the LLC. Here, you would enter into a sale agreement with the LLC, which the LLC approves and records that approval in its records along with a copy of the agreement. You execute a deed transferring the property to the LLC at the same time that the LLC gives you a check for the purchase price. The deed is then recorded. The sale price should be fair market value.

    Both methods involve a lot of paperwork which may seem a bit excessive when you are dealing with an entity that you control 100%. But you need to always bear in mind that you need for all of your dealings with the LLC to be business like, as though you were dealing with an entity that someone else owns. If you don't do that and you cut corners for the sake of convienence you may put at risk the limited liability protection the LLC offers you.


    Quote Quoting PHD_4_U_N_Me
    View Post
    2) Same scenario above except, you are buying a brand new rental property. Is it best to have the LLC buy the property itself, or to buy the property personally and then transfer ownership of the property to the LLC.
    You can do it either way, but it will be easier if the LLC simply buys it. Otherwise if you buy it and transfer it you are doing in two steps (with all the extra paperwork) something that could have been done in one step.

    Adjusterjack is right that the limited liability protection of the LLC is not as extensive as some people believe, but unlike adjusterjack, I would not say that there is no advantage to using a LLC. There certainly can be, depending on the details of what you plan to do. Especially if you take on partners or hire employees/dependent agents to do work for your rental properties having a LLC can be invaluable. It can also be useful in limiting personal liability in contract disputes with your tenants.

  4. #4

    Default Re: LLC Ownership of Rental Property

    If you are the only owner of the LLC, you would report your taxes the same way you probably do now, assuming you're a sole proprietor. That simply means you own rental property but are not a legal entity. If your LLC has more than one owner, such as you and your spouse, the LLC files a separate tax return.

  5. #5

    Default Re: LLC Ownership of Rental Property

    Here are eight steps on how to transfer property title to an LLC:

    1. If you have a mortgage on the property, contact your lender.
    2. Form an LLC, if you haven’t already.
    3. Obtain a Tax ID number and open an LLC bank account.
    4. Obtain a form for a deed.
    5. Fill out the warranty or quitclaim deed form.
    6. Sign the deed to transfer property to the LLC.
    7. Record the deed.
    8. Change your lease.

  6. #6
    Join Date
    Oct 2014
    Posts
    8,025

    Default Re: LLC Ownership of Rental Property

    Quote Quoting settlementquick
    View Post
    Here are eight steps on how to transfer property title to an LLC:

    1. If you have a mortgage on the property, contact your lender.
    2. Form an LLC, if you haven’t already.
    3. Obtain a Tax ID number and open an LLC bank account.
    4. Obtain a form for a deed.
    5. Fill out the warranty or quitclaim deed form.
    6. Sign the deed to transfer property to the LLC.
    7. Record the deed.
    8. Change your lease.
    There is a bit more to it if you really want to do it right. The OP may want to see a business or real estate attorney to see exactly what ought to be done. After the first time or two of doing it it may not be necessary to have a lawyer to do most of what is needed.

    1. Sponsored Links
       

Similar Threads

  1. Enforcement of Judgments: Asking Court for Full Ownership of Rental Property
    By Rfoster143 in forum Divorce, Annulment and Separation
    Replies: 22
    Last Post: 06-12-2018, 11:00 AM
  2. Adverse Possession: Can a Tenant Get Ownership of a Rental Home if the Landlord Isn't Paying Taxes
    By chanericat in forum Real Estate Ownership and Title
    Replies: 15
    Last Post: 01-07-2015, 06:36 AM
  3. Business Issues: Rental Property Ownership Florida
    By puppetjr in forum Business Law
    Replies: 1
    Last Post: 01-17-2010, 07:40 AM
  4. Co-Ownership: Co-Ownership Rental Rights
    By Cleocatra in forum Real Estate Ownership and Title
    Replies: 2
    Last Post: 10-06-2009, 04:31 PM
  5. Foreclosure: Rental is in Foreclosure, Landlord's Ownership is Questionable
    By luvmyboys in forum Buying, Selling and Conveying Real Estate
    Replies: 1
    Last Post: 07-29-2009, 10:10 AM
 
 
Sponsored Links

Legal Help, Information and Resources