Should I create an LLC

Question

Currently have 1 door.  Looking to scale fast with SFH's and small multi's over the next couple of years...  I have gotten a lot of conflicting information on whether I should set up an LLC.  I know it costs $'s to setup and more $'s in financing limitations (no conventional mortgages), but is it worth it for the risk protection?

Richard Bechtol · Answer

Hi Rob,

I believe an LLC is always going to be worth it in terms of risk protection. Many people point to insurance but insurance is a for profit business and they want to pay out as little in claims as possible.

With that being said I think that what you should look into is a Series LLC. This would allow you to scale your business like you intend to do without having to create a whole new LLC each time that you acquire a new property. I hope this helps.

Leo R. · Answer

@Rob Burgess you can get some protection via a good insurance policy (I'd recommend having this regardless of whether you have an LLC).  With 1 door, you might not have much equity to protect, but if you acquire more properties and build more equity, then an LLC (or several LLCs) may become more and more useful...

Also, an LLC's protections depend on whether you run the LLC properly--if you're not operating it correctly, then it won't provide much protection (there are a lot of articles/resources about this--so, it's worth studying up).  A decent CPA can help you understand how to operate the LLC in a way that provides protection.

Good luck out there!

Nate Eazor · Answer

Hey Rob, getting an LLC for each property you acquire is a no-brainer. It only costs a couple hundred to create one on a website like Incfile -- and then you are protected from most cross-over liability. Once you set up an LLC, make sure to get a bank account in the name of that LLC as soon as possible. If you have too many transactions on your personal bank account for items that are linked to the property, it is possible that in a lawsuit, the person suing can "pierce the corporate veil" and go after your personal assets. All that being said, I do not practice law, and would advise that you consult a lawyer for a professional's opinion -- this is just approach I have taken to my own investing!

Eliott Elias · Answer

You should, it's cheap and will help you with record keeping.

Should I create an LLC

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