One of the most common questions we get involves putting real estate into LLCs
Colin Ley is an asset protection attorney and the creator of the PREP Trust® and Better LLC™. He is also the co-founder of LayRoots (along with with partner in life & business – Shreya Ley)
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Hello Colin and Shreya Ley here we are the owners of LayRoots an asset protection law firm. Today we want to talk about whether or not you should put your real estate and an LLC.
We get that question a lot.
It’s the question we get all the time, but before we get there, if you have a question about this, about real estate and asset protection, do yourself a favor, you can book time with us at livemorecarefree.com book a free initial chat, livemorecarefree.com. Shreya Ley, we get this question all the time
And let’s clarify a couple of things. So there’s real estate that you rent,
You run as a business, it’s an investment and then there is your real estate of your primary residence where you live,
Where you call your home.
Yes, that is a distinction and people often get the two confused.
And so these are the big issues that come up with whether you should transfer a property into an LLC and whether you can. So, when we’re talking about rental real estate, you may or may not be able to transfer it into an LLC. It’s a great idea to do that to reduce liability, have some additional protection–
But there may be some roadblocks.
There may be some roadblocks, if you have used your personal credit to finance purchase of a property, there may be an issue transferring property into an LLC because of that mortgage, your lender might say, “Hey, if you transfer it into an LLC, we will call the note. “You will have to pay the whole thing off and you’re gonna be in lots of trouble.”
Right, but we are seeing some loosening of those rules within the last couple of years.
Things have been changing in the last few years and some lenders are saying, “Hey, if you are transferring it into an LLC that you own, “basically the same way you own the property, then that’s fine.” Now the other issue transferring real estate is your primary residence. People ask us a lot, whether they should transfer their primary residence into an LLC–
Which I don’t know why they want to do that.
I mean an LLC offers privacy—
Right, but there are other vehicles for things like that—
Right, and then they read about the protection of an LLC, but here’s the thing, an LLC is for a business, your primary residence is not a business. So if you did transfer it, say you had that mortgage issue, they say, sure, you can transfer it into an LLC, the problem is that you can, well, one, it’s not a business, so it’s not going to provide much protection of a business–
Right, because any judge will look at it and say, “Hey, you live here.”
Yeah, so that’s just kinda like shred right through your LLC protection. The other issue is you don’t wanna risk losing the tax benefits you get from owning and selling a primary residence, you get a capital gains, tax exemption, maybe you get some of that mortgage interest deductions–
All that attractive stuff that lures home buyers in.
Yeah, you don’t want to lose that. So that’s it, that’s those are kind of the major issues circling around that question. Again, if you have questions about this, about your asset protection plan, you can go to livemorecarefree.com, schedule a free initial chat with us.
And if you enjoyed this video, feel free to like it. And if you think other people might enjoy the video, you got those real estate investors in your life, feel free to share it with them.
Thanks, Shreya, thanks for watching, goodbye.