Legal Question in Real Estate Law in California

Re: LLC owned home

This question isn't really a legal question, but I'll try to help you with what I do know about residential and income property mortgages. First, to transfer your home to an LLC is not going to be easy - the lender would have to agree to place the property mortgage in the name of the LLC and let you off the hook personally, otherwise the mortgage is still on your credit report and therefore still a part of the Debt-to-Income ratio calculations. Second, an LLC is generally setup so that income and losses are passed through to you personally on your income tax return - not always, but most closely held LLCs and corporations are setup that way. As such, if the home LLC has a negative cash flow, which it will since its not income-producing, the cost of operating the house will still show up on your tax return as a pass-through loss on the LLC, and you still won't show enough income to qualify. You will also very likely lose the mortgage interest deduction if you put your home residence in an LLC, and possibly the capital gains exemption for any upside when you sell it. If you go the other route, and try to buy the multi-unit property in an LLC, you'll have a hard time qualifying for that loan as the LLC has no history, and no independent source of income. I don't see how you can do this unless you can somehow show more income. A very big word of caution - this situation is exactly what started the mortgage and credit melt-down we are experiencing today. People tried to stretch themselves to buy property that they believed would appreciate and they would make their fortunes. While you may not be looking for appreciation, the debt-to-income ratios are used for a reason - they are an excellent predictor of mortgage defaults. If you don't qualify on the books, then look for something else that does fit within your financial situation. Don't extend yourself in real estate as there is a great chance we are not yet at the bottom. What if one of your units goes un-rented for six months? How will you handle that? You need to be realistic and work within the system, not try to manipulate numbers to get a mortgage you cannot afford. I don't mean to preach, but this is exactly what has caused, on a much larger and wide-spread scale what is happening to the credit markets throughout the US.

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