Q: I own two lien free rentals through my sole-prop LLC. Can I loan money to my LLC to buy a 3rd rental and record a lien?
I own two rentals through my sole proprietor LLC. Can I loan money to my LLC to buy a 3rd rental and record a lien against the properties? Properties are currently free and clear. Would have promisary note and record liens publicly.
Certainly you can do that, but the question is whether it would succeed in giving you priority over any unsecured creditors the LLC might have. Assuming there's nothing nefarious or fraudulent involved (such as trying to hinder other creditors, most likely yours but possibly the LLCs, from collecting on a debt), I can't think of a reason off the top of my head why it wouldn't work. Of course, whenever there's any sort of self-dealing involved between an LLC or other entity and its owner, there's a particular need to make sure everything is done properly because the transaction will be closely scrutinized by other creditors looking to find a way to get to the property.
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I thought of something else worth mentioning...the situation you describe makes it even more important than usual to protect the LLC's liability shield, i.e., to avoid practices that courts might use as reasons to "pierce the veil," an extraordinary remedy that allows the creditors of an LLC to reach the assets of its owners. That is an issue only when the assets of the LLC are insufficient to satisfy the creditor's judgment against the LLC. One of the factors courts consider is whether the LLC is adequately capitalized. There's certainly nothing about a sole member lending money to the LLC and taking a mortgage or lien on LLC assets that would necessarily lead to veil-piercing. In fact, there's case law acknowledging that there are legitimate reasons to capitalize a business with debt rather than equity. Even so, a creditor's lawyer would try to make something out of the fact that a member lent the money to the LLC rather than making a capital contribution. That doesn't necessarily mean what you described is a bad idea. It's just something a person considering that sort of transaction should be aware of.
And one more thing you didn't ask about. Someone who owns two or three rental properties would be well-advised to consider holding them in separate LLCs or in a series LLC, rather than all in the same LLC.
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