How to transfer rental property to LLC
It is a common practice to create an LLC, a limited liability company, and transfer the ownership of the rental property. In fact, if you have several rental properties, you can create various LLCs to shield your properties from liability claims from other properties. Being a landlord automatically qualifies you as a small company owner, so if you are planning to expand your business and looking for a way to get a loan, click here.
You might find benefits in owning your rental property under an LLC, similar to other small businesses. Although it might take a bit more work initially, doing so might offer additional legal protection and a few tax benefits. So, in this article, you will see all the steps required to transfer your rental property to a limited liability company.
Steps To Transfer Rental Property To LLC
A limited liability company, or LLC, can have one or more members, which means you can be the sole owner too. The Internal Revenue Service lets you create a single-member LLC to own rental property instead of doing so as a sole proprietorship in your name.
Follow the below-mentioned steps to transfer rental property to an LLC.
Contact The Lender
Your mortgage does not immediately transfer when you transfer the ownership to an LLC for your rental property. Despite this, your responsibility is still to pay your mortgage on time. Therefore, the first step is to get in touch with the Hard Money Lenders to find out if you can transfer the rental property to your LLC while the current loan is still in place. Your lender may ask for a personal guarantee or impose a one-time fee.
Form An LLC
You must submit two documents to create your LLC:
- Articles of organization
- Operating Agreement
These papers must be submitted to the division or state corporate commission. A company’s name, address, registered agent, and other fundamental information is all included in the article of organization. The agreement between the LLC members, known as the operating agreement, details each member’s rights and responsibilities. It also contains provisions for how disputes will be resolved and what will happen if a member wishes to quit the LLC, among other things.
Obtain EIN And Set Up LLC’s Bank Account
EIN or Employer identification number serves as the equivalent of a social security number for a company. Once your LLC is established, you can submit paperwork to the IRS for a free EIN. Remember that even if you are the sole owner, you will also need an EIN. After you obtain your EIN, you can open a bank account in your LLC’s name. You must keep the money from your LLC separate from your expenses. If you don’t keep your finances separate, you run the danger of losing liability protection.
Transfer The Ownership
To transfer ownership of the property from your name to the LLC, you must now file a warranty deed. Use the complete legal name of your LLC, and be careful to specify your name exactly as it appears on your current deed.
Update The Contracts, Utilities, And Permits
Ensure that the local permits, leases, utilities, and other legal documents are in your LLC name. Since your LLC is recently formed, there are chances that the utility company might ask your LLC to pay up a security deposit, which is refundable.
You only need to take these procedures to transfer your rental property to an LLC. It also comes with benefits, such as better safeguarding your assets and simplifying year-end tax filings. But, you also have to remember that you might have to incur some one-time fee and if you have a mortgage, you have to consent with your lender, too.