Hey guys has Mentorship Monday, and this one comes from Cedric. Cedric is stationed down
in Fort Knox with the army. Cedric, thank you for your service to our country and thank
you for your question to Mentorship Monday. For all your other folks out there, when you
want to submit a question, ask any real estate question at all and email it to helpme@derosagroup.com
that is helpeme@derosagroup.com. We will answer your question right here on the YouTube channel
for everyone to hear, then you'll help educate others and you'll get your question answered
right here by yours truly. So here's what Cedric wants to know.
Cedric, in essence is talking about LLCs and that's something that comes up all the time
for new investors about whether or not they should use an LLC, and when they choose to
start using LLCs, how to best implement them. Cedric is using an LLC, but he's also got
a property that is privately owned in his own personal name, and he's questioning how
can he transition that property into the coverage umbrella of his LLC, how to make that happen.
So, first of all, yes, you guys should all be using LLCs. I've told people that it's
okay to do your first deal or your second deal under your own personal name, but there's
so many reasons why you don't want to do that. A lot of that's out on biggerpockets.com,
you can look that up, but briefly, there's liability issues and holding properties in
your own name. There are banking issues with holding properties in your own name, although
it's very easy to get a loan on your first couple of deals, all those deals you do will
start showing up on your credit report. So every time you go into another deal, your
debt to income ratio is going to be really high, because you're going to show all these
mortgages on your own personal name. So I highly recommend that as quickly as you can,
if you can do it on your first deal, but as quickly as you can, you start using an LLC
and getting mortgages in your LLC.
I get that it's maybe more money down. I get that it's all kinds of different issues, and
if you're dealing with banks that are telling you that can't finance if you're an LLC, you're
dealing with the wrong bank. You're probably dealing with a mortgage broker that also gets
people housing, that gets people mortgages for their own primary residence. If you're
dealing with a small community bank or a big portfolio bank that does mainly investment
stuff, they will finance LLCs all day long. I use mostly small community banks, so that's
who you want to go to for financing.
Now, that's the whole thing on the LLCs, back to Cedric's question. Cedric has gotten most
of his properties in the LLC's name, but he's got one little outlier leftover there. So
we were in the same situation, here's what we did. We were the sole owner of the property
and our own personal name and the sole owner of this LLC over here. So in New Jersey and
in Pennsylvania, you can do this in your state, I know you're in Fort Knox, but I'm not sure
where the property is, so you have to check the state law where the property is and where
the LLC was formed. But we did a quitclaim deed, and the owners of the property were
just me and my wife and me and my wife are the owners of the LLC. So a quitclaim deed
just moves the ownership from one entity to another entity.
And it's just a very easy thing to do when it's pretty much the same owner, because an
LLC was owned by me and my wife. So we had to quitclaim deed to move the property from
this, ourself personally, to the LLC. You do ask about the due-on-sale clause, it is
a concern, but when I own properties in our own name, we were paying the mortgage with
a company check. The bank doesn't check to see if you transfer the property, they're
not going to do a title search to see that the property is held in a different name.
As long as that mortgage is paid, they're going to be fine. And you can prove to the
bank, if they did come to you about this, that you're still the owner of the LLC. You
didn't transfer the property, really, you're holding it differently. So I would go ahead
and do it. If you call your bank and ask them if you can, they're probably going to tell
you, "No, that's a sale." We did move it over through a quitclaim deed, and eventually we
refinanced it.
So I wouldn't do it forever. Maybe in the next couple of years you look to refinance
it to a mortgage that's held with that LLC, but consider doing that. But initially don't
worry about the quitclaim deed or the due-on-sale clause. I've never seen a mortgage get called
due because the due-on-sale because of a quitclaim deed, and there's a ton of people that are
doing subject to sales and that kind of stuff that all trigger due-on-sale clause. And I
know that's something that people talk about that they're afraid of getting called out,
but I've never in my life heard it get called out. If you've ever heard of someone getting
in trouble for a due-on-sale clause, write it in the notes below, I'd love to hear about
it.
And also don't write it if this person was in default also, because if you go into default,
they'll find a reason to call the mortgage due. But if you're making your payments on
time and you have the due-on-sale clause called I've never heard of it. So anyway, Cedric,
I hope that helps. So I hope that helps you other folks that are out there asking questions
about LLCs and whatnot. So remember questions to helpme@derosagroup.com. That's helpme@derosagroup.com.
I will gladly answer them here for Mentorship Monday. Thank you for watching guys and have
a great profitable week.