My wife and I own two rental properties and are planning to acquire more, and have a question about the pros and cons of setting up an LLC esp from the tax and liabilities side. Here's our current situation:
1. Both of us have stable jobs that pay well. We have a decent-sized stock portfolio and retirement accounts.
2. We currently own one primary residence (w/ mortgage) and two rental properties. Both properties are bought with cash. One is a triplex and another is an SFH. Total net cash flow is about 3k/month. The two properties are located in different states.
3. We currently have an umbrella insurance ($1m) under our own names.
We are planning to 1) buy some more rental properties and potentially do some flipping as well. 2) we also want to acquire a pickup truck that will be primarily used for business.
Now the question is whether or not to set up an LLC. Specifically:
1. Is there any negative tax consequence aside from the additional tax preparation, bookkeeping, and state fees? Obviously we could elect the LLC to be taxed as a partnership so that income and loss would pass through, but I'm just wondering if there's any hidden traps to be aware of.
2. Do we also need to buy some business insurance for the LLC that is comparable to the umbrella coverage?
3. W/ cash purchases transfer of title would be simple, but if we acquire additional properties with mortgage financing and then quit claim the title to the LLC, wouldn't that violate the due on sale clause?
4. I assume that if we do set up an LLC, then it is preferred to lease the pickup truck and deduct the full lease payments as business expenses as opposed to buying/financing?
I have learned a lot from the forum and any advice about these questions is greatly appreciated!
If you are planning on getting residential mortgages on properties those properties will need to be purchased in your personal names.
Transferring the owner ship late could in fact cause the note to be due.
You do not need to get any additional business insurance for your LLC if you decide to purchase a property in that entity.
We carry policies for the FMV of our properties along with 300k liability.
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