If the deed of a rental property is in the hands of an individual or a household, then it may be a good decision to transfer that deed to an LLC instead.
When a property deed is listed as an individual asset, then all of that person's assets are at risk should a legal problem arise at that property.
If the rental is associated with an LLC, however, only business assets would be at risk if a lawsuit is filed against the property's owner.
The first step would be to form the LLC if you have not done so already.
Every jurisdiction has slightly different rules that must be followed, but you will need to complete an articles of organization.
You'll also need to list officers, file the articles once completed, and then pay the filing fees. Then you'll be ready to take the next steps.
Step #1: Create and Sign the New Deed
You'll likely need a property attorney to prepare a deed that is able to convey the rental property.
If you own the property already, then just sign this new deed that transfers the property to the LLC in the presence of a notary public.
Once your signature is on the document, then you'll be able to file with your jurisdiction's deed office.
If there's a mortgage on the property, your lender will need to approve the transfer, even if you're just sending it to your own LLC.
That's because most mortgage agreements require payment in full when a sale is made.
Step #2: Have a Bill of Sale
If there are any personal or business assets that will be transitioning with the rental property to the LLC, then you'll need to have a notarized bill of sale for these items.
Make sure you sign the titles to any property over to the LLC during the process and then file any necessary documents that may be required by your jurisdiction.
Step #3: Get Your Tax ID Number
Because you're upgrading your business presence to an LLC, you'll need a tax ID number and begin to filing taxes independently on your business income.
It also means that you'll need to completely separate business and personal finances and pay yourself an actual salary from the business instead of just taking profits from it.
The start of this process is to file for your tax identifications at all levels.
Make sure to transfer all of your names to the appropriate licenses as well.
Step #4: Consult With Professionals As Needed
There are numerous accounting and legal issues that can arise with an LLC that is based on rental property.
Although the LLC will protect your personal income, there will be a greater investment into professional consultations for issues that can come up over time.
Grow relationships with your local professionals and you'll be able to consult with them when needed if you've got a problem to solve with your LLC.
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