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Rental property:LLC or not?
Posted on 7/31/13 at 10:22 pm
Posted on 7/31/13 at 10:22 pm
I have recently bought a new home and want to rent my previous one out. I am debating wether or not to make an LLC. I have contacted state farm about insuring the dwelling and within the policy I have a 300000 dollar liability coverage. It is my only "investment property". Is there a reason that I should make an LLC? Please help.
3
Posted on 7/31/13 at 10:38 pm to lsutigers11
Not if you have one rental property. There really is no protection of assets here. Just buy an umbrella of at least 1mil. 5 if you can afford it
Posted on 7/31/13 at 10:39 pm to lsutigers11
Others my disagree. I'm just giving my opinion. I have 2 rental properties and no llc.
Posted on 7/31/13 at 11:40 pm to Mr.Perfect
Then if something happens(accident)in one of your properties, everything you own is under consideration of a lawsuit. The main purpose of having an LLC for separate properties is so that your entire portfolio is not under threat. LIMITED LIABILITY COMPANY. It just seems like an unnecessary risk to me to not have LLC's for two or more properties. My family has three income properties and all are in LLC's.
Posted on 8/1/13 at 7:17 am to BigAppleTiger
Lets say you own a 4plex worth 500k that you just bought 3.5% down FHA and a single fam home you live in worth 300k with a conventional 20% the 4plex is in an llc. You have a typical 300k liav policy on it. Thosr are all the assets you have.
You really think your liability ends at 300 + your little bit of equity?? An llc without capital is not worth a damn
You really think your liability ends at 300 + your little bit of equity?? An llc without capital is not worth a damn
This post was edited on 8/1/13 at 7:19 am
Posted on 8/1/13 at 7:20 am to BigAppleTiger
And big apple. Not saying the aren't fine options, but it depends on your personal assets and situation.
This post was edited on 8/1/13 at 7:21 am
Posted on 8/1/13 at 7:41 am to Mr.Perfect
quote:Can you show concrete examples of rental real estate LLCs lacking in capital that have not provided limited liability to the LLC member(s)? Capital must be adequate for anticipated business expenses. Are major law suit damages in excess of insurance coverage expected expenses? Without some element of gross negligence on the part of the member(s) I am unaware of any instance in which an LLC has failed to provide the limited liability that the name implies.
You really think your liability ends at 300 + your little bit of equity?? An llc without capital is not worth a damn
And as to whether a separate LLC is necessary for each rental property I'm open to discussion. It is my belief that LLC's should be based on risk tolerance. So bundling more than one property into an LLC with say $500K of value may be more appropriate for some than say two separate LLC's with $250K of property in each.
Posted on 8/1/13 at 8:44 am to Poodlebrain
I have been told (by lawyer friends) that LLC does not guarentee that the tenant won't/couldn't go after properties outside of LLC. Any truth to this? My plan up to this point has been Joliet to up my liability coverage through State Farm.
My case: single family home worth 150 only property
My case: single family home worth 150 only property
Posted on 8/1/13 at 9:01 am to Poodlebrain
I mean... no two situations, LLC's, judges, venue's, claimants are the same so I don’t really see how that helps.
If i have that 4 plex i referenced above that i have very little equity into plus a bank account with lets say 20k of your
and one of my tenants slips on the front step and busts their head open and is in the millions on medical bills that my llc is being sued for, what good is 300K liability and a "corporate veil" going to do? If you own a rental property there is SOMETHING wrong with it. Maybe my railing on the step was an inch low, or it was a slippery surface. The liability carrier will defend me but will likely be let out of the suit after tendering limits. do you think the plaintiff attorney is going to just walk away?
I highly doubt it. They are going to walk right through that llc and come for my personal assets.
I would sleep a HELL of a lot better buying a 1-5 million umbrella and building part of it into my rent. But that’s just me.
llc vs no llc is all about what risk you are comfortable taking.
If i have that 4 plex i referenced above that i have very little equity into plus a bank account with lets say 20k of your
quote:
Capital must be adequate for anticipated business expenses
and one of my tenants slips on the front step and busts their head open and is in the millions on medical bills that my llc is being sued for, what good is 300K liability and a "corporate veil" going to do? If you own a rental property there is SOMETHING wrong with it. Maybe my railing on the step was an inch low, or it was a slippery surface. The liability carrier will defend me but will likely be let out of the suit after tendering limits. do you think the plaintiff attorney is going to just walk away?
I highly doubt it. They are going to walk right through that llc and come for my personal assets.
I would sleep a HELL of a lot better buying a 1-5 million umbrella and building part of it into my rent. But that’s just me.
llc vs no llc is all about what risk you are comfortable taking.
Posted on 8/1/13 at 10:49 am to Mr.Perfect
Every instance I've been able to find in which an LLC failed to provide protection involved commingling of funds, failure to maintain separate accounting records and failure to follow proper administrative procedures in addition to undercapitalization. It requires more than just undercapitalization for the LLC to be considered an alter ego.
Purchasing a large umbrella policy as an individual is always a good idea if you have substantial assets you wish to protect. However, it should be your second line of defense instead of first.
Purchasing a large umbrella policy as an individual is always a good idea if you have substantial assets you wish to protect. However, it should be your second line of defense instead of first.
Posted on 8/1/13 at 10:50 am to lsutigers11
I would firewall rental property from your personal assests with an LLC. However, there are more benefits than just limitation of liability. It makes your tax issues simpler and draws a clear line between individual property and LLC property. You should have separate bank accounts for the LLC. If you acquire more property, you should group them under a number of LLCs to firewall them from each other.
You cannot avoid liability for your own actions, but you never know when you're going to need to firewall yourself (and other LLCs) from the negligence of an employee, contractor, etc. And, even dealing with rental tenants, you're dealing with the most responsible people in the world - AND they're litigious.
If nothing ever happens, think of it as peace of mind or like insurance. If something happens, you'll be so happy you did this.
You cannot avoid liability for your own actions, but you never know when you're going to need to firewall yourself (and other LLCs) from the negligence of an employee, contractor, etc. And, even dealing with rental tenants, you're dealing with the most responsible people in the world - AND they're litigious.
If nothing ever happens, think of it as peace of mind or like insurance. If something happens, you'll be so happy you did this.
Posted on 8/1/13 at 1:24 pm to Ace Midnight
The LLC is set up to provide coverage for your personal items, that is not to say that the coverage is ironclad, but the bottom line is that is take about 15 minutes to set up an LLC online, and $75 to file with the state, and 25 to keep it in good standing every year. As a single member LLC the income would be taxed the exact same way as is no LLC existed.
So why not, just for piece of mind.
So why not, just for piece of mind.
Posted on 8/1/13 at 6:17 pm to Mr.Perfect
quote:
And big apple. Not saying the aren't fine options, but it depends on your personal assets and situation.
I will agree with this. We have no mortgages on the rental properties- all are owned outright with a value of over 1 million. It's just too much risk to take for 300 bucks initially and 75 bucks a year- but that's me.
Posted on 8/1/13 at 6:33 pm to BigAppleTiger
I'm rethinking what I am doing. Like you just said... not much cost. I still wholeheartedly believe in buying umbrellas
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