Hey, you know, one of the number one questions I get over
and over again from real estate investors, that is,
should I move my rental property into a limited liability company?
Well, in this video, I'm going to show you
why you should be looking at moving your rental property into an LLC
and also when you should avoid moving that property into an LLC,
because there are serious
ramifications that could come from putting a property into an LLC too early.
All right, let's get started.
Okay.
So the first one's pretty straightforward, right?
Should you put that property that you own into a limited liability company?
Well, general answer is yes.
If I have a rental property right here
and I own it my own name.
Obviously, holding that property in my own name is going to create risk for me.
Also, it's going to create risk for that property.
Meaning this if I get sued personally, a creditor
could take or go after any assets that I own in my own name.
So if I taking that property that I have currently, this rental property
getting out of my name and putting it into an LLC like this,
I'm effectively removing it beyond the reach of a personal creditor.
Now, I mean, when would you be sued?
Well, the lots of ways in which you can be sued.
You can be sued because you're involved in a car accident.
You could be sued because you've entered into a lease agreement with someone.
And now you have to default on the lease because the economy has crashed.
So there's lots of different reasons why you can be involved in the lawsuit.
The key is we want to make sure
that if you are involved in a lawsuit, you've taken every step,
every precaution you can to get the assets out of your name.
So for asset protection
purposes, the answer to this is yes, you should put this rental into the LLC.
And of course you're down here as the member.
Or if you use one of my anonymity strategies that I talk about,
you would have a Wyoming limited liability company down here
as the owner of your LLC.
So number one, asset protection too.
Second reason why you would want to consider moving that property
into the LLC is because by moving into there,
when you set up a structure like this or the Wyoming holding company,
you can actually improve your ability to borrow.
By the way, your tax return looks with the income
that flows out of this limited liability company from the from the rent.
What am I getting at there?
What I mean is this is that when you have an LLC set up, you create
this is a disregarded entity means it doesn't have to file a tax return.
And then you're going to set up this holding company, a Wyoming LLC
is what I like to use, and you can set your Wyoming LLC up
so it's going to be treated as a partnership for tax purposes.
Now, why do I want to do that?
Because if I made $10,000 through this LLC, it's
going to flow into the blue box, the Wyoming Limited Liability Company,
and that's going to come down to be on a K-1.
And that's a tax.
That's because this LLC is going to file a tax return at 1065.
And when that comes down on the K-1, this ten K,
if I were to go in and buy another property, the
I will look much better to a lender from a debt to income ratio
than if I own that property in my own name or through a disregarded entity.
And it has to do with how underwriters look at your 1040.
You still have $10,000 in income there, but the question is,
do they give you credit for that full 10,000?
So if you want to make sure you're getting credit for all of your rental income,
then I suggest you look at using a Wyoming LLC,
holding your rental LLC, and how that tax is a partnership.
So using LLC is two main reasons why taxes and asset protection.
Now, the second thing that I said I was talking about
when you shouldn't move your property into a limited liability company
because everyone that listens to me or watches my videos or or has heard me
on my podcast, I think a client I need to set up an LLC.
Well, there's one case in which you should never set up a limited liability company
or put your rental into an LLC.
And that is if you intend to refinance the property.
So here's the deal.
If you close on this property right here, it's in my name.
And I know that I want to do a refi
on that property within the next six months to a year.
The problem is, is if you put that property into the LLC,
you're possibly going to prevent yourself from getting a cash out refi
on that property because many people who invest in real estate,
they want to get those qualified mortgages.
Those are the mortgages that come from the big banks or from a loan broker.
When you go out there and you're applying for a loan,
they're underwriting those those loans through Freddie, Fannie.
And so you're going to get preferential rates,
you're going to pay less in points and things like that and fees
to get that type of loan.
That's what we call them, qualified mortgages.
Well, the deal is, is if you want to do a cash out
refi on a piece of property, you own a rental property.
It needs to be seasoned for six months in order to qualify
for a qualified mortgage.
So if you put that property into the LLC, let's say I buy this in January,
I move it into the LLC and I want to refi March.
What'll happen is when you go to get that refi,
they'll say, Listen, you got to pull this property back out,
put it in your name and season it for six months.
So now you're going to get stuck back another six months.
So don't put your property into a limited liability company
if you intend to do a refi within the next
six months to a year, keep it in your own name.
Hey, I've got some other questions on my channel about,
you know, do we consult with individuals? Yes.
Here at Anderson, we do consult with individuals and help you strategize.
There's a link in the show notes on how to obtain a free strategy session.
Go ahead and check that out in the show notes.
If you
if you want to have a free strategy session
with someone here at the firm
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