Posted by Penny on May 21, 2008 at 10:18:26:
What contributions have the other partners made so far, e.g. down payment, closing costs, rehab costs, rehab labor, mortgage payment contributions, etc. in this deal?
Have they been contributing their share, per the LLC operating agreement, but the title and mortgage happen to be in your name only?
Interestingly enough, your partners are also at risk for putting money into something the LLC doesn’t own and are relying on your integrity to honor the original intent of the property acquisition. Your posts show you have concern for both sides. Good for you!
I’m not an attorney and don’t play one on tv. Check with your own attorney who is familiar with your state laws and your situation.
That said, I do own more than one business and have worked with my own attorney and accountant regarding asset protection, multiple corporate structures and tax benefits.
So here are some general thoughts that may help your advisors.
Others - please feel free to chime in and check my homework here.
Since you don’t want to transfer the title to the LLC while remaining liable for the debt, then the LLC needs an agreement with you (or whatever entity in which you choose to hold the property) regarding the LLC contributions and profit returns. So yes, you should draft a document that spells out the gory details.
You need to decide how you want to hold the title (e.g. put it into a trust, LLC, etc.) to manage your personal liability. Your attorney can help you with asset protection and estate implications, and whether insurance can help with the various entity choices.
I’d check with your CPA for tax implications (for you personally and also for how you might flow tax benefits to the other partners) and also your banker on refinancing options and implications. If you were to re-finance it in the LLC name, chances are someone would be asked to personally guarantee the loan.
My tax strategist was telling me about new Fannie Mae and Freddie Mac rules that will impact the ability to refinance properties (SFR and multi-s 4 or less) that are held in an LLC. Refinancing down the road is one way to get your name off the mortgage as well as draw out equity for distributions to the partners. Make sure you think about exit strategies for you and your partners, if you haven’t already.
The current LLC could either loan your entity funding, or it could invest in your entity. I’d talk with a good corporate attorney to help you figure out which is best, or if there are other options that I’m not familiar with. Once you decide on an entity choice and the current LLC relationship, your attorney should be able to help you write something up.
Hope this helps. Good luck!