Just starting out in buying rental property, should I create a LLC because of taxes and liability?
Calumet Park... I own a couple properties there. Anyway, the answer is yes. Because of liability. If you buy more than one property, create a series LLC. This will allow you to place each of your properties under an umbrella LLC. Ask a local Chicago attorney about this.
Keep in mind a Bank will not lend to an LLC, unless it has a two year history of it being profitable. So financing will be tricky.
I think starting out most importantly is getting financing, tenants aren't going to sue the guy that has one property. After you grow a bit its worth while to consult an RE attorney
Thought I'm brand new to RE and I'm thinking that I'm inclined to agree with Federico, I think I'd leave the likelihood of a tenant suing up to a tenant, not speculation. Tenants don't sue unless they find themselves in that situation OR unless you have a trigger-happy tenant that you just got that likes to make money on frivolous lawsuits. Asset protection is a must even if it's disregarded by many as a not-so-important investment. When it comes right down to it, Federico or anybody else is NOT going to lose your investment if a tenant comes after you, only YOU will lose that investment property. You don't try to protect assets after a lawsuit has been filed, you do it before hand. Clint Coons covers that in his videos too. Since there is no cost to taking the time to watch youtube videos, I encourage anyone to take the time to watch his youtube videos and see the value in the information/education that he provides in this. Even if you don't use his service, the information is unmatched and unparalleled besides the fact that he's also a RE investor himself that also uses the same techniques that his service offers to his clients.
I would also not advise doing a quick claim to an LLC after purchasing in your name. This may trigger the due on sale clause. I've heard some mixed reviews with banks calling sellers after they did this.
Why would a tenant not sue a landlord with only one property? Especially if said landlord is a doctor or a dentist with millions in other assets?
And it's "Quit Claim" not "Quick Claim".
If you DO Quit Claim from your name to an LLC, DO NOT forget to change the insurance from your name to said LLC.
Go Check out Rocket Lawyer. You can form your LLC through them.
Hope this helps
Originally posted by @Account Closed :
Always check with an attorney. With that said, look on youtube for videos by Clint Coons. He's an attorney with Anderson Business Advisors out of Las Vegas, Nevada and he's also a real estate investor. He provides some great information on not only forming LLCs, but why to do it. I'm going to be forming my LLCs before I even start because I'm concerned about asset protection.
@Account Closed , I agree that if you get sued and lose your property only you will lose your property. On the other hand Fredrico or others will not have you pay the $12K or what ever Anderson claims to be the sale price of their package. It appears they have a good knowledge of asset protection and probably of real estate in general. Keep in mind though anyone who sells the special sauce is suspect. There is no secret sauce. You really think they are the only ones who know about liability protection? Yet why doesn't every lawyer suggest this same thing? Most of the asset protection folks needs can be met for a fraction of the cost they charge. Now if your assets are worth over $5 million there are some bonafide trusts and other things you should do. Depending on the amount of assets and type of assets you might need some other entities. Most of these asset protection things have merit, but most folks can achieve the protection they need without as complex of a set up. Nearly everyone on this site would be doing their family a good thing by buying life insurance in the event they die and can no longer support their family. However a guy earning $50K a year has no business buying $5 million in life insurance. Yet it is a good idea isn't it? That amount of life insurance could stop them from investing in real estate. Well over 99% of the people on this site would be grossly over buying life insurance by buying $5 million worth. For many folks, $500K or even $1 million would be plenty of life insurance. You can pay so much for protection that your business is not profitable and you have to quit investing, or your returns are only half of what they should be. The truth is it costs only $100 to form an LLC in Wyoming. The form is on the secretary of states website and takes 5 minutes or less to fill it out. If operated properly an LLC provides most folks with all the protection they need combined with insurance. In some cases having 2 companies stacked adds a nice extra layer of liability protection, and tax benefits. Buying the mass of living trusts, land trusts, half a dozen LLCs etc. is simply overkill. I know you have posted some strong pitches for Anderson, but keep in mind most folks do not need a $12K package of liability protection, they need a $500 LLC and a competent CPA for a few hundred more. Their idea of putting your personal residence into a trust really scares me, especially for married folks. I would never advise that. If the house is owned as tenants by the entireties, and the wife is not part of the LLC they can never sue and take the house. If you must declare bankruptcy, you might lose the family home deduction. In states like Texas or Florida I think your house is immune from creditors in bankruptcy. Why give that up?
Now if you open a real estate investing company and give someone bad advice or do something wrong and cost someone a $1 Million, of course they will sue the company, but they will sue you personally as well. Guess what 10 LLCs and 5 trusts, and 20 accountants won't save you. You are personally liable for the whole amount. Then they can do a deposition and ask you about every trust or company you have ever been tied to and how you are tied and you MUST answer, if you don't you go to jail, if you lie and are caught you can go to jail. Nothing protects from everything. most folks only need one LLC for protection. My concern is that 90% of the folks don't need everything they are selling, but some might. Most folks they sell to will never need the full package they sale, in fact I bet none of them need everything they are selling. Very few lawsuits get past a decently run LLC. Just like the GURUs selling real estate investing courses get $10K or $25K for their course, most folks can get the same thing here for a fraction of the cost. The same is true for liability protection outfits that charge over $10K.
@ Jerry W. Can you tell me who ELSE offers asset protection? Anyone who comes close to educating investors about it, much less anyone who provides this as a service? Here's a thought, how about let these guys decide for themselves. Maybe you're not concerned about asset protection, but that might be exactly what someone else is looking for. The cost of getting and maintaining this line of asset protection is pretty small compared to the cost of going to court and losing your investment(s). Also, the purpose of multiple LLCs is to minimize loss. If you have all your properties in one LLC and that LLC is taken from you, you lose every house in that LLC, not just one. Sounds pretty smart to have multiple LLCs if you ask me. Not to mention the fact that you're not the one losing my investment if I heed to your advice or adopt your philosophy, it's only me losing my own investment. With that said, I wonder if you'd be the one on here posting back to me if I were on here months or years down the road upset that I lost all my properties because I didn't have asset protection and you'd be the one saying, "Well, you didn't have asset protection." People invest in their business/company and take care of it like it's their baby and for good reason. I'm actually pretty disappointed not only in your response, but in some of the responses that I've read on BP because (generally speaking) there are people that just seem to dismiss asset protection or claim that anything involving more than one LLC is overkill. I beg to differ. I figure the more experienced the investor, the more sophisticated/educated they are, thus the encouragement to at least research asset protection, much less implement it. To each his own on asset protection, but the information is there. I guess I'm not the only one who feels this way considering the votes on my post in response to the OP. Hmmm.
@Jerry W. mentioned the most important, easy, and inexpensive method of asset protection: insurance.
I formed my LLC in about a day for a little over a hundred bucks online in Louisiana. It was so easy I couldn't imagine not doing it.
@Account Closed so far your best sell line is you won't be one the losing my property it will be me. That's it. You did not address any of my points. I do advise to get liability protection. What you don't get is that it is not that complicated and not that hard or expensive. There is a risk that if you are sued you will lose. Of course. Has anyone disputed that? You could die right? If you had $10 million in life insurance your heirs would be in good shape, right? Why don't you have $ 10 million in life insurance? Do you even know the principals that liability is created on? In simplified form it is duty, breach, damages, and causal connection. Someone cannot just say I decide to sue you and get $10 million. There has to be a reason. The plaintiff can lose lawsuits too. If lawyers get caught bringing frivolous lawsuits they can be sanctioned by their bar or suspended or even disbarred. The first step to limiting liability is understanding how to avoid it and how to run your LLC or company. Lots of LLCs don't matter if the corporate veil is pierced. If you do everything Anderson tells you, your LLCs can still be sued. It can still cost you thousands of dollars. Everything you say to do will not stop a single lawsuit. The good news is you only lose one property. What if you win that lawsuit? Why do you think you will lose every lawsuit? Do you intend to hurt or damage other people? You also have to be hands off. Any act you do personally makes you personally liable. It doesn't matter if you do everything Anderson tells you. What I don't like is a false sense of security. There product in all honesty is probably very good, but is way overpriced for most folks on this site.
I have over 30 units. Do you have any idea how big of a nightmare the accounting would be for 30 LLCs? The taxes would be a huge pain. You have to separate the cost of light bulbs for each house. Think about that. There is a tipping point. What I really don't like is the secret sauce approach.
Who else does asset protection? Nearly every attorney in the United States. You know they actually have classes on this stuff in law school. Really, they do. You don't need a golden hammer to drive nails. If you can afford it great.
Take the time to look at the really successful investors on this site. See what they say about liability protection. You really don't remain anonymous when you are the deal maker. No one sells or deals with an anonymous company. They deal with people. I don't have a problem with folks buying their product, but they need to understand what it doesn't cover, and they need to be able to afford it. For most folks an LLC or 2 is enough. You go on about all this stuff but how many deals have you ever done? Do you know how it works? Make sure you tell folks that this is your theory but tell them how much actual experience you have in this. Every investor really should sit down with an attorney or read a few books about how companies work, and how they don't. If Anderson does that great. Everyone needs that. I can tell you that they are not the only one who gets this. Now don't get me wrong, not all attorneys deal in this kind of law, and not all attorneys have the same level of experience or sophistication, but more than one company understands this. This is not the first company I have seen spouting this stuff. I have also seen a few of them fold. Don't let the fear or cost of asset protection ruin or slow down your investing to the point it isn't worth it.
By the way I have seen the posts of folks who have bought the product of Anderson, real attorneys don't have a flat fee for services in most cases, and they don't have products on sale. Please sit down and talk this over with an attorney.
If you need to have the property in your name to get the financing you should consider getting a personal Umbrella policy. That policy will provide additional coverage (usually sold in increments of $1,000,000) that is triggered if the limits of underlying Personal Auto, Home, and/or Dwelling Fire policy are exhausted. If you current insurance company will not do the umbrella, suggest they look at PersonalUmbrella.com. That company will write the umbrella policies over multiple rental properties (up to a total of 40 units).
I have to start a new post here. Here's something I'd like to encourage you Jerry W to do. YOU check out the videos on Clint Coon (if you're able to do this objectively) and see for yourself what he's saying because I'm not going to do your homework for you. The same homework where you assume a product/service is too expensive for the good ole folks of BP. Since there's no charge to watching free videos on youtube, there's less excuse for not doing free research. The BEST possible approach (especially for a moderator) is to encourage all the information to be presented so that the good ole folks of BP can decide for themselves what is best for THEIR personal/professional investing wants and needs. It's pretty sad when you attempt "so far your best sell line is"....and yet you make statements that clearly show no signs of research about the very group that you're questioning/challenging in the first place. I can give you the number to Clint's advisory group if you like.
Keep in mind that while I'm a staunch advocate of reasonable asset protection (which Clint ALSO discusses), I'm not saying nor have I said that I'm doing business with him or his advisors. I've even made previous statements that even if no one does business with him or his advisors, the information that he presents in his videos is still extremely valuable information. Now THAT is being objective. If you're going to be a moderator, moderate. Don't show bias. The members of the BP community are big boys and girls quite capable of deciding for themselves what they want and what they can afford.
Not necessarily! Check this out-
Read through the comments too as there's a lot of additional info in those.