LLC?

Question

We are relatively new re investors in missouri.  We own 5 properties(2 duplex and 3 sfr) Have bought undervalued and fixer uppers, but not flipping. So far just developing our own portfolio. We manage ourselves.  Should we incorporate?  I appreciate this site and all advice will be appreciated.  Thanks

N/A N/A · Answer

when you purchase a property, you should be able to purchase in your name, then do a Quit Claim Deed to transfer title to your Company.  This will give you the protection you are looking for as far as liability goes, but certainly if anything happens as far as the mortgage goes, it is all on you.

Steve Bonifield · Answer

i think you are receiving some terrible advice.  the reason for an LLC is to limit your liability to the corporation and no further.  if you personally do not have a lot of equity outside of your rental properties then their isnt much of a need for an LLC - just a good insurance agent.  if you do have a lot of equity outside of your rental properties then you should form an LLC.  i never received different rates because i have my properties in an LLC - i was personally liable either way.  if you are receiving non-recourse notes (which i doubt) then you should form an LLC.

Mitch Kronowit · Answer

Yes and yes. The LLC protects you personally from your rental properties, and liability insurance protects your rental properties from you.

BTW, I see almost everyone on BP say to use a Quit Claim Deed when transferring title to an entity. My attorney insisted that we use a Grant Deed. It seems a mute point if the transfer is to a wholly owned entity, but is there some advantage to using a Quit Claim Deed vice a Grant or Warranty Deed? Thanks.

Joshua Dean · Answer

I would also look into trusts.  I now place every deal I do in a trust UNDER the corporate umbrella.  This gives me individual protection for each deal.

Jason Barnett · Answer

If you're interested in more details then I suggest you speak with a local attorney and ask them how to become "judgment proof."  There really are a lot of details that go into this strategy and this is why you pay attorneys for their advice!

N/A N/A · Answer

Isn't the LLC protection only one-way, though? It protects your personal assets from suits related to the "business," but if you are sued personally (say wrongful death related to a car accident) isn't your ownership of the LLC (or multiple LLCs) a vulnerable asset?

Mikey Kay · Answer

your best bet if you want to protect yourself is to have an LLC for each property. BUt for most people it is not practical especially if they are residential houses (not buildings).

I know of people who have 10+ houses and no LLC, but rather 10 million dollar umbrella policy. They do this because either way the person who is coming after them is attempting to get something. The policy will cover them 10 mill worth and they wont have to forfeit propertys. ..

Not sure if i explained myself fullly...but if you have more questions ask away.

Jason Barnett · Answer

You are correct.  The administrative time / costs will increase as you increase the number of LLCs that you administrate.  There is a cost-benefit tradeoff going on here.  The bottom line question: how much money are you willing to lose in one lawsuit?  That's how much equity you should have in each LLC.

Some people feel that having 4 properties per LLC is a good balance, but to each his own.  Some states have easier reporting restrictions (i.e. it costs less money to operate an LLC formed in these states).  Hint: avoid the blue states.   :lol:

Jason Barnett · Answer

With all properties titled to you personally you can expose all of your properties with a single action in excess of the umbrella policy.  With each property titled to a separate LLC you would expose only a single property with a single action.  Even with an LLC you want insurance; the only question is "how much?"

N/A N/A · Answer

I have been wondering about personal umbrella vs. property in an LLC. If I own property in my own name and have a $2M umbrella, the property is safe unless I have a claim greater than $2M against me, while if it is in an LLC all of the equity of the property is at risk for any claim, right? [This is a question, I really don't know.] I understand how the LLC helps to protect my other assest, I'm just wondering about the property itself. Can an LLC like this get an umbrella-like insurance policy?

LLC?

Most Popular Reply