Hello,

I'm going to hopefully be purchasing a few turnkeys properties in the near future using DSCR Rental loans (is there a better name for these?). I've watched and read a lot of the negatives of using an LLC as an individual investor, and it seems to make sense to me to skip the LLC and use umbrella insurance instead. Any concern with doing this if I'm going the rental loan route?

For background, I'm self-employed for the next year so can't go the conventional path.

Thanks

@Christopher I have done both. LLC route you have to do a separate tax return as its a "business". My accountant wanted $1200 a year for that, so after speaking with several investors, I think being in my own name is fine. Namely, unless you are a very negligent person, you wont get sued. One lawyer I know, who is also a RE investor, said people who actually get sued were sloppy landlords and the average award amount was a few thousand. I chose to get a 2 million umbrella on top of my normal property ins. This ensures safety and avoid the LLC route. The only times we use LLC's is when we have partners, which makes better sense. Hope this helps and happy investing!

Originally posted by @Todd Powell :

@Christopher I have done both. LLC route you have to do a separate tax return as its a "business". My accountant wanted $1200 a year for that, so after speaking with several investors, I think being in my own name is fine. Namely, unless you are a very negligent person, you wont get sued. One lawyer I know, who is also a RE investor, said people who actually get sued were sloppy landlords and the average award amount was a few thousand. I chose to get a 2 million umbrella on top of my normal property ins. This ensures safety and avoid the LLC route. The only times we use LLC's is when we have partners, which makes better sense. Hope this helps and happy investing!

This seems to be the prevailing logic I keep coming across. Have you had any issue getting non-conventional (DSCR) rental loans to you as an individual rather than an LLC?

I would guess that the majority of investors with 5-10 properties have an LLC. I got one after my 7th unit. I'm not sure what the big negative would be. There is a setup fee and an annual registration fee and you do need to do a separate tax return for the LLC but those are all relatively inexpensive ways to gain some division and protection. That being said I would still get a general liability policy, eventually, on top of the LLC.

Keep in mind, with the LLC or insurance policy you are trying to protect your personal assets and in the US (for the most part) your personal residence and qualified retirement accounts are protected and generally considered untouchable in a lawsuit. So if you don't have many personal assets yet, like most people who are starting out in real estate, then there really isn't much to try and protect.

Also, your title was "LLC or individual rental loan" With or without an LLC you will be personally signing for and responsible for the loan. The bank will not be ok with the "LLC" being responsible. They will want Christopher to be responsible.

Finally, the LLC and GL policy serve different purposes. The GL policy is your hope that if you are sued you can throw piles of cash at them and make them go away. The LLC is so that if you can't throw piles of cash at them and make them go away you can at least protect your personal assets and limit them to only going after your business assets.