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wildambitions

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
813
120
80
Southern NM
My friend and I are building a vacation rental business. We have an LLC for the management side of the business. My friend owns the cabins and purchased them in her (and her husbands) name. We think that we know that we would like to move these properties into each of their own LLC's, as we have learned that this is what we should have done in the first place. I have two questions from here...OK maybe more than 2, but let's start there.

What is the easiest way to move property from personal ownership into a new LLC? And not run into additional costs?

We are also starting to build our business team. So, my next question is...

Should we invest our funds with a real estate/tax accountant (to prevent the first situation from reoccurring) or should we find a bookkeeper? (I am comfortable handling the books for now.)

Thanks!:smx3:
 

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Russ H

Gold Contributor
Read Millionaire Fastlane
Speedway Pass
Jul 25, 2007
6,557
1,338
381
59
Napa Valley, CA
We own a B&B and a vacation rental.

We have the props in Ltd Partnerships, b/c we are in CA (our asset protection atty recommended that we do this, since LLCs had some downsides in CA).

We have a bookeeper (took us 3 years (yes, years!!!)) to find a good one. Ask any other vacation rental investors who they use-- this is how we found ours (a fellow B&B owner recommended theirs when they heard us whining about how we couldn't find a good bookeeper!).

You need a really, really good RE acct. Ours is very expensive-- but if you have more than, say, $800,000 in loans, a good RE acct will pay for themselves.

Knowing the right stuff to expense vs capitalize, and how to structure the entity that controls the LLC (and separate entity that manages the property)-- these are all things we worked out w/our attys and accts.

BTW, we had a local acct that I'd worked w/for years, and had become very adept at dealing w/RE investors (he specialized in small businesses, grossing less than 3-5 million/year).

But once we got the "specialists", we had to file amended returns.

Lots of errors-- not "save you money by being aggressive" errors-- just wrong things done by my previous guy that the new accts caught.

An expensive lesson learned-- if you try to save $$ by hiring a general purpose acct to work on a complicated RE portfolio, it may cost you WAY more in the long run (taxes, and potential penalties/interest).

In our case, we owed more tax, and we paid it less than a year after it was originally due. The amended returns corrected the mistakes. Had we kept on working w/the previous acct for a bunch of years, and gotten audited, it could have been a very, very expensive learning experience. :(

So, our advice: Don't be afraid to spend relatively big bucks for accts who know their stuff.

It's worth it. :banana:

-Russ H.
 

Diane Kennedy

Bronze Contributor
Aug 31, 2007
795
211
49
My friend and I are building a vacation rental business. We have an LLC for the management side of the business. My friend owns the cabins and purchased them in her (and her husbands) name. We think that we know that we would like to move these properties into each of their own LLC's, as we have learned that this is what we should have done in the first place.

What is the easiest way to move property from personal ownership into a new LLC? And not run into additional costs?

First of all, I have to give a disclaimer that I'm not seeing all of the information for your personal situation and so this can't be relied on for tax advice. Additionally, I'm not a lawyer and so can not give legal advice.

The most direct way to accomplish what you want is to contact the lender (or rather your friend does so), ask to speak to the legal department and then tell them that for estate planning purposes you want to transfer personally held property into an LLC. The answer will be "yes" if the question is asked correctly. If you get "no" you're not talking to the right person.

Once the mortgage company says "yes" do a title transfer (NOT a quit claim deed...NEVER a quit claim deed) to the LLC. Then have the LLC sell or trade a membership interest to you. (Not sure how the financial piece is working out in your particular case, so the exact plan might vary for you)

If you were starting from the beginning, I'd probably have recommended a TIC (tenants-in-common) ownership with each of you holding your own interest within your personal LLC. That way you get the asset protection PLUS the ability to do separate Sec. 1031 exchanges down the road.

I know there were lots of legal and real estate terms in that explanation, please let me know if you need definitions or further examples on any of this. We're in my briar patch now.... (Remember Brer Rabbit?)
 

wildambitions

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
813
120
80
Southern NM
If you were starting from the beginning, I'd probably have recommended a TIC (tenants-in-common) ownership with each of you holding your own interest within your personal LLC. That way you get the asset protection PLUS the ability to do separate Sec. 1031 exchanges down the...

How does this work? Is this something that we can still do?

Right now, I have absolutely nothing in the company except for time and input. We are actually restructuring (perhaps it is really more of an initial structuring) to get me involved in the company. Any suggestions?

We are still defining actual roles. Until recently, we were just doing something instead of nothing but now we need to get some specific details set up. I am most definately a novice at this. My friend set up the LLC and then she purchased a couple of properties. I have not invested yet due to my pending purchase of a new personal residence home (paid for with passive income from a retirement:hurray: ). We eventually want to grow the company, own more rental properties to place into the prop. mangt. LLC., and quit our jobs once the passive income from the company exceeds our paychecks.
 

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