Rental property, pluses to move to an LLC
My wife and I bought a house and turned our condo into a rental property. We were going to go LLC, but money has been tight, so for 2014 we are doing general partnership.
We can't get the mortgage transferred to the business. It will cost us about a grand to form the LLC and quit claim the mortgage over to the LLC. At that point, the mortgage would still be in our name though.
In this situation would an LLC actually offer protection, since the mortgage would not be in its name?
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Generally, banks will not lend to "rental" LLC's, you'll have to cosign the loan personally. So for that matter LLC has no benefit. Paul mentioned the "due on sale" clause that is present in most current mortgage contracts and may trigger a call on your mortgage. Talk to your bank about it, in some cases you may be able to convince them that the ownership didn't in fact changed (since the same people are full owners of the LLC), but they may not buy it.
If your bank allows it, you can transfer it into LLC and still enjoy the limited liability as an owner, but if not - you can get liability protection via insurance policy. In some cases that may even be cheaper. Talk to your insurance agent.
In any case, deciding which (if at all) entity to use is a legal issue. You should talk to an attorney licensed in your State. There may be some tax considerations also, so talk to your tax adviser. In many cases, married couple jointly owning real-estate can skip the general partnership tax returns, but not with LLC.
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