Author Topic: Converting existing investment property to LLC  (Read 940 times)

reklar

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Converting existing investment property to LLC
« on: November 22, 2015, 04:15:51 PM »

We are currently renting out our former primary residence (in California if it matters). When we first rented it out we thought it would be a more temporary situation but it has now been several years.  We would like to have some liability protection as we now have other assets and are considering using an LLC to provide that protection (we are considering buying other properties, using a separate LLC for each).

Questions:

1) What is required to convert the property so it may be rented out via an LLC?  Does this mean the title must change hands to the LLC?  Would we also need a bank account for the LLC created then?

2) My wife and I currently hold unequal shares in the property (we weren't married when we bought it).  Are we best off forming a joint 50/50 LLC or is it better to have one of us as controlling (or sole) interest from a liability perspective? 

3) Is it better to have the LLC formed by a lawyer or would be be able to DIY the LLC formation part?

Just getting into this so we're ignorant to the legal ramifications--any advice welcome!


DaveR

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Re: Converting existing investment property to LLC
« Reply #1 on: November 23, 2015, 09:26:27 AM »
There are a couple of big things with an LLC: liability, and taxation.

From a liability perspective, setting up a valid LLC (operating agreement, bank accounts, registration/licensing with the state) is very important. If you are aiming to manage liability exposure, you definitely need to conduct the LLC's business in it's name: transfer title, leases and agreements, separate bank account, etc.

From a taxation perspective, you'll need to do more paperwork. With unequal shares, the LLC is a partnership from a structure perspective, so should provide pro rata distributions to you and your wife. If you file jointly, it will just be combined again for taxes, but you need to get everything filed.

My advice is actually to go talk to a good accountant/tax pro because that is the part that will be more work (maintenance) long term than the legal piece. It will be cheaper per hour and they can connect you with a lawyer, if needed.