Out of state investment....start an LLC or wait?

Question

Hi, my wife and I are preparing to buy our first investment property. We live in PA, but are going to be buying in PR. My question is, should we start an LLC before buying the property, or wait a while? We will be using personal funds and a possible bank loan (depending on the price) to purchase the property. PR requires a business license to rent STRs. I'm more concerned about comingling personal funds and business funds...the whole "piercing the veil" and creating personal liability. If we don't start an LLC right away, is it just the larger umbrella insurance policy that protects our personal assets?

On a separate note, since it's a long distance STR, I believe it's important to have a local property manager....coordinate cleaning, maintenance, etc. My wife is adamant that we don't need to "waste money" on a property manager and she can find someone local to clean and maintain the property. My concern is that if these individuals aren't reliable with the schedule needed for STRs, then that's going to lead to bad reviews and less bookings. Thoughts?

Basit Siddiqi · Answer

LLC's are simple as asset protection tool.Bring all your concerns such as the ones below to an attorney and insurance agent.1) I have $XXX,XXX net worth. How do I protect my personal assets if there was a disaster with my rental?2) I am afraid of a slip and fall on my rental property3) I am concerned a natural disaster will destroy my rental investmentHave a discussion with them on how to be protected against your main concerns and what the cost would beGo with the route that allows you to sleep well at night.

Larry Cook · Answer

Thanks Josh. I appreciate the response.

Josh Green · Answer

I would consult this with a licensed professional (tax accountant and real estate attorney), but I will say it's more than likely you're going to want an LLC established in the near future.  With that said, I'm a big fan of action - just go and create that LLC is you're planning to purchase within the next 12 months.  It's a pretty simple and usually inexpensive process so might as well jump on that and take the next steps while that is under approval.  Hope that helps!