Seeking CPA & Attorney Referrals for Tax & Legal Entity Advice

10 Replies

Purchased my first investment in June and I am getting ready to rent out the upstairs unit. In the hustle and bustle of trying to get the place and move myself, I completely forgot to inquire about tax and legal entity aspects of investing. Please leave your CPA and/or Attorney info below. I'm in NC if that matters. thx!

@Quandra Adams ,

Since this is your first investments I don't think you need to be concerned about entity at this time. Entity is normally used for liability protection, but until you have a sizable real estate portfolio you will be just fine with adequate amount of liability insurance, be sure to get at least $300K to $500K of liability coverage on your landlord policy. 

I'm second to recommend @Brandon Hall . Also consider @Amanda Han , she is nationally known CPA, author and speaker, her articles here on BiggerPockets are valuable resources for thousands of investors. 

Originally posted by @Dmitriy Fomichenko :

@Quandra Adams,

To be sure I understand, I need another type of policy outside of my homeowners policy? Complete rookie here so don't laugh too hard. lol

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Since this is your first investments I don't think you need to be concerned about entity at this time. Entity is normally used for liability protection, but until you have a sizable real estate portfolio you will be just fine with adequate amount of liability insurance, be sure to get at least $300K to $500K of liability coverage on your landlord policy. 

I'm second to recommend @Brandon Hall . Also consider @Amanda Han , she is nationally known CPA, author and speaker, her articles here on BiggerPockets are valuable resources for thousands of investors. 

@Quandra Adams

If this is a rental property you must have appropriate policy for it. It would be different than your regular homeowner's policy, for the property that is your residence. You must tell your insurance company that the property is rented to tenants. Usually it is called "landlord" policy. Just explain this to your insurance company and they'll know what to do.

If you don't have a correct policy in place you are running a risk of not being covered in case something happens.

Originally posted by @Quandra Adams :

@Quandra Adams,

To be sure I understand, I need another type of policy outside of my homeowners policy? Complete rookie here so don't laugh too hard. lol

As @Dmitriy Fomichenko said, you need a separate insurance policy for your rental property. In fact, you need at least two:

1. A policy protecting your investment if it burns down, floods, destroyed by a tornado etc., along with less drastic events such as a burst pipe that floods the property. Depending on the area, it may require more than one policy - i.e. a hazard policy, a flood policy, and a wind policy (not their official names). Sometimes, they are combined. Ask a local insurance agent, preferably the one that works with investors.

2. An umbrella liability insurance. This one protects you if the tenant (or someone else) sues you. Very cheap and very important.

Welcome to investing.

@Quandra Adams to expand on @Michael Plaks comments above: correct insurance policy for rental property ("landlord's policy") will give you coverage that protects the property from fire, etc. as well as it will come with the liability coverage (you should get at least $300K of liability coverage for a rental). An umbrella insurance policy is an optional coverage, it will kick in after the amount of liability coverage on your landlord's policy has been exhausted. For example, if you get sued, the claim is $600,000 and if you found to be at fault your landlord's policy will pay the first $300K (or whatever liability coverage limit for the policy is) and then umbrella policy will cover the rest. Usually, umbrella policies will come in increments of $1M, so you can get $1M, $2M, $3M coverage, etc. The umbrella policy is 2nd layer of defense for a landlord, they are relatively inexpensive and they will cover all of the properties you own. So if you own 10 rentals, they will cover all 10 (all properties you own under your "umbrella", hence the name), but each of those 10 rentals must have it's own landlord's policy with it's own liability coverage. For the first rental property umbrella is not necessary in my opinion but as you grow your portfolio you should consider it.

Umm, disagree with @Dmitriy Fomichenko on the umbrella policy not being necessary for the 1st property. Umbrella is supposed to protect you from a lawsuit pegging you for some insane damages - like if someone is injured or killed on your property. This risk exists with one rental and really even without any rental properties.

But I'm not an attorney, so I may be totally wrong on this uneducated opinion. Let @Brian Bradley chime in.

@Michael Plaks

There is a difference between a new investor with with single rental property and net worth of $50,000 and another investor with a portfolio net worth of $1MM. If something insane happens with the property and someone wants to sue you - they will have to get a lawyer. Before taking the case a lawyer would do an asset search, if they learn that the owner has no assets - they probably not going to take the case. No so in a case of a high net worth investor. 

Plus, if there is an adequate amount of liability coverage ($500K) included with the landlord's policy even if you get sued the insurance company (and their lawyers) will fight for you before they will pay half a million dollars in a claim. 

Over the years I spoke with hundreds of investors, I'm aware of small claims/disputes (been involved in few cases myself) between landlord and a tenant, but I don't know of a single case when someone was involved in any major costly dispute. 

I am not an attorney either, but in my opinion, based on my experience of being a landlord for 16 years, and experience of other investors, I don't think umbrella policy is necessary for beginner investors with relatively low net worth. This is also personal decision based on individual risk tolerance. 

P.S. This (potential liability) is one of the reasons why I prefer to be the bank (private lender) rather than landlord. 

 Does any of this change considering I am owner occupying my property? It's a single family home that was redesign as a duplex. Separate entries and all utilities are separated.On paper is actually still listed as a single family home (on paper meaning the listing). Im including all of this extra info so you all have all you need to better assess my situation. Here is what my insurance guy said when I asked him:

"If you are just renting a room and you will still occupy the property as your primary residence, the current HO3 policy is your best bet. The landlord policy, or DP policy, would cover an investment property that you rent out to others. I would require the occupant in either scenario to carry renter’s insurance to cover their personal property and at least $300k in liability. The main difference between the homeowners policy (HO3) and dwelling policy (DP) is the occupancy. The homeowners policy usually has a few more coverages since it covers your primary residence."

Looking forward your feedback. @Michael Plaks & @Dmitriy Fomichenko


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