Any other ways besides LLC to hold titles?

Question

Currently I had ten rentals in bay area California,  most being duplexes and fourplexes.  In the past, I hold these rentals under my name.  I had a $5M umbrella policy to protect myself, at least that is what I think.   However,  about a year ago, I was suggested to set up LLcs to separate them so I can have a better protection.   I divided them into three different parts which about equal values, I then group them into three different LLCs.  In the hope that something happen I don't have to lose all.  Sounds like a good idea, but here is the painful part, It is so costly to up keep these llcs.  Not only need to pay $800 each for taxes,  insurance also goes up so much because now under business name.  Accountant also charged $1000 each LLC tax returns.  As you can tell, it adds up a lot.   I am sure there are many people own many rentals, how are you holding them?  Is holding in different llc is the only way or there are some other ways work better?  Thank you all in advance to enlight me .

Ed Zhao · Answer

@Johnny Weekend I was buying and holding under my name at first.  All was payoff.   I did the transfer to LLC two years ago.

Ed Zhao · Answer

@Jerry Padilla couple years ago, a teenager fell and hit his head at the intersection of one of rental.  It happened because the neighbor was doing construction and needed using water from city fire hydrant at the corner of mybrental.  They put the water hose across the intersection which tripped the teenager when he riding roller skate.  Anyway,  I was on the lawsuit for which I don't know why, they claimed $10M for physical/mental damages and $10M lost of future incomes. That what makes me thinking is $5M insurance sufficient to protect myself.

Scott Mac · Answer

Hi Jerry,

The totality of the judgement is not the only problem.

I have seen two instances where California owner/operators held everything in their own name (Calif. Community Property/divorce issues aside) and as soon as a lawsuit came up from a tenant all of their assets were frozen. Personal and business accounts.

Both men were in a panic. With all bank account frozen it's impossible to pay mortgages and other costs on the investments as well as on their own homes.

It takes time to ask the court to unfreeze things, and that cost attorneys fees, aside from the cost of addressing the actual lawsuit.

One man lost, the other prevailed, but it was a LONG emotionally grueling time for both of them.

Perhaps some type of insurance would cover all of your bank accounts and other assets being frozen, I don't know.

But using LLC's seems prudent in many cases.

Good Luck!

Johnny Weekend · Answer

This seems like a good solution but I don't know how many people are doing it.

https://royallegalsolutions.co...

Amit M. · Answer

@Ed Zhao

My property’s risk profiles are relatively low (well kept code compliant bldgs, professional tenants/non scammers) so I don’t bother with the whole LLC set up. As you said, a total PITA to set up wrt your insurance, mortgage, individual returns, etc. So I have the $5mil umbrella policy too. Guess you could look at a bigger umbrella, but the little research I did indicated that 5mil was the max avail.

Also AB 1482, CA rent control, will most likely pass. If so SFH and condos are exempt from it, unless they are held by corps and LLC’s. So that’ll be a new wrinkle to wrestle with as well if you own SFH or condos...

Ed Zhao · Answer

@Frank Chin thank you.   I know.  That's why I try not getting into a fight.   Either they beat me up or I knock them down but end up being sue

Steve Vaughan · Answer

Commercial properties. Commercial loans.  The commercial lenders are glad I have an LLC.

You'll only have problems trying to stuff a residential property inside a commercial entity.  Trying to get fixed Fannie loans reserved for natural persons.

Jerry Padilla · Answer

@Ed Zhao

I think our policy is only $1 million. I need to look it over again. Thank you for the info!

Frank Chin · Answer

@Ed Zhao

Congrats on doing so well. Like @Jerry Padilla I kept all the properties in my name. However I had other active businesses with employees, and had S Corps C Corps as well as LLC's, for other reasons. I had them all insured.

I bought a business from a couple who had it in an S Corp. Long story, they were sued for $3 million. But their S Corp only had liability insurance of $1 million, just for the S Corp. Both the S Corp and they were sued personally and they tries to get the suit against themselves dismissed, but was denied. I got a little nervous, spoke with lawyers, and I was told it's routine for lawyers to sue that way, especially for small businesses where owners did all the work, such as investment real estate. Good part of the story was they retired to FL, put all they money into their retirement home, protected under FL's generous homestead laws, and the litigants settled for the $1 million.

I on the other hand had nuisance suits against my LLC, where I had corporate insurance, as well as for me personally via an endorsement. Here for some slip and fall lawsuits, I had people contact the insurance company. In effect, they are my legal department. These suits involve lawyers working under contingency, something like 33% to 50%, and they usually give up after a year if threatening letters don't scare the insurance companies. I offered one guy $500 to go away, even up to $1,000, and he went to a lawyer instead, for $6,000. After his lawyer stopped returning his calls, came back to beg for my original offer, but I turned him down and he got nothing.

So my view is lawyers around here lawyers sue the LLC, S Corp with the owners personally in large suits. For smaller suits, they don't bother, and get after the insurance.

In talking with local attorneys, the theory a PERSON is somehow negligent. The one sure way to get around it is to have a PM involved, where he has his own E&O insurance, and it something goes wrong, there's a person you can point to who's negligent, who's also insured.

Johnny Weekend · Answer

How are you able to get loans for the property if they go into an LLC right away?

Any other ways besides LLC to hold titles?

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