I've heard different suggestions on this, so I thought I would ask the BP crew. Before I purchase my first investment property, should I get an LLC set up? I'm wondering if I need to operate all of my rentals under the LLC or if an alternative is recommended?
If you're just starting out it is likely not needed. If you have a rental property, liability coverage should be enough when you are smaller. You can increase the liability coverage on your regular homeowners insurance and also get a supplemental 'umbrella' policy, with can increase the liability limits further. The nice thing with this is the umbrella policy can cover multiple properties as you grow.
Also, lenders will not allow you to close the mortgage loan in an LLC name. It has to be your personal name as it is much harder to foreclose if things go south. After closing you can change the deed over to an LLC but that could trigger the entire mortgage being due if the bank finds out, with the 'due on sale clause'.
All that being said nothing is preventing you from registering as an LLC as it is easier to split up expenses and revenues from your personal accounts. Hopefully this helps!
@Bobby Bohren No. Get an umbrella policy and save yourself money and headache. I wish I had never done it
Thanks @Ryan Husser !!!
@Peter M. Awesome. Thank you!!!!
@Bobby Bohren for one unit, as mentioned, not really needed and does not really provide you much benefit.
As for the lender, if they find out, yes they can make the case that transferring the deed to an LLC is not allowed, however banks dont have the ability to check all loans for this. It only becomes an issue if you are not making payments and they have to dig around about you.
Also, just because you transfer the deed to an LLC from your name, does not mean that you personally are not liable for anything and just the entity is. I think there is a big legal debate on whether you can be personally liable, even if the deed is on an LLC. If the loan is on the LLC instead of your name, that would be a different story. Hopefully, I didnt confuse you more that providing clarification.
Bobby good to say hello.
As to an LLC. on your first it's too soon. Also it may be the wrong type.
LLCs are for passive. SubSis for flipping.
Weigh your exposure. LLCs and Subs mitigate that and at times very needed.
However the cost of entity filings, tax returns, Minutes, insurance and the like at times outweighs need
make some PROFIT first