Hello my friends and welcome to another episode of ask Marco where I answer your investing related questions.

I hope everyone is keeping well and staying safe, I know a lot of Californians here have made their way to the beaches again, now they're keeping their social distancing. But I believe a lot of people are getting stir-crazy and have gotten a little tired of the lockdown and nationwide quarantine that has been going on. I mean, how many weeks can you be locked up in your house? So anyway, people are enjoying themselves while still trying to do what they think is right in terms of staying safe. So good for them.

So today's question comes from Ivan and he's wondering if it's possible to refinance a property that is held in an LLC. And it's a good question because it's a common question and a lot of people hold their properties in an entity like an LLC for the sake of asset protection, but that could be challenging when it comes time to finance or refinance that property.

So Ivan writes in and he says, Marco, I started listening to your podcast about three weeks ago and I am inspired to grow my passive real estate income portfolio. I currently own one single-family investment property that is cash flowing $375 monthly. I owe $50,000 at 3.6% over 30 year fixed and the property is worth a $171, 080 as per zillow.com and realtor.com the home is in my name. After listening to an episode of yours about asset protection, I am considering transferring the investment into an LLC. However, I am concerned about the ability to refinance if the home is owned by a newly formed LLC. Is this a concern or not? Also is an LLC, the right move or should I consider an S Corp or maybe even involve a land trust? Thanks, Ivan.





Ivan, thanks for your question. Thanks for being a new subscriber to the show and congratulations on your investment property and your desire to build your passive income through a portfolio of income-producing real estate.

So let's break this down. You're really asking two main questions. Is it a concern to have the property in an entity like a newly formed LLC? Well, my first comment to that is, and this is, this holds true for pretty much everybody that holds any kind of asset, especially if it's worth something or generates income. It's not smart to hold assets in your name personally. And any asset protection attorney will tell you that now their approaches might be slightly different. They'll pretty much all advise that you hold your assets in a title holding entity like an LLC. So you're thinking the right thing and on the right path. And I'm not an asset protection attorney. I have learned a lot from many asset protection attorneys and there's common threads or common denominators between them. All the LLC, a pass-through entity in the state of the asset is a pretty common way to hold title and start your asset protection plan so you're on the right path.

Now is that an issue or concern when it comes to financing? Yes and no. If you are after conventional financings such as Fannie Mae or Freddie Mac, basically these GSM or government-sponsored entities, the GSE entities then yes, because conventional financing requires you to hold title in your name or your spouse's name, but basically you as the borrower or borrowers need to be tied to that property. This is just for the qualification. After you have the property financed or refinanced, then as long as you are within the guidelines of that loan, there's no reason why you can't hold title in something like a land trust or and or an entity. So keep that in mind. Now, these are just very general suggestions if you will, because there is a clause in most loan agreements or notes that is called due on sale clause, which means that if you have one of these loans like a conventional loan and you transfer the title to an entity, that transfer can technically trigger the due on sale clause, which means that the lender has the option to call the...