Hello Real Estate gurus,
This is my first post here and I would like to say thanks in advance for any insight and advice.
I am in Washington state. Here's my situation:
I just got a rental property from auction paid in cash plus my other properties' HELOC. Now I have three options below. May I ask for your advice on which route I shall pick?
1. Create an LLC and move the rental property there. Then, how can I pay my other properties' HELOC from the company accounts? It will be hard to get refin under LLC.
2. Get refined first under personal name. (I intent to apply HELOC on the rental property because of the flexibility. I can reduce the loan balance of HELOC anytime and there is no closing cost when I apply it). After a while (any time restrictions?), quit the deed to my LLC. Is this okay? If bank accelerate the loan, I can always pay back using other HELOCs. But same question again, how can I pay the HELOC or refined loan from the company accounts? Should the interest all go to Schedule A?
3. Just get refined then carry it under personal names. I do worry about the liability. Any recommendations on Umbrella insurance? Under what circumstance that Umbrella won't protect me?
If someone knows about banks that will lend to LLC, would you please let me know? I can certainly provide personal garantee to any loan to my LLC.
Thanks again for any advice.
Get a $5 Million umbrella policy, moving into an LLC isn't the 'wonder drug' people tend to think it is to avoid liability. If your actively involved in the management of the property, guarantee the loan, etc etc, your tied to the property personally, no matter who holds title
The main recommendation on an umbrella is - yes, you should have one. Separating your financial universe into a business side (incorporated) and a personal side makes a lot of sense for a lot of reasons, but liability insurance is certainly a simpler and less nuanced way to protect yourself from risk.
There are certain things you can expect to be excluded from the policy:
Malpractice - which is likely not applicable unless you're acting as a Realtor. You'll need separate Errors & Omissions coverage.
Workers Comp - which is much more possible if you don't make ABSOLUTELY sure that everybody doing work on your house is covered.
Wrongful Acts - which broadly means causing harm intentionally and/or unlawfully
(WC exclusions may be different in some states, but it will definitely be excluded here in WA.)
Congrats on the new rental, and good luck!
Thanks for the kind reply, Andy and Eric.
It seems putting it under personal name but adding a good Umbrella is a better choice. What is WC exclusions?
If I use property management, will I be able to avoid claims against Wrongful Acts?
Just for my education, if I am the owner of the LLC but using property management, does that count as actively involved in the management of the property?
Again, thanks for your advice.
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