LLC or Umbrella liability policy?

Question

I know versions of this question have been answered, but as a new investor, is it most conducive to keep my first rental property in my own name and look into an umbrella excess policy (1-2 mil limits)? Or, look into spending money on an LLC? The property is in my name and It's to my understanding lenders can be apprehensive about the title of the property being transferred to an LLC.

Open to thoughts, opinions, and any stories!

thank you

Open to thoughts, opinions, and any stories!

thank you

Chris Seveney · Answer

If the property was purchased in your name, and you transfer it with no consideration toa LLC, a good attorney would pierce that veil like warm butter since the LLC and yourself are not acting separately but jointly since you gave your LLC a property for no consideration.

Andrew Bish · Answer

Briefly, an LLC offers legal protection through separation of ownership, and an umbrella offers financial protection through the contract to represent and negotiate up to a set limit in interest of the underlying asset and owner. Both are valid avenues of protecting your investment but do so differently.

Typically insurance that covers a business entity is more expensive than securing a policy through the personal lines market. My biggest talking point when discussing umbrella vs LLC, especially when it is currently part of your personal assets, is your auto policy. We are much more likely to cause a "nuclear verdict" in our daily driver than an investment property (especially an actively managed property).

Real estate is a publicly recorded asset. I always recommend we carry liability protection that at least matches the value of the assets that any lawyer can easily find to ensure that the insurance policy is the first line of defense rather than liquidate assets to pay for a settlement.

Of course, if you can separate the ownership, it becomes more complicated and harder to "pierce the corporate veil" to drag other assets you manage into the mix.

Ghassan Jabali · Answer

Hello Caleb,

I hope you're doing well. Insurance is always a great first line of defense with an umbrella policy being a great way to protect in case anything unfortunate were to happen. However, lots of investors still chose to organize an LLC and put property into it with some type of asset protection structure, even for 1 or 2 properties. With my own personal investing, I have my rental property inside a business structure to provide anonymity and asset protection, along with insurance to protect my businesses from one another, my business from any personal liability, and any personal liability from going after me personally. I do like to recommend both as the best practice and if finances allow it.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

LLC or Umbrella liability policy?

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