Q: Can I get a loan for my current house, place it in LLC, rent it out, and use the money from the loan to buy a new house?
I am trying to find the best financial solution to invest in real estate. I have paid off my house and would like to move in 18 months. I like this house and would like to hold on to it as a rental property. I will need the proceeds, either through the sale of the house, or from obtaining a loan, to pay for the house I will move to. I want to take the loan out on my current home and rent it out to take advantage of the tax benefits from having a loan on a rental property. I don't pay enough in interest to make itemizing my taxes worth it. My current home is worth approximately $200,000 and the local rental rate is about $1600-$1800 a month for comparable houses.
I want to transfer the property to an LLC to protect my personal assets should anything go wrong with the tenants. Also, I hope to purchase at least a couple more houses to rent out before I reach retirement, and ideally, each would be held in their own LLC. I currently have one other rental home in Maine. Thank you!
A: While everyone could benefit from consulting with an attorney - and this website doesn't count! - you REALLY need to talk to one. Your idea is not at all unusual, but I see issues with: 1) property taxes (you don't want to screw up your homestead exemption for your primary residence); 2) invalidating the potential loan agreement (lenders will often require you to live in the house as your primary residence for a fixed period of time); 3) a complicated entity structure (is a series LLC appropriate? A "plain vanilla" LLC?); 4) income tax issues (should the rental income be run through its own entity or taxed as a sole proprietorship?); and 5) complicated estate planning (owning real property in different jurisdictions usually means multiple probate proceedings). Basically, if you are thinking about building your real estate portfolio from the ground up, don't try to DIY this!
A: Yes, you can place your home into an LLC. I recommend that you meet with a business lawyer to assist you with this process. I also believe you should consider a revocable living trust, because you have homes in separate states. A revocable living trust will allow you to avoid probate court. With multiple homes in multiple states it will mean multiple probate process, paying attorneys from separate states hourly fees.
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