Can I use an LLC for a personal residence I already own?

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Video Transcript:

Hey folks, Matt Horwitz, LLCUniversity.com. Hope you’re doing well. Can I use an LLC for my personal residence? One of our readers writes in: “Hi, the personal assets I have are our bank accounts, a house, and brokerage accounts. How can I protect that from lawsuits if someone gets hurt on my property? Thanks, Gary.” Alright, here’s the answer Gary. First, I recommend reviewing your insurance policies. That’s going to provide some coverage in the event of a lawsuit. Second, to get the full liability protection, you’re going to need to transfer your house to the LLC. The LLC must own the property in order for it to provide personal asset protection. Just having your house, which is owned by you, and a separate LLC; that does not create any asset protection. “I created an offer protection…” I just noticed a typo in our on our page. I’ve made another video on this which goes into far more details. I’ll link that below. In your case Gary, since you already own the property in your personal name, again, you’re gonna to need to transfer the house from your name to the name of your LLC. Think of it as a basically a sale of a property, but instead of selling it to somebody else, you are going to transfer it (or sell it) for a dollar from yourself to your LLC. You’re going to need to contact a real estate title company to see how to transfer the deed. It’ll most likely be what’s called a dollar deed or a dollar sale. There’s different types of deeds, depending on your county, city, state, etc. But here are some things to keep in mind. You’re likely going to incur a transfer tax. A real estate transfer tax because of the sale of the property. Now, sometimes that tax is greatly reduced when you are transferring it in the dollar sale, the dollar deed, but please, you need to check on that. If you have a mortgage, that could prevent the sale or the transfer in this case. More on that in just a second. And you’ll likely need to re-register all of your utilities. You basically need to kind of re-register everything that’s owning your personal name that’s associated with the property into the name of the LLC, so that LLC owns that asset and everything that is encompassed in that business. And you’ll likely need to get new insurance because your existing homeowners insurance policies are in your personal name and they’re not in the LLC. And if you’re getting insurance in the name of the LLC, it most likely is not going to be a homeowner’s policy, but do check with your insurance carrier or broker to double-check on that as the variation… as there’s a lot of variation than that area. So here’s your recommended action list. Number one, call a title company to check on transfer tax, any miscellaneous closing costs, fees, and what actually needs to happen. You should also contact your tax professional to ensure there’s no negative tax consequences of this. I don’t know your exact situation, but something like this, people just think, “Oh, just form an LLC and that’ll protects my assets.” No, that’s that’s definitely not the case, especially with real estate and there’s just so much detail involved here, definitely check with your tax professional make sure… I’m repeating myself. Anyway, check with your tax professional. And you also want to review your mortgage. If you’re not sure you can just call your your broker, your banker, or ideally wherever the the loan is, because you may have what’s called a “due on sale” clause. What that means is that if you purchased a property that has a mortgage and you sell it, it immediately causes in the mortgage “due on sale”, which means basically the balance of the mortgage becomes due as soon as you sell the property, so that’s a big no-no you want to check on that. Again, read your mortgage or call the bank. And on top of asking about the “due on sale” clause, I would also check with your bank about just, “Hey, here’s what I want to do. I want to transfer from my name to my LLC.” All banks operate differently… different, all the states are different, cities, counties, etc. And if you’re not a 100% sure of any of this, I would definitely contact a local lawyer. So that’s your answer to “Can I use
an LLC for my personal residence.” And if you’re watching this video before you bought any real estate or any property, you want to form the LLC before you purchase your home… for the LLC before you purchase a real estate, so that when you’re buying the real estate, it’s not you, it’s the LLC buys the real estate. Alright, I hope this video is helpful for you.

One of our readers writes in:

“Hi. The personal assets I have are bank accounts, a house, and brokerage accounts. How can I protect that from lawsuits if someone gets hurt on my property? Thanks! Gary.”

Answer:

First, I recommend reviewing your insurance policies, as that provides some coverage in the event of a lawsuit.

Second, to get full liability protection, you’ll need to transfer the house from your name to your LLC. The LLC must own the property in order for it to provide personal asset protection.

Just having your house (owned by you) and a separate LLC does not offer protection.

We made a video on this before, which I think you’ll find helpful:
When to form an LLC for real estate?

In your case, since you already own the property in your personal name, you’ll need to transfer the house from yourself to your LLC.

You’ll need to contact a local Real Estate Title Company to see how to transfer the deed. It’ll most likely be a $1 sale from you to the LLC, but there are some things to keep in mind:

  • You will incur transfer taxes because of the sale of the property.
  • If you have a mortgage, that could prevent the sale.
  • You will need to re-register your utilities in the name of the LLC.
  • You’ll need new insurance for the LLC.

This is your recommended action list:

  1. Call your title company to check on transfer tax.
  2. Call your tax professional to ensure there are no negative tax consequences to the transfer.
  3. Review your mortgage to see if it has a due on sale clause.
  4. Call your bank (if you have a mortgage) to ask if they will allow the transfer.
  5. Call a lawyer to go over anything you are not 100% clear on.
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Matt Horwitz
Founder & Educator at LLC University
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! We teach people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your entrepreneurial journey.
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