Like the other posters, not an attorney but I have attended several presentations from Lenders.
For asset protection:
1. Don't own investment property in your own name. Some form of corporate entity will help, talk to an attorney & tax person to see which form of ownership gives you the best tax advantages. While rentals are usually owned in an LLC, it is not necessarily the best option for you.
2. Hold insurance. If there is a problem at a rental and you are insured, the people will go to your insurnace. when they sue use is usually when your insurance will not pay for the problem.
3. Have systems in place that are verifiable that you are maintaining the property and fixing anything that could be a hazard that the tenants could sue you.
Personally I would not own anything in my name.
Back to the Due on Sale Clause - in every mortgage there is a Due on Sale Clause - go read your mortgage documents and you will find one. Please note that every one I have read says something to the effect that the lender MAY call the note due an payable upon the transfer of ownership of the property. The question is - how would they know you changed ownership, they don't have time to check up on every borrower to see if title changes. And if you are paying them the way you promised, why would they care.
The due on sale clause was instated back when interests rates were climbing very quickly and the lenders did not want person B assuming Person A's loan at 10% interest when the going rate on a new loan would be 12%, they wanted to keep making new loans.
So talk to your attorney who also knows about corporate law & real estate as well as your CPA or tax person to see what they tell you.
Then the question becomes how many properties in one llc - some say only 1, while I am in the school of - about $50,000 in equity per LLC.
To set up one - I just did one using a kit from John Hire that only cost me state fees and my time - about $250 - but if you have never set one up and are not sure on the right form or the correct language, please have your attorney set it up and again that could be anywhere from $500 to $1500.
Check with your local Real Estate Investor Group to see if they might be able to direct you to more education on this subject or look in the Free Books and Articles for info from Bill Bronchick or John Hyre.
Kim in Kansas City
Mid-America Assoiciation of Real Estate Investors
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