LLC? Landlord Insurance? Umbrella Insurance Policy?

Question

So, I am here looking for your views on no Entity (LLC) for the first couple deals (buy and hold). Is Landlord Insurance the same as these umbrella insurance policies I keep hearing about? I only ask because I fear when we go to refinance on a job, it may be hard with a new LLC (Again, so I hear). Plus we (My wife and I) may not really need that kind of protection without that much equity in our properties just yet. Feel free to tell me to shut up and go figure this out on my own, but figured it can't hurt to ask! I have read through quite a few relevant threads but couldn't seem to find much. I went and visited an RE Lawyer last night, and well just in my small couple days of research on LLC's he didn't seem to know much more than I did. I guess from a tax perspective, will it really matter until I get 4-5 properties under my belt? I can understand then setting up an LLC to start protecting the equity in the properties. I feel like I want to make sure I am not missing anything but to my understanding, insurance policies (landlord or umbrella?) would do until LLC's are formed? I do understand if I flip any properties, forming an LLC for that would be in my best interest especially if partnering. This question is more so for the rental properties side of things.

Would a manager-managed LLC for anonymity in say NV/WY be worth the trouble and the charging order? Thinking down the road if I were to have 20+ properties, this could be an important decision now to not have my name really linked to anything? Then have the 2 LLCs (flip, rental) here in MD where I live, member-managed by that LLC in NV/WY? Then any future LLCs for rental properties, as we grow within the same structure? Is my thinking right on that? Is it worth it? Or should we just put them in our own name here in MD and not worry about it!?

Can a lawyer create the LLC and then appoint us as members, so when we are managing properties and direct them to the LLC, they will see his name, and not ours to allow them to think we just work for the company and are not the owners? Am I being paranoid?

Help!? haha

Thanks for any help/advice in advance!

Oren K. · Answer

Tim,

Firstly, LLC is NOT about protecting the asset that is in the LLC. It is about protecting you personally and any other assets you may have. IF you own a property personally, the law suit will name you and as such has access to any equity you have in your personal home and any other assets you personally own. So I am very much in favor of putting one in place.

Secondly, yes an LLC will provide a certain degree of anonymity if that is something you are concerned about. Having said that, if you are at the property regularly and deal with the tenant directly, they will likely figure things out.

Fairly certain (happy to be corrected) that the LLC has to list who the managing member is and I'm not sure the lawyer will want to take on that responsibility as that means they have to sign all documents.

Landlord insurance is with respect to the property insured; typically ~$1,000,000. The umbrella policy is something to cover any liability beyond the base policy (e.g. they win $1,250,000 so umbrella policy cover the additional $250,000). IF you only have one property, there is not much additional value in having separate polices. The value comes in when you have multiple properties. Each property has a base policy (e.g. $1,000,000) and the LLC (or you personally) has an umbrella policy of $1,000,000. Effectively, you have a $2,000,000 on each property. It would take multiple losses of over $1,000,000 at the same time to 'use up' the umbrella policy (at which point I would be asking different questions ;).

Just my 2-cents, get proper legal / insurance advice.

Oren

Brie Schmidt · Answer

@Tim Vecchioni I have properties in my name and properties in a LLC. Each property has homeowner's insurance and I have an umbrella policy covering them all. I did not get a LLC for protection, but because I needed commercial financing. Check out this part of the BP course covering the topic

https://www.biggerpockets.com/courses/1/lessons/ll...

Tim Vecchioni · Answer

Thanks Oren! This response helped a lot! The lawyer I did speak too, said he had no issue being the managing member, but then would resign the LLC to us. Then when someone would look up the LLC, to my understanding, would point to him, not us. So if we were visiting the properties, we could hide behind the LLC, saying we are just the ones managing the property. Obviously, if it ever came down to a lawsuit, this would go out the window. But it could help prevent a lawsuit when they look up who owns the LLC as see a lawyer pop up first.

LLC? Landlord Insurance? Umbrella Insurance Policy?

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