Professional · Riverside, CA · Member since 2009 · 254 posts · 273 votes
Lawyers and REI give the advice to use LLC's to protect properties. And to have separate LLC's (or separate series in series LLC) for each property or at least small groups of properties. I myself have followed this advice and have LLC's for my properties.
However, can anyone share a story or a direct knowledge of someone else where the LLC truly did protect them and from other properties. In other words, if not for the fact that they used LLC's, they might be bankrupt or have lost other properties. So not just you were sued, you were sued, lost, got a judgement more than the value of your insurance policy, and more than the equity in the property. To be fair, we are talking about legitimately run, adequately insured investment properties.
I feel the LLC's entity protection are caked more in theory than actual practical business. I might think differently if someone can give an actual example where LLC's really saved them.
Insurance Agent · Maitland, FL · Member since 2015 · 397 posts · 244 votes
10y
Your hitting the nail on the head. Any lawyer worth his salt will certainly sue the LLC that owns the property, but he will also sue the owner of the LLC personally, the property manager in both capacities and so on.
I have no stories where a large claim was saved by an LLC. Only one where a large claim occurred due to bad decisions by the owner of the LLC/property and people were hurt badly. The insurance was $1,000,000 on the liability. But damages were about $4,000,000.
The plaintiff lawyer sued all involved.
Insurance wrote a check for $1,000,000 in less than a week. (Here's a secret, if insurance writes a check for the total limit of liability, they no longer are required to pay for legal defense). They then had to slowly liquidate llc's to pay legal defense and then the case finally settled when they personally paid out of pocket just under $1.3 Million.
Basically they paid an attorney to negotiate the claim down to about $4 Million ($1M by LLC property insurance, $1M by property manager insurance, $1 Miilion by contractor insurance, $1M personally by owner of LLC). But paid the attorney $300,000 to do so.
That's the personal knowledge I have. I can also say I offered a $5 Million umbrella, I even have her written response that I was being ridiculous, $1 Million and an LLC was fine. But for about $700 a year she would have saved $1.3 Million in trouble.
Now don't get me wrong either, this was no slip and fall. She made some decisions that were not ethical, but I see them advised frequently on BP. Let me just put it simply. Make sure boiler repair contractor are licensed. Again $1,000 to a licensed contractor vs $300 to a handyman would have save a child from permanent scaring and $1.3 Million on the property owner.
Luckily she had money sitting in other llc's she owned, the bank and other places. Because in these cases in most states 25% of all future earnings and 100% above your homestead exemption are garnished. So in Indiana that means your never allowed to have more than $7,500 in the bank, and 25% of your time, you work for the person you damaged.
But back to your point, I've yet to meet the plaintiff attorney that does not sue everyone involved. They don't care about LLC protection. But LLC protection is one more piece of armor.