There are several vehicles you can use to start a business. One way is to is to set up a limited partnership, corporation or limited liability company. For real estate purposes, most people agree that a limited liability companies gives its organizers the most flexibility in terms of structure and for income tax purposes. An LLC shields its members from claims from creditors and litigation matters. The LLC also permits the tax benefits of the LLC to flow directly to its members. Learn more on this page about when you should set up an LLC and what is involved.
When you're a real estate investor you may decide you want to create a limited liability company to hold your real estate assets and to protect you. When you use an LLC to hold your properties, you're limited in what kind of mortgage lender you can work with to get a mortgage. Mortgage lenders have to specialize in either residential or commercial real estate loans.
An investment property owner created an LLC to protect his assets and transferred the building to the LLC. Now he is worried that the mortgage company will call in the loan. As long as a lender obtains its payments and the property is insured, the lender may not find out that there has been a transfer of the title to a property. Your insurance company, of course, has to tell the lender that the policy has changed and that the new entity is the owner of the property. Ilyce and Sam explain why lenders call in loans after property has changed hands.