Many have the perception that they Must own properties in an LLC, for protection of their other personal assets, from that super duper lawsuit they're going to lose, that's for more than their insurance limits.
Any real world examples of where you actually lost a law suit in an amount greater than your liability insurance?
Are you in the "run your properties responsibly, carry $1-2M liability umbrella, and sleep well" camp?
I buy in personal name and LLC's I am not in the camp that you need super duper asset protection unless you truly have multi millions in cash that could get grabbed or multi millions in equity.. most folks that spend money on this stuff to protect 100 to 200k of equity are never going to need it and never going to lose the money or equity in law suits.
But lawsuits happen rare as hen's teeth but they do happen.. So a nice umbrella policy is your best defense.. If you get sued.. your llc will get named but you will also get personally named.
Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222
Speaking specifically about a SMLLC, I say figure out what you have for equity in all of your investment properties and then add your net worth outside of your real estate investments. That is your exposure if you are sued. How many people on here will end up with a figure that exceeds $5M? 1% of them? People think about the value of their real estate and think they need an LLC but then don't figure in the fact that they are mortgaged to 70% or more a lot of the time. Even if you had $5M worth of property and you had $1M net worth outside of your investment properties but your properties carry 60% debt on them your exposure in the case of a once in a lifetime lawsuit is $3M. This is all somebody is going to get from you. Now compare the cost of a $3M liability policy to the cost of setting up and maintaining the LLC including filing fees, accounting fees, and don't forget about the higher interest rate you are paying on your mortgages. It just doesn't make financial sense to do this.
What if you have multiple properties and multiple LLCs so that if one LLC is sued then they can't go after your other LLCs. Ha! If you are found to be negligent in a lawsuit you have no protection with an LLC. Why else would somebody sue you? Save all that money you spend on LLCing yourself and hire a good attorney for the one lawsuit you might face in your investment career.
personally, I used LLCs and umbrella policies. Both are cheap. I have set up three separate LLCs, and never spent more than about $350 on any of them. That's one more piece of cheap liability insurance as far as I'm concerned. having been involved in a frivolous lawsuit, I can say from personal experience that your liability is only part of the issue. the months of proceedings dragging on and stress filled, sleepless nights, is not worth it. Anything I can do to discourage a lawsuit against my business I will do. in my opinion, the more barriers put up to a lawyer the less likely they will take a case. can they pierce the corporate veil? Of course they can, but any lawyer is not going to take something like that on without a retainer from the client. That, in my opinion, discourages people from filing lawsuits unless they want to put up their own money to see it through.
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