Should I put my personal residence into an LLC? What is happening YouTube? It's Mentorship Monday,
thank you guys for watching. Mentorship Monday works like this: people email questions to us at
HelpMe@DeRosaGroup.com, and I answered them right here on the YouTube page for everyone to learn
from and for you to get your questions answered, so thank you for submitting all your questions.
Today's question comes from Kevin, and Kevin's got an interesting question. This is something I
don't know if I've ever been asked. I mean, I've thought about this question for my own stuff,
but it's not something that anybody's ever sent in or that I've had real conversations about,
so let's see what we got here. Kevin sent a long email, I'll summarize a few of it.
"First of all, thanks for all your awesome content, and I've watched so many of your videos
for advice and guidance. But, I've had questions or just need some education." You're welcome,
Kevin. Thank you for watching. "I currently own my primary residence outright, as the loan was
paid off a few years ago." Interesting to know. Let's put a pin in that. "Since that time, I had
started my own real estate business and I have one rural property that I bought with cash to get this
business up and is running for quick cashflow." Kevin, you're slinging a lot of cash around,
you're buying a lot of property free and clear. That's good. Money's cheap right now, so consider
leverage. "I used cash for this thrift property because it was a good deal and not too expensive.
Plus, I had renoed out for only two weeks, so the deal worked out really well, but now I'm looking
to acquire another property or more." Okay. "If I find a property at the right price, I could
do another cash transaction, but I would really prefer to get financing so I don't reduce my cash
reserves any further." That's kind of what I was saying. "I started the business earlier this year,
so financing is a challenge since I don't have two years of income as desired by many lending
institutions." We can work around that, but put a pin in that too. We'll talk about it. "I have
not exhausted all of the lending possibilities, but right now I'm still investigating options,
including possibly leveraging my personal residence as part of this equation,
which is where I had the real question that I have to resolve. Should I sell or rent my home?"
Interesting. "Here's where I would appreciate any guidance. Do you foresee or know any negative
issues or pitfalls in moving my personal residence into an LLC or rent and renting it out? So far,
I have kept my personal and business assets separated, so as I would make sure to properly
deed and update it, showing LLC owning the entity and treat the residents as
part of the business only going forward." Okay. "Are you aware of issues in converting
a personal residence into a LLC and having been part of my real assets?" Okay. Here's
a couple of thoughts. Number one, money's cheap, meaning you can get money in the range,
even if it's a non-recourse thing where you don't have to have a bunch of income to prove,
they call it an asset based loan. You can get an asset based loan in the realm of like 7 to
8% for a rental property. Now you've got to have good credit. You got to have a good asset. You
got to own it, like you do, free and clear, and they're not going to give you like 80%
loan to value. You might be get like 60, 70% loan to value. Let's see, try guaranteed rate,
try Lima One Capital, guaranteed rate. These are just ones off the top of my head. If you guys
know other ones that are watching this, drop them into the comment part down below. Because there's
a lot of asset based lenders out there. Okay. So that's the first thing, Kevin,
don't worry about you not having a job or a regular income. You can take care of that. The
next thing that I said put a pin in ... Oh, the fact that you own the residence free and clear is
a big thing because there's people watching this right now and this is for them, maybe not so much
Kevin, but that maybe own the residence and have a mortgage on it. Because not everybody's so lucky
is to own their home free and clear. If you have a mortgage on your home, and that mortgage is with
you as a personal guarantor, it, you technically trigger something called the due-on-sale clause.
If you move the property into an LLC and out of your own name, because it's technically a sale,
to make that transfer, you have to sell the property to the LLC. The smart thing to do
is sell it for a dollar, buy something called a quitclaim deed, which is just
moving the deed over because you're the owner personally. And you're the owner of the LLC.
A quitclaim deed is easy to do, cost you a couple hundred bucks. Local attorney can do it, or if you
can figure out how to do it, you can do it on your own. Just go down to the County courthouse
and they can help you move it over. That said, if you're doing that and there's a mortgage on the
property, the mortgage company could find out that you moved the property into an LLC. Yes,
you're still the personal guarantor. There are people that do things called subject to sales
purchases, where they do this kind of thing all the time and it doesn't trigger the due-on-sale
clause. I would sleep better at night knowing that that the mortgage company can't come and begin the
foreclosure process on the property because it's no longer held in the name of the person that's
guaranteeing the mortgage. That's just me. But this whole due-on-sale thing can come up
in moving properties into an LLC out of your own name, which is why when I tell people to do this,
I recommend, yes, do the quitclaim deed, move into the LLC. But in three to six months,
free financing, get that mortgage with a personal guarantee off of the property. Now that's a side
conversation, but we're talking about doing LLCs and transfers and stuff like that so we should
address it. For you, Kevin, it sounds like you're just trying to unlock capital on the property. And
so I don't think that you necessarily need to move it in an LLC. If you're just going to put
a mortgage on the property and take cash out and continue to live there, you do not need to put it
into an LLC. If you're going to move out and lease the property and you don't have a mortgage on it,
this is simple. Just you may not have heard of a quitclaim deed. It's Q-U-I-T-C-L-A-I-M,
that's all one word, quitclaim deed. And so all you got to do, is do a quitclaim
deed to move it into the LLC, and then you can lease it out. And if you've got a couple
of properties under one LLC, consider getting, this is for Kevin, consider getting a blanket
mortgage or a home equity line from a local small community bank, like not Wells Fargo,
Wacovia. Actually, Wacovia is out of business, I'm dating myself. Not Wells Fargo or Bank of America,
one of those big banks. A small community bank that has branches right around the property.
They'll give you probably an equity line on the investments that you have, and you can use the
money when you need it not when you don't, it's low cost of money. So that's it, Kevin, good luck.
The other side of it that you didn't go into here is about putting properties and do an LLC
and continuing to live there. I want to address that because that's what the title of the video
was. So I don't see a benefit to doing that. The only thing, I've heard of like uber rich
people doing it. And the reason they do that is because they're detaching themselves from
owning anything. And so if they get sued, like I've seen doctors do this and stuff like that,
they don't own anything. Everything's either in their wife's name or an LLC's name. And
the reason they're doing that is if they get sued, there's nothing that's attached
to them. It's all through entities that they own or things that it's hard to trace them
to if they own them through Nevada based LLCs in Delaware, LLCs or trusts or something like that,
they can distance themselves from their assets. That is the one time that I've heard people
putting their home into an LLC, is when they want to distance themselves from the asset.
There is no tax advantage that I know of, again, not a CPA, but there's no tax advantage that I
know of that you receive by putting your home into an LLC. I believe that the tax benefits
for owning your home in your own name are way more than you're going to get through LLC write-offs or
pass throughs or anything like that. So that's my 2 cents on putting your home into an LLC,
unless you've got a lot of money that you need to protect from liability claims or asset protection,
or distancing yourselves from potential lawsuits and stuff like that. That's the only time I've
even heard of people doing the LLC thing. So anyway, this a long one. Hope you guys enjoyed
this Mentorship Monday. Remember check us out at DeRosaGroup.com. We just updated that website. So
go to DeRosaGroup.com and check out that. You can pick up my book there. You can pick up all kinds
of other cool stuff, including interesting things we have in the pipeline as a company. So do that,
go to DeRosaGroup.com and always email your questions to HelpMe@DeRosaGroup.com,
and I'll answer them right here on my channel. Thank you guys for watching. Thank you,
Kevin. Awesome question. Great conversation today. Have a very profitable week, guys.