LLC vs Personal Ownership?
Member since 2024 · 4 posts · 10 votes
LLC vs Personal Ownership?
Most Popular Reply
Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2yHey @Charles Adams,
please consider your asset protection. A quick and dirty way to get started is to checkout this tier list I made below:
Worst:
– No coverage, held in your name.
Bad:
- Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.
Good:
- Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.
Better:
- Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.
Best:
- Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.
Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:
- Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
- Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
- Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.
31 Replies
- Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes2y
- Member since 2024 · 4 posts · 10 votes2y
primary residence, a farm, my life savings and stocks --- there's alot of exposure. :')
I'm curious if people do LLC and pay a higher interest rate, or do personal ownership and buy an ~$1MM umbrella policy to help protect.
- Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes2y
That is a game changing statement for sure and enough to get the plaintiffs attorney excited
You will still get a lot of conflicting opinions and the fear mongering is very real.....
Some of it is warranted and some is just sales based on scare tactics
I have owned in my personal name and been sued personally not really a fun experience haha
- 2yKristen L GarnerBusiness MemberLender · Phoenix, AZ · Member since 2021 · 451 posts · 287 votes
Hey Charles, conforming loans will not allow you to close in an LLC. You would need to close in your personal name and then quit claim to an LLC at a later time. However, non conforming loans (aka nonQM) such as DSCR allow you to close in an LLC. Rates are typically higher for DSCR vs conventional but you can offset that with the way you structure the loan - like adding a small prepayment penalty or increasing the DSCR ratio bracket for example. Best of luck!
- Member since 2024 · 400 posts · 240 votes2y
Quote from @Kristen L Garner:
Hey Charles, conforming loans will not allow you to close in an LLC. You would need to close in your personal name and then quit claim to an LLC at a later time. However, non conforming loans (aka nonQM) such as DSCR allow you to close in an LLC. Rates are typically higher for DSCR vs conventional but you can offset that with the way you structure the loan - like adding a small prepayment penalty or increasing the DSCR ratio bracket for example. Best of luck!
Hi Kristen, I am jumping in here quickly with question on Lenders and NMLS ID. Recently I was talking with a lender and after much communication back and forth I found out he did not have NMLS ID number and I was told he works 'under' someone else (within the company). I notice you listed a lot of NMLS ID unlike most lender that list one or two NMLS. Also, the NMLS ID are different in different states as well as same in multiple states.
I am hoping you can shed some light as to how this whole NMLS work.
1. Is it ok to work with someone who doesn't have his own NMLS? Should it be a concern?
2. How do I verify if NMLS ID is active?
3. Is the listed NMLS belong to the company or individual? Are individuals(loan officers) supposed to have their own NMLS besides the company NMLS?
4. Reason your listed NMLS is same for several states and different for others.
5. Anything else I need to know when choosing a lender(or mortgage broker). Thank you.
- Member since 2020 · 217 posts · 167 votes2yI could argue to put your rental properties in a trust, but read up on them and learn what they will do, not do for you. Keep your name off things and have a separate entity to manage your properties, even if you show it, and qualify them.
Insurance is your first line of defense with liability. But good ownership tactics and asset protection is prudent, too. Unless you run a high risk business, I'd not use an LLC, and especially NOT for ownership (zero advantage). - 2yKristen L GarnerBusiness MemberLender · Phoenix, AZ · Member since 2021 · 451 posts · 287 votes
Quote from @Kevin S.:
Quote from @Kristen L Garner:
Hey Charles, conforming loans will not allow you to close in an LLC. You would need to close in your personal name and then quit claim to an LLC at a later time. However, non conforming loans (aka nonQM) such as DSCR allow you to close in an LLC. Rates are typically higher for DSCR vs conventional but you can offset that with the way you structure the loan - like adding a small prepayment penalty or increasing the DSCR ratio bracket for example. Best of luck!
Hi Kristen, I am jumping in here quickly with question on Lenders and NMLS ID. Recently I was talking with a lender and after much communication back and forth I found out he did not have NMLS ID number and I was told he works 'under' someone else (within the company). I notice you listed a lot of NMLS ID unlike most lender that list one or two NMLS. Also, the NMLS ID are different in different states as well as same in multiple states.
I am hoping you can shed some light as to how this whole NMLS work.
1. Is it ok to work with someone who doesn't have his own NMLS? Should it be a concern?
2. How do I verify if NMLS ID is active?
3. Is the listed NMLS belong to the company or individual? Are individuals(loan officers) supposed to have their own NMLS besides the company NMLS?
4. Reason your listed NMLS is same for several states and different for others.
5. Anything else I need to know when choosing a lender(or mortgage broker). Thank you.
Hi Kevin! Legally the loan officer you work with should have an NMLS identifying number. This means they have passed their education requirements, tests, continuing education, background checks, fingerprinting, etc. You can look any loan officer up by their NMLS number here: HTTPS://NMLSCONSUMERACCESS.ORG
Once you look them up you can see what states they are licensed in, if their license is active, what company they work for, the company address, if they have had any regulatory actions taken against them, etc. Many loan officers are only licensed in one state so they only have that one number. I have a long list because I do business in many states. Some states give you a unique license number and some just use your original identifying number.
If the person you are working with is "working under someone else" they may be a loan officer assistant or processor who are not required to have a NMLS number but that would mean they cannot discuss rates with you.
NMLS assigns a unique identifier to each entity that has a record in the system. An NMLS ID is assigned to each company, branch, and individual person when the entity first creates its record in NMLS. Once assigned, an entity's NMLS ID cannot be changed. So you should be able to look up an individual loan officer, their branch, or the company they work for.
As far as picking your lender - You will want to make sure you work with somebody who not only understands your goals but has products that match your needs. And in my personal opinion - communication is key. You don't want to be in the middle of a time sensitive transaction where your money is on the line and be working with someone who doesn't answer their phone or is slow to respond to emails.
Feel free to DM me if you have any more questions!
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Hey @Charles Adams,
please consider your asset protection. A quick and dirty way to get started is to checkout this tier list I made below:
Worst:
– No coverage, held in your name.
Bad:
- Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.
Good:
- Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.
Better:
- Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.
Best:
- Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.
Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:
- Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
- Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
- Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.
- Member since 2024 · 4 posts · 10 votes2y
Wow, thank you for this. This is exactly the breakdown I needed.
- 2ySam McCormackBusiness MemberReal Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 833 votes
Quote from @Charles Adams:
Hi All,
I'm looking for my first investment property in Northern KY / Cincinnati. I've been pre-approved, but that was through my personal credit. (DM me if you have any off market deals in the ~<$150k range)
If I want to protect my personal assets from potential lawsuits and start an LLC, will that mean my interest rate for the traditional loan will go up, or can they still go off my personal credit since I own the LLC?
Anything else I should consider? I'm curious if any of you own investment properties in your personal name and if you have had any problems or how you are protecting yourself.
Just shot you a message
Sam McCormack Realtor - Member since 2024 · 16 posts · 6 votes2y
If someone would like to DM me I have a handful of questions on this matter as well. Thank you.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
I don't have any LLCs with 5 properties (4 SFH and 1 multi-unit, co-owned) and am still deciding about this. I purchased umbrella insurance beyond the liability part of each rental dwelling policy. I also know a lot of California investors who have done what I have, the main reason being CA charges a franchise tax of $800 per LLC.
What was recommended to me was a Wyoming Trust over Holding Company over each LLC (one per property) for anonymity, using a registered agent and virtual business address. I talked to asset protection companies, Prime Corporate Services and Anderson Business Advisors (both have mixed reviews). Anderson charges $13,000 for first year set up for my situation then yearly fees (I stopped adding up the numbers after I was in shock about the $13k). Another investor recommended that I talk to an attorney who would probably do all that paperwork with Wyoming LLCs for a lot less than what Anderson charges. Nevada and Delaware are also other states to start LLCs for the anonymity reason. I've heard of a Land Trust but don't know anything about that.
Also for 2024 if you have an LLC you need to file additional paperwork for the Corporate Transparency Act or face fines from the IRS. I think there is no one right answer for everyone, maybe talk to a local attorney since it sounds like you have substantial assets. If you do a search on BP about LLCs you'll find lots of posts and different opinions.
- Member since 2020 · 217 posts · 167 votes2y
Quote from @Account Closed:
Hey @Charles Adams,
please consider your asset protection. A quick and dirty way to get started is to checkout this tier list I made below:
Worst:
– No coverage, held in your name.
Bad:
- Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.
Good:
- Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.
Better:
- Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.
Best:
- Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.
Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:
- Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
- Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
- Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.
Good points but depends. LLCs are expensive and paperwork and publicly known. I could argue that a trust does enough, but put debt on your properties... bullet proof. (but you need to do it right).
I've had excellent luck with this. Before I got rid of all my multi family, and dirt bag homes and got decent tenants, I've never been sued or had to sue. If by chance, someone went after me... first, they'd never find me as owner and had to find the situs of the trust to even file a suit. No attorney yet has done that... no money for them. YMMV.
BTW, I've never lost a law suit in my life, but some can be a PITA. - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Here is a post about LLCs that was posted around Oct. 2023 asking who's been saved by an LLC? It generated many comments.
https://www.biggerpockets.com/forums/926/topics/1151922-than...
I indirectly know a landlord who was sued (a family member of a friend). The landlord wanted to get the tenant out (who lived in the ADU/in-law unit) so a family member could move in. Tenant found a pro bono attorney who went digging around. The ADU/in-law unit is a common set up in California, a downstairs unit set up like studio apartment or an ADU in the backyard. Tenant sued for $2 million. Judge awarded tenant $70,000 and ruled that the tenant shouldn't have been charged rent since the unit was illegal (not up to current safety or fire code) and didn't give the landlord a chance to remediate the unit.
Lesson: don't do illegal things like rent out units that aren't up to code - some people with paid off properties try to be cheap and do things like this or do under the table rent so they don't report rental income to the IRS. An LLC would not have saved this landlord since she was violating the law to start with.
- 2yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Quote from @Becca F.:
Here is a post about LLCs that was posted around Oct. 2023 asking who's been saved by an LLC? It generated many comments.
https://www.biggerpockets.com/forums/926/topics/1151922-than...
I indirectly know a landlord who was sued (a family member of a friend). The landlord wanted to get the tenant out (who lived in the ADU/in-law unit) so a family member could move in. Tenant found a pro bono attorney who went digging around. The ADU/in-law unit is a common set up in California, a downstairs unit set up like studio apartment or an ADU in the backyard. Tenant sued for $2 million. Judge awarded tenant $70,000 and ruled that the tenant shouldn't have been charged rent since the unit was illegal (not up to current safety or fire code) and didn't give the landlord a chance to remediate the unit.
Lesson: don't do illegal things like rent out units that aren't up to code - some people with paid off properties try to be cheap and do things like this or do under the table rent so they don't report rental income to the IRS. An LLC would not have saved this landlord since she was violating the law to start with.
I have posted this before but the LL you knew needed to have a competent lawyer and should have got HCD involved. This is because current CA state law explicitly allows safe unpermitted units (SB13). Granted if it is not a safe unit, it should not have been rented.
I heard state senator Robert Wienkowski (author of many of the state ADU laws but I am not sure he authored SB13) discuss the intent of allowing unpermitted units (he used the word bootlegged units) being to not remove safe units from the housing supply.
Seeing state law currently explicitly allows safe unpermitted units, a judge should not be able to rule otherwise. In addition HCD is chartered with supporting the various ADU laws and would have written a memo explaining the intent of the SB13 clause.
Having an apparent rogue judge rule one way does not negate the laws that have been passed by the state legislation.
Best wishes.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2y
Quote from @Becca F.:
DO NOT pay $13,000!!!! Unbelievable.
I have approximately $3 million net worth and a few different companies. I created my Trust and all the bells and whistles for under $2,000.
I don't even recommend considering an LLC until you have at least $1 million in assets, which means your equity, not your total value. The only people I've seen successfully sued for large sums are the really bad people.
I don't know if I posted in that discussion four months ago, but I have posted similar questions over the last 14 years and can't recall anyone saying they lost a home because of a lawsuit.
Here's my generic LLC advice:
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.
The DIY Landlord Book4.7248 Reviews - Member since 2024 · 400 posts · 240 votes2y
Quote from @Nathan Gesner:
Quote from @Becca F.:
DO NOT pay $13,000!!!! Unbelievable.
I have approximately $3 million net worth and a few different companies. I created my Trust and all the bells and whistles for under $2,000.
I don't even recommend considering an LLC until you have at least $1 million in assets, which means your equity, not your total value. The only people I've seen successfully sued for large sums are the really bad people.
I don't know if I posted in that discussion four months ago, but I have posted similar questions over the last 14 years and can't recall anyone saying they lost a home because of a lawsuit.
Here's my generic LLC advice:
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.Great response Nathan. You said to create LLC when equity hits about $1 million.
Is that equity for each asset(s) under one LLC or when you reach a combined $ 1 million equity of all your assets? In your case you have multiple properties in different LLCs (storage, commercial, residential rentals). Was that to simplify the category of properties or did each group hit 1M equity to be put in LLC?
Also, could you share about creating your trust and bells and whistle for under $2000!! The how, where, who. Thanks in advance.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Quote from @Dan H.:
Quote from @Becca F.:
Here is a post about LLCs that was posted around Oct. 2023 asking who's been saved by an LLC? It generated many comments.
https://www.biggerpockets.com/forums/926/topics/1151922-than...
I indirectly know a landlord who was sued (a family member of a friend). The landlord wanted to get the tenant out (who lived in the ADU/in-law unit) so a family member could move in. Tenant found a pro bono attorney who went digging around. The ADU/in-law unit is a common set up in California, a downstairs unit set up like studio apartment or an ADU in the backyard. Tenant sued for $2 million. Judge awarded tenant $70,000 and ruled that the tenant shouldn't have been charged rent since the unit was illegal (not up to current safety or fire code) and didn't give the landlord a chance to remediate the unit.
Lesson: don't do illegal things like rent out units that aren't up to code - some people with paid off properties try to be cheap and do things like this or do under the table rent so they don't report rental income to the IRS. An LLC would not have saved this landlord since she was violating the law to start with.
I have posted this before but the LL you knew needed to have a competent lawyer and should have got HCD involved. This is because current CA state law explicitly allows safe unpermitted units (SB13). Granted if it is not a safe unit, it should not have been rented.
I heard state senator Robert Wienkowski (author of many of the state ADU laws but I am not sure he authored SB13) discuss the intent of allowing unpermitted units (he used the word bootlegged units) being to not remove safe units from the housing supply.
Seeing state law currently explicitly allows safe unpermitted units, a judge should not be able to rule otherwise. In addition HCD is chartered with supporting the various ADU laws and would have written a memo explaining the intent of the SB13 clause.
Having an apparent rogue judge rule one way does not negate the laws that have been passed by the state legislation.
Best wishes.
Wow. I'll look up SB13. That's interesting that it's okay to rent out a safe, unpermitted unit - I'm shocked by this news. The rental is in the San Francisco Bay Area. I don't know the LL personally - I'm hearing this story from my investor friend so there are likely details left out.
The point I was trying to make is that the asset protection companies make it sound like landlords are being sued constantly and better get an LLC ASAP (e.g. Anderson Business Advisors and Prime Corporate Services pressuring me). I know around 50 investors in CA and OOS and that's the only lawsuit case I've heard of.
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Quote from @Nathan Gesner:
Quote from @Becca F.:
DO NOT pay $13,000!!!! Unbelievable.
I have approximately $3 million net worth and a few different companies. I created my Trust and all the bells and whistles for under $2,000.
I don't even recommend considering an LLC until you have at least $1 million in assets, which means your equity, not your total value. The only people I've seen successfully sued for large sums are the really bad people.
I don't know if I posted in that discussion four months ago, but I have posted similar questions over the last 14 years and can't recall anyone saying they lost a home because of a lawsuit.
Here's my generic LLC advice:
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.Whatever cookies or algorithm is on my computer and phone, every time I open up social media or watch a YouTube video, Anderson Business Advisors pops up. They do a lot of advertising.
I went back to the email. It's worse than $13,000. Platinum level - 1st year $14,041, annual recurring fees $2596 (filing fees for WY, CA, IN, registered agent fee) and a $75 month membership fee. Non-Platinum: $12,500 (WY Trust, holding company and LLCs for CA and IN), recurring fees about the same. There's a "discount" for the state specific LLCs for Platinum membership.
My equity is over $1 million with properties in the Bay Area but over $14,000 set up for 4 properties (3 SFH and 1 multi-unit) is a lot. I hate to see what estimate they gave someone with 20 properties.
Prime Corporate Services fees were lower: $2275 for set up, $110 annual renewal, $9.95 per month per LLC. It's not the highest priority on my list of things to do and then the mixed reviews on both companies made me hesitant.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Quote from @Steve Smith:
Quote from @Account Closed:
Hey @Charles Adams,
please consider your asset protection. A quick and dirty way to get started is to checkout this tier list I made below:
Worst:
– No coverage, held in your name.
Bad:
- Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.
Good:
- Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.
Better:
- Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.
Best:
- Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.
Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:
- Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
- Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
- Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.
Good points but depends. LLCs are expensive and paperwork and publicly known. I could argue that a trust does enough, but put debt on your properties... bullet proof. (but you need to do it right).
I've had excellent luck with this. Before I got rid of all my multi family, and dirt bag homes and got decent tenants, I've never been sued or had to sue. If by chance, someone went after me... first, they'd never find me as owner and had to find the situs of the trust to even file a suit. No attorney yet has done that... no money for them. YMMV.
BTW, I've never lost a law suit in my life, but some can be a PITA.100%
- 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Charles Adams
Buy your first 10 in your personal name to get low interest rates. Then get an LLC to buy more. LLCs are pretty much worthless. Any attorney can pierce it and prove you're behind the LLC. Just get a mil in liability and you'll be fine.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2yYes, some people create a new LLC any time equity reaches around $1 million.
Quote from @Kevin S.:
Is that equity for each asset(s) under one LLC or when you reach a combined $ 1 million equity of all your assets? In your case you have multiple properties in different LLCs (storage, commercial, residential rentals). Was that to simplify the category of properties or did each group hit 1M equity to be put in LLC?
Also, could you share about creating your trust and bells and whistle for under $2000!! The how, where, who. Thanks in advance.
I already had an LLC for my real estate company. I bought a storage facility in 2021 and put that in an LLC because it's more of a business. Then I split my other properties into residential and commercial and put them in separate LLCs.
So I have four LLCs holding assets. Each LLC is managed by a Holding Company LLC. That Holding Company is under my Trust.
I will spend around $1,000 a year to maintain all this, not to mention the complexity of remembering how it's structured, maintaining separate bank accounts, etc.The DIY Landlord Book4.7248 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Charles Adams:
Hi All,
I'm looking for my first investment property in Northern KY / Cincinnati. I've been pre-approved, but that was through my personal credit. (DM me if you have any off market deals in the ~<$150k range)
If I want to protect my personal assets from potential lawsuits and start an LLC, will that mean my interest rate for the traditional loan will go up, or can they still go off my personal credit since I own the LLC?
Anything else I should consider? I'm curious if any of you own investment properties in your personal name and if you have had any problems or how you are protecting yourself.
This is most people today:
Creating a LLC with a Wyoming Holding Company To Sell My Xbox on Craiglist! (biggerpockets.com)
Also on a FB group for those intellectually challenged the sponsor promotes a company that will charge you $600+ to setup a LLC. Of course they get a kickback from it but you have all these people literally paying $600+ to have someone to fill out an online for that takes 5 minutes... I
7e investments53 Reviews - Member since 2024 · 400 posts · 240 votes2y
Quote from @Nathan Gesner:
Yes, some people create a new LLC any time equity reaches around $1 million.Quote from @Kevin S.:
Is that equity for each asset(s) under one LLC or when you reach a combined $ 1 million equity of all your assets? In your case you have multiple properties in different LLCs (storage, commercial, residential rentals). Was that to simplify the category of properties or did each group hit 1M equity to be put in LLC?
Also, could you share about creating your trust and bells and whistle for under $2000!! The how, where, who. Thanks in advance.
I already had an LLC for my real estate company. I bought a storage facility in 2021 and put that in an LLC because it's more of a business. Then I split my other properties into residential and commercial and put them in separate LLCs.
So I have four LLCs holding assets. Each LLC is managed by a Holding Company LLC. That Holding Company is under my Trust.
I will spend around $1,000 a year to maintain all this, not to mention the complexity of remembering how it's structured, maintaining separate bank accounts, etc.Thanks Nathan. Was LLC set up by a local RE attorney?
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2y
I created the LLCs myself. So easy and cheap. But I used the attorney to set up the Trust, my will, my living will, and everything else.
The DIY Landlord Book4.7248 Reviews
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