Buy my first house under LLC?

Question

I am looking into my first house. I am looking to buy a house in California which has a seperate guest house. I don't plan on living in California. My plan is to buy this house and rent out the main house, and maybe sometimes I would use the guest house.

I would probably rent a house in another state for myself. If I buy the house in California under a LLC, would the house be protected if I personally get sued or if I ever declare bankruptcy?

Also if the owner is my LLC can I use the guest house once in a while?

Ali Boone · Answer

I wrote an article a while back that lays out the options about rental properties with LLCs. It doesn't specify the logistics of how to do the LLC, but gives some things to think about. Moral of the story- you don't necessarily need to put it in an LLC. It will just make your life harder and potentially more expensive.

https://www.biggerpockets.com/renewsblog/2013/08/1...

Hope that helps.

David Jesse · Answer

Nothing can be done to protect the property from my personal fiance issues in case they arise?

Paul Caputo · Answer

An LLC protects you from being held responsible for the company's debts, not the other way around. If you file bankruptcy and own an LLC they can liquidate it to repay your debts. So no that won't protect the house from your personal financial issues.

If the only use of the guest house is your personal use every once in awhile that's fine, but you're losing out on a whole year of rent for that space so you can use it once in awhile. Wouldn't it make more sense to rent both units and just stay somewhere else when you go to California once in awhile? Are a few weekend trips going to cost more than a year of rent there?

Also if you only have the main house as a rental and the guest house is your vacation spot you are only allowed to claim depreciation on the cost basis of the main house and the guest house is non-depreciable since it isn't rental property it's personal property. That can have a big impact on your taxes if you're not paying attention.