Springfield, MO · Member since 2017 · 8 posts · 0 votes
About to take the plunge into real estate investment. Before I buy a house and start renting, do I need to make an LLC? Or maybe make a business of a different type? If so, what are some good resources?
I'm located in Missouri if that makes a difference.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
9y
A lawyer that creates LLCs will always tell you "yes". My non-lawyer opinion is "it depends".
- First line of defense is you and how you operate. If you run your property well and comply with the laws, it makes you much less likely to get sued.
- Second line of defense is insurance. Don't skimp. I have a $2M umbrella policy
- Third line of defense would be entities such as LLCs. LLCs can be very helpful, particularly if you have lots of assets outside of the real estate investment that are unprotected. If you have, say, $1M in cash in the bank, you become a big target.
I heard an insurance executive talk about the level of claims he sees from liability on SFRs. Out of thousands of properties they get a handful of claims each year and he said over 30 years the largest payout he ever saw was $1M. For me, that helped gauge the level of risk.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
9y
A lawyer that creates LLCs will always tell you "yes". My non-lawyer opinion is "it depends".
- First line of defense is you and how you operate. If you run your property well and comply with the laws, it makes you much less likely to get sued.
- Second line of defense is insurance. Don't skimp. I have a $2M umbrella policy
- Third line of defense would be entities such as LLCs. LLCs can be very helpful, particularly if you have lots of assets outside of the real estate investment that are unprotected. If you have, say, $1M in cash in the bank, you become a big target.
I heard an insurance executive talk about the level of claims he sees from liability on SFRs. Out of thousands of properties they get a handful of claims each year and he said over 30 years the largest payout he ever saw was $1M. For me, that helped gauge the level of risk.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
I would say that one house probably wouldn't be "worth" it from the sense that the time spent to set it up and the fees/taxes associated with it would cut into your profit significantly. Like said above you would be better served by good umbrella policy and save yourself a headache.
Springfield, MO · Member since 2017 · 8 posts · 0 votes
9y
So I'm just starting out and will probably expand as time goes on, would it be better to get an umbrella policy now and then get an LLC after I start gaining more assets?
San Diego, CA · Member since 2017 · 33 posts · 7 votes
9y
is it difficult to transfer titles to a LLC? I've read on the forums that there would be changes with the mortgage rates since it becomes a commercial loan
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
You going to need a lot of assets for it to provide significant value over a umbrella policy.
When I started my 1031 journey I was ready to get a business bank acct, credit card, and set up a LLC with "cool" name. Then I learned of all the requirements to form a LLC and how it impacted my measly profits and more important took up too much of my time.
Now I just hunt for more deals and try to better understand the community where my property is and get a direct deposit from property manager that goes into a boring checking account...
Rental Property Investor · Long Island, NY · Member since 2015 · 434 posts · 495 votes
9y
@Alexander Thomas Chaney, you do not "need" to form an LLC. In addition, there are added costs to forming and maintaining an LLC and it is difficult to obtain financing when purchasing a property into an LLC. With respect to umbrella coverage, be aware that you may need to bump up your underlying policies to obtain the umbrella coverage.
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
9y
Nope, you don't. I don't recommend it either, at least not to start, just because it will add unnecessary work and potential complications (with financing, potentially).
If you are just talking about doing rental properties, check this out (and the comments too)-
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
I agree with most of the others, you don't need an LLC.
Just to add, if something happens, it'll be you and the LLC both get sued. If you do go the LLC route, if you or your insurance agent are not careful, insures the LLC and not you, you won't be covered. I seen it happen.
This is besides the added complexity in obtaining mortgages.