Rental Business Structure - LLC vs. owning outright

4 Replies

Hi everyone - just bought my first rental property and I'm trying to figure out the best way to protect myself in case of any lawsuits. I've always been advised to set up the property owner to be an LLC and to have a separate bank account as well - which all makes sense.

My question though - what if I create an LLC with a corresponding bank account, but I own the property myself, and have the tenants rent from the LLC? If some one slips and falls, i'm assuming they can sue the LLC (which only has what is in the bank account). but can they sue me as well?

Your thoughts?

Thanks

  

So, under your scenario, the property is owned by you, but the property manager is a separate entity. If that is the case, the injured party will sue the property owner. In reality, the injured party will sue both the property manager and the owner. The property owner is responsible for maintaining the property. The property manager may have some responsibility for maintenance, but the onus will fall greater on the owner. Second, the property owner is the one with deeper pockets. So, in sum, a smart lawyer will sue both the property manager and property owner, but will focus on the property owner. Because of the specificity of your scenario, you should consult an attorney familiar with your jurisdiction.

(This is not legal advice)

Congratulations on your first rental property! I would not advise going down the LLC route until you decide if this is something you are going to grow into a larger business. I would just leave everything in your own name and get a liability umbrella policy that covers you for the 1 property. If later on you decide to acquire more properties, then I would begin looking at sheltering and dividing assets. So, in other words, I think its adding unnecessary complexity at this point.

Thanks for the input everyone - in terms of long term planning, i'd like to accumulate a few rental properties. So, putting the property in an LLC instead of keeping it under my name makes sense for protection purposes.

My next question would be regarding umbrella policy vs an LLC - I'm leaning towards doing both. Any suggestions?

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