Should you put your real estate into an LLC

Question

I started this because it seems like every couple of days someone new starts this topic, I hope we can all give our opinion on this, and refer newby's to this discussion.

I think there are a few reasons you should consider use an LLC for single family houses for a buy and hold investor (I am not a flipper so have no expertise in that area)

1. Your a high net worth individual

2. You already have your 10 conforming mortgages

3. If you are strictly an investor and have have someone else doing everything for you,,you are not personally involved with the property.

People often think they can put a property into an LLC and they are totally shielded from liability. If you rehabbed the property or oversaw the rehab, if you manage the property, or if you financed the property or personally guaranteed the property, the LLC will not protect you.

A good umbrella liability policy is your best protection. You will be surprised how little a $5 Million policy will cost,,and that is what can protect you (and the insurance company will also defend you in a lawsuit because of that).

I read people wanting to form LLCs, series LLC's, etc etc,,,for the average investor, it is just a big waste of your time and money.

Remember a conforming mortgage (30 year fixed rate) are only for individuals, not for LLC's or other entities,,,then people say they will finance in their personal name and move into an LLC,,of course that could trigger a due on sale clause, but also that is a waste,,if your financing the property in your personal name, your tied to it.

How you stay out of liability issues is doing things right, don't have a handy man doing electrical work, and make sure you take care of any issues that could cause harm to anyone. Also get along with your tenants, people rarely sue people they like, and if a tenant complains about something that could be a hazard, immediately fix it!

I know there are others that have a different opinion, and i invite them to join in,,,I just would like to have one thread going for people with these questions to be able to read.

andy

Account Closed · Answer

Thanks for posting this Andy... I've been trying to figure out my next course of action on this topic for a while now.

Laneeta I. · Answer

thanks so much for the info.

Randy King · Answer

Some of the tax experts may want to jump in but why we are setting it this way is so the LLC is a pass through entity so the long term holds will pass to our personal tax return. The S Corp will collect all the real estate commissions and the income from the flips and fund the 401 K and balance can be split into W2 income and dividends thereby minimizing taxes and FICA. Also 2 entities so as to separate the long term from the short term. I don't know if an LLC can be taxed this way.

Randy King · Answer

@Kamau Kenyatta

I forgot to @ you above and it would not let me edit it.

Kamau Kenyatta · Answer

Question Randy, why are you using an S Corp for flips and not an LLC? Asking because I want to do flips and thinking about going with LLC. Thanks.

Randy King · Answer

Who are some of the national companies that provide blanket liability policies. I do not have a local insurance agency and the blanket policy I have now is a personal policy through Geico and they will only cover 6 rental properties.

On topic, I have an LLC for our buy and holds and in process of setting up S Corp for flips. I am sole member of LLC and my wife, which is a real estate agent, will be only stockholder in S Corp. so as to max out solo 401K, minimize FICA and kinda separate flipping from long term holds. We had another business that was structured this way and it worked great.

Gautam Venkatesan · Answer

@Andy Collins - thanks for this post very informative.

Laneeta - contact your home insurance provider.

Duncan Taylor · Answer

So, from now on when someone posts this question, over and over and over and over again, we can link to this.

Finally, a way to stop the Groundhog Day effect and on Groundhog Day even.

Laneeta I. · Answer

Who exactly should I contact for a liability policy?

Should you put your real estate into an LLC

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