LLC?

24 Replies

We are relatively new re investors in missouri. We own 5 properties(2 duplex and 3 sfr) Have bought undervalued and fixer uppers, but not flipping. So far just developing our own portfolio. We manage ourselves. Should we incorporate? I appreciate this site and all advice will be appreciated. Thanks

Yes, you should incorporate. Most likely with at least 2 companies. I know many investors who never incorportated and never had probelms, but you do not want to be one of the guys who gets sued, and loses everything.

Keep this in mind too...

When you get your LLC and go to do your first deal with
it, it has no credit history.

And when you go to transfer title of your existing properties,
the mortgage convenant may allow them to disallow or to
up the rate to the current rate.

thanks for the input. we actually visited with an attorney friday and discussed this. some of your posts gave me new insight that interview didnt however. at this point we are planning to pursue incorporation, although it seems as if it will require a complete change in thinking.

when you purchase a property, you should be able to purchase in your name, then do a Quit Claim Deed to transfer title to your Company. This will give you the protection you are looking for as far as liability goes, but certainly if anything happens as far as the mortgage goes, it is all on you.

I was advised to do an llc, but alot of the mortgage companys charge alot higher rate to have it under an llc....

After that I just looked under umbrella policys and if you have enough insurance you shuld be just fine.

This is if you are worried about getting sued (someone falls down and gets hurt in your property)

This is exactly what I have been looking for in the forum. I formed an LLC and just bought my first investment property. I see from farther up this string I can quit claim it to the LLC name, but will I have a harder time taking out a home equity line to buy other properties? I can't seem to find out this kind of info from other places so I am glad I found this site. :D

yes, the reason why they charge a higher rate is because it is more of a liability when it is a LLC. remember the mortgage company/bank is not in teh business of real estate, they dont want to come chase you or your company and have to sell your property.

You have to look at it from their point of view

Originally posted by "Mikey":
After that I just looked under umbrella policys and if you have enough insurance you shuld be just fine.

I have been wondering about personal umbrella vs. property in an LLC. If I own property in my own name and have a $2M umbrella, the property is safe unless I have a claim greater than $2M against me, while if it is in an LLC all of the equity of the property is at risk for any claim, right? [This is a question, I really don't know.] I understand how the LLC helps to protect my other assest, I'm just wondering about the property itself. Can an LLC like this get an umbrella-like insurance policy?

With all properties titled to you personally you can expose all of your properties with a single action in excess of the umbrella policy. With each property titled to a separate LLC you would expose only a single property with a single action. Even with an LLC you want insurance; the only question is "how much?"

You are correct. The administrative time / costs will increase as you increase the number of LLCs that you administrate. There is a cost-benefit tradeoff going on here. The bottom line question: how much money are you willing to lose in one lawsuit? That's how much equity you should have in each LLC.

Some people feel that having 4 properties per LLC is a good balance, but to each his own. Some states have easier reporting restrictions (i.e. it costs less money to operate an LLC formed in these states). Hint: avoid the blue states. :lol:

Originally posted by "juzamjedi":
The bottom line question: how much money are you willing to lose in one lawsuit? That's how much equity you should have in each LLC.

Isn't the LLC protection only one-way, though? It protects your personal assets from suits related to the "business," but if you are sued personally (say wrongful death related to a car accident) isn't your ownership of the LLC (or multiple LLCs) a vulnerable asset?

your best bet if you want to protect yourself is to have an LLC for each property. BUt for most people it is not practical especially if they are residential houses (not buildings).

I know of people who have 10+ houses and no LLC, but rather 10 million dollar umbrella policy. They do this because either way the person who is coming after them is attempting to get something. The policy will cover them 10 mill worth and they wont have to forfeit propertys. ..

Not sure if i explained myself fullly...but if you have more questions ask away.

Isn't the LLC protection only one-way, though?

Yes; if you get sued personally then a plaintiff could go after your ownership interest in the LLCs.
It protects your personal assets from suits related to the "business," but if you are sued personally (say wrongful death related to a car accident) isn't your ownership of the LLC (or multiple LLCs) a vulnerable asset?

This is where a good lawyer and a good accountant is worth their weight in gold. There are ways for you to live a comfortable and happy life with a judgment hanging over your head, but you want to avoid the whole mess to begin with if at all possible.

If you're interested in more details then I suggest you speak with a local attorney and ask them how to become "judgment proof." There really are a lot of details that go into this strategy and this is why you pay attorneys for their advice!

Originally posted by TN-Apprentice:
Isn't the LLC protection only one-way, though? It protects your personal assets from suits related to the "business," but if you are sued personally (say wrongful death related to a car accident) isn't your ownership of the LLC (or multiple LLCs) a vulnerable asset?

Yes and yes. The LLC protects you personally from your rental properties, and liability insurance protects your rental properties from you.

BTW, I see almost everyone on BP say to use a Quit Claim Deed when transferring title to an entity. My attorney insisted that we use a Grant Deed. It seems a mute point if the transfer is to a wholly owned entity, but is there some advantage to using a Quit Claim Deed vice a Grant or Warranty Deed? Thanks.

i think you are receiving some terrible advice. the reason for an LLC is to limit your liability to the corporation and no further. if you personally do not have a lot of equity outside of your rental properties then their isnt much of a need for an LLC - just a good insurance agent. if you do have a lot of equity outside of your rental properties then you should form an LLC. i never received different rates because i have my properties in an LLC - i was personally liable either way. if you are receiving non-recourse notes (which i doubt) then you should form an LLC.