Even though the LLC is still technically you, it is a separate entity. Lenders may be reluctant to transfer the mortgage to your newly formed LLC. You may have to pay fees to transfer the mortgage, and they may charge you a higher interest rate. Check your mortgage agreement for a “due on sale” clause. Even though no money is changing hands and you’ll still own the property, your mortgage company may look at the transfer of ownership as a sale and demand you pay the balance of the mortgage in full.
Depending on your familiarity with business and legal documents, you may also want an attorney to draw up your LLC paperwork for you and help you register your business. Most attorneys charge between $1000 and $2000 for this service.
Your name should be creative and stand out, but you also want something that will sufficiently identify the type of business you’re engaged in. For example, if your last name is Sunshine, you might try “Sunshine Property Management, LLC. " If your business name is sufficiently unique, you may also be able to get the name trademarked. A trademark from the U. S. Patent and Trademark Office (USPTO) provides additional protection so your business name can’t be used by another business anywhere in the country.
You can also include provisions in your operating agreement describing the procedure for adding new members or transferring new property into the LLC in the future. While you don’t necessarily need an attorney to draft these documents, you might consider hiring someone if you have multiple members in your LLC, or if your LLC will be managing multiple properties. Include your rental property in your operating agreement as a capital asset. You’ll need to record the fair market value of the property as well as any liabilities, such as mortgages. [5] X Research source
You’ll have to pay an initial filing fee when you register your LLC. These fees vary greatly among states, but typically are several hundred dollars. Some states require you to pay annual fees as well to maintain your registration. Check the website of your state’s Secretary of State to learn more about your state’s process, or stop by a local office and speak to someone on staff.
You can apply for an EIN with the IRS easily by visiting https://sa. www4. irs. gov/modiein/individual/index. jsp. The process is free and only takes a few minutes. Your EIN will be generated immediately, although it may take a little longer for it to show up in IRS records.
Some banks may have special packages available for landlords and small businesses that are managing rental properties. Check with your local bank to learn more about your options.
Be sure to update your lease forms so that they include the name of your LLC rather than your name.
If you use an online service to take rent, update the information in that service so that the rent payments are being deposited into your LLC account rather than your previous account.
Different banks will have different procedures. Some banks may require you to close the old account and open a new one.
Typically you’ll sign an entirely new mortgage agreement, although the process may not be as extensive as it was for your initial mortgage. Because your LLC is a new entity and doesn’t have any credit history, your lender may require you to cosign on the mortgage individually along with your LLC. This doesn’t affect the limitations on liability that creating an LLC provided, but it does mean that you have personal responsibility for paying the mortgage.
When you transfer your insurance to your LLC, your rates may go up because your LLC is a newly established entity. You won’t be able to rely on your personal financial and credit history. In addition to liability insurance, you also want to check your title insurance to make sure that the LLC will still be covered.
The quit claim deed is the simplest type of deed, and simply transfers any interest you have in the property from you as an individual to your LLC. You can find quit claim deed forms online. Your county clerk’s office also may have blank forms you can use.
Make a copy of the deed before you record it and keep it with your business records. You’ll be charged a fee to record the new deed, typically under $50.
Your state’s Secretary of State office will be able to tell you if the state requires publication of any notice when you file your forms to create your LLC.
Typically the easiest way to make sure you’re in compliance with state and local law is to call the housing regulatory agency and explain what you’re doing. Let them know that you are creating an LLC to manage your rental property, and find out what you have to do to get your licenses in order. You may also be able to find out how to transfer your licenses to your LLC on the agency’s website.
If you have a single-member LLC, you may be exempted from an additional inspection.
If you were previously operating as a sole proprietor, you may not have needed a business license. However, business licenses typically are required for all LLCs.
