Is it really worth setting up an LLC?

29 Replies

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I agree with @Ken Barnett that you should wait until you have a few properties under your belt before you even considering an LLC, no need when you only have one or two SFHs. That being said, I see 2 main advantages to having forming an LLC that holds your properties:

1. I'd rather pay $500-$1,000 now to protect my personal assets in the case of an (albeit rare) lawsuit as opposed to losing my shirt in the event of one.

2. LLCs make it easier to write off business expenses. Car, insurance, taxes, asset depreciation, etc. The tax advantages real estate offers are one of the prime reasons it is such an attractive investment vehicle and should thus be taken full advantage of.

Originally posted by @Thomas S. :

The other side to the argument in the case of a law suite is that the suit can and will often name the directors (owners) as being personally liable. This of course circumvents the personal protection.

Lawyers are not stupid and they will try every possible avenue to go after assets held out side a LLC which is why insurance is really your only true protection.

It really comes down to whether the individual, as Michael suggests, wants to wear a hard hat when they go for a walk.

Still waiting for first hand examples.

In a lawsuit everyone and everything will get named. Whether or not the individuals will be held liable is another story. Many times lawsuits against the individual officers of any entity will be dismissed unless the attorney plans to (and usually has some legit evidence of) prove personal negligence that would void any protection of the entity or the liability insurance.

And it may have already been stated in this thread, but if they can prove negligence, no insurance will cover you and no entity will protect your personal assets. EX: allow a staircase to degrade and handrails to get lose over time, etc with tenant complaints (or not) and you don't fix it and someone is injured - you WILL be found personally responsible.

Wow guys, thanks for an intro to this but my head is spinning! My takeaway as a guy who has not bought an income property yet is to make sure I am not neglegent (having inspectors search properties and then fixing them?), then getting homeowners insurance, no LLC until bigger, and then I am still confused about umbrella. I know it is open to opinion but can you help me and the other Noobs by grading this summary of the forum?

Thanks for all the help so far

attorneys can pierce the corporate veil of an LLC; umbrella is just fine for someone w/ a handful of properties; easier to do a heloc on a rental when it is under your name (I think?).

been doing this for 8 years and haven't had a single lawsuit or even threat; you take care of your property, you will be fine. it's the slumlords who don't listen to their tenants requests, or maintain their property, that get into trouble.