After moving along at a snails pace, I am finally going to start buying some properties. My initial plan is flipping, with rentals also part of the equation at some point. My question is setting up an LLC. I have been advised by several people that setting up an LLC would be a good idea as a "safety net". I have also heard about a series LLC since I want to be able to purchase several properties and keep them under the same umbrella. Has anyone done this or have any thoughts? Thank you
Purchasing an LLC is great for reducing liability ( if someone sues you because of something over a property in your LLC, they can't touch assets outside of that LLC). Multiple LLC's is good for multiple properties for the same reason. I would suggest having only 2-3 properties in each LLC to minimize liability. It's a safety net. And an LLC is only 150 bucks.
My mentor has 11 LLCs just as an example.
@Thomas Veal , for what it's worth, in reading Garrett Sutton's book "Start Your own Corporation" he is not in favor of series LLCs mainly because, per his report, they have never been "tested" so he wouldn't count on them providing the same type of asset protection as multiple separate LLCs.
Beyond that, search BP for asset protection... you'll find people strongly in the camp of utilizing LLCs and many people strongly against them stating you should just have a large umbrella insurance policy.
Thank you Brett for your reply. You are so right about the 2 different camps regarding whether or not to become a LLC. I have been doing a lot of research and reading up on the matter on the forums here. That's kind of why I wanted to get some more input from others that have done it and what their experience has been. I have a friend that is an investor and is a firm believer in establishing "trusts" in lieu of an LLC. So that is a whole other possibility I suppose. But I have not done much research on them
Thank you also. That was the initial allure that made me want to research the LLC further, the protection of assets that it can afford. I guess I just wanted to hear others experiences with them and any pitfalls they have had to contend with, if any.
@Thomas Veal if you are doing flips, use a separate LLC for flips than buy and hold. And talk to an accountant about taxes and reducing them for flips.
There are many lawyers who will tell you that a sole proprietor LLC serves no purpose because it is too easy to prove it is used as an alter ego. But if you have a partner, other than a spouse, then it can matter. But either way get good liability insurance. Without that, your LLC will also be disregarded.
Thank you @Walt Payne . I appreciate you advice and guidance. The separate LLC for the flips I assume would be a generic name for the property? ie....white Ivey LLC. Etc?
If you are doing many flips, I think an LLC for each individual flip will be costly and very cumbersome. Your time and money will be spent in paperwork as opposed to rehabilitating the property. I do think a "parent" LLC may be a good idea for the company in general, especially when you do the sale with respect to the construction liability and warranties. But, as many have said, just forming an LLC without following the formalities does not protect you. In order to get the entity protections, you have to follow the corporate formalities, like separate bank accounts, not mingling funds, etc. And, in addition to all of that, a robust insurance policy is a must. Good luck.
From the insurance perspective, a couple things to consider. Most insurance companies do not like insuring properties that are being flipped, but prefer the buy and hold rentals. Doing both under 1 entity will subject your buy and hold properties to higher premiums.
I have a client who has his lead llc purchase all of the properties. He rehabs them and looks to flip. If they do not sell after a certain period of time, he transfers them to one of his other "buy and hold" llc's and retitles in that particular llc. This keeps both business operations separate from one another and gives me the ability to acquire the best possible insurance program for each.
you will also want to contact your current insurance carrier and find out if they will allow you to add a rental property to your personal package policy if it is in a llc. Some companies will not allow it. If they don't, and you need to go out to the market place with just 1 stand alone rental, your cost will be greater than if combined with your personal package policy.
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