Vesting?

8 Replies

Curious what is the best way to vest your first rental property, I believe this can be changed at a later time with an attorney but curious as a first rental is their any benefits one way or another on how this gets set up?

Thanks in advance for the responses. 

Personally. in an LLC or a Land Trust. I have owned property initially in my own name. The problem with owning a property in your own name is there is no anonymity or protection.

@Gerald Harris  

I guess my question is really is since I only have one rental is it worth it to set up an LLC or Land Trust, or is that something that could be done at a later date after say 2 or 3 more properties? What are the pros and cons of waiting/doing it now?

The Pros would be seasoning.  Setting an entity up now shows the length of time you are in business establishing a business that has age to it for lending purposes.   The biggest con i would see is money.     

You are correct Chris.    If you just have 1 property it may not be worth your time.  

I think it's like $500 in IL to set up LLC.

@Chris Vail  it really is a matter of what do you have to protect?  If you are starting out from "scratch" and you have low personal net worth/assets, you don't have a whole lot to worry about protecting.  I started from "scratch" and basically made sure I had adequate insurance to cover my risks because I had little assets to worry about protecting.  I owned multiple properties and did business for years as a sole proprietor. 

I've heard it costs $800 a year for an LLC in CA! In my home state of LA, it's $100 to form an LLC and $30 annually. That's a huge difference and a definite factor in whether or not it makes sense where you do business!

But if you are along the way to building your net worth or have high value assets you may have obtained by way of inheritance or gifting, you want to protect those things.  That's when you NEED asset protection.  Like I said, it should be considered on a case by case basis with the advice of your attorney and accountant!

@Chris Vail you'll find that a $1m umbrella policy will cost you about $100/yr. That is generally adequate to cover any potential liability. It can be troublesome to get anything under 4 units financed in an LLC.

Thank you for the responses @Robert Leonard  and @Curtis Bidwell . I am leaning towards just having the rental in my wife's and my name. Once we get a few more under our belt I think I will look at forming an LLC and yes they are pricey compared to other states for getting that set up out here in CA. I believe an umbrella policy will probably be the way to go and will look into it with my insurance agent.

@Chris Vail  Strictly from an insurance perspective, insurance cost on a personally owned rental can be more competitive but 10%-20%.  Depending on your particular insurance company, you will usually max out at the personal policy capacity @ 2-3 buildings, 4-6 total units & state you need to move to a commercial policy.

A personal umbrella policy is almost always less expensive than a commercial umbrella policy. So depending on how many toys & personal autos you have, it is possible you could buy $2mil umbrella for $150-$200 per year. Every investor has a different comfort level to their protection, but maybe this enough to make you comfortable before moving them to an LLC.

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