Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
5y
Never used one in 20 years, and I've avoided all the expense of setting them up, costs of maintaining them and the cumbersome and convoluted administrative aspects of operating with them.
But I must admit I have missed all the benefits of being able to hobnob with those pretending to be players by showing off my all my LLCs. It's been really rough in that regard, but I'm working through it.
@Michael Noto. I'm starting to realize this! I've been calling lenders and when I say that I'm buying under an LLC, they transfer me to their commercial team who has way more expensive loans.
Are you saying that it's possible for me to buy investment property using a residential mortgage?
@Misael Carlos Vera I’ve always used my name when buying real estate. I did attempt to transfer my properties into a llc but stopped the process when I learned the loan could be fully due if the bank learned about the transfer. Something to think about if you attempt to do the same in the future.
Was your loan conventional backed by Fannie Mae? If so, the bank can't call the loan.
Rental Property Investor · Member since 2019 · 55 posts · 44 votes
5y
@Misael Carlos Vera
I have personally been sued on a property one year after I sold it. The lawsuit had no validity, yet they found a snakey lawyer willing to put it through, knowing it would cost us more to fight it than to just settle. Insurance wouldn’t cover it because they put “fraud” in the lawsuit....even though they had nothing to back up the suit, it cost us $7k in legal fees just trying to get insurance to cover us, responding to the suit etc. and another $5k to settle. It would’ve easily cost us $20k minimum to take it to court, even if we won, which I was confident we would.
From my experience, and talking to many many lawyers on the matter, there are too many people out there that use frivolous lawsuits to extort people for money, because it’s always cheaper to settle with them than to fight in court.
Real Estate Consultant · Member since 2020 · 80 posts · 102 votes
5y
My 2 cents is that for small, SFH portfolios of 10 and under...no, you don't need an LLC but also...no they are not hard or costly to create. So, if you are just building out your portfolio, then don't feel it is a necessity. Get your feet wet and as you progress or time passes - let it shape your own opinion and decision to get one or not.
There already a ton of replies pointing out the positive mortgage aspects of not having an LLC. A couple points I didn't see being made 1) an LLC provides asset protection, but if you get sued you have to pay the $250-400/hour lawyer fees to fight a legal battle yourself. An umbrella policy would have insurance policy lawyers representing you, as they don't want to pay out on the claim. 2) the asset protection of an LLC protects your personal assets or other properties from attack, but leaves the property itself vunerable. An umbrella actually protects the investment property where the incident occured 3) One umbrella policy can cover multiple houses 4) Umbrellas provide all-around protection for you - in case you do something stupid and get sued in your everday life.
Talk to your car insurance agent about the cost of an umbrella. I changed my car insurance to safeco (an allstate company) to get a cheap umbrella. A car insurance linked umbrella is cheaper than stand alone policy.
To help avoid any of this from being an issue.. Provide a safe and clean space for tenants, take pics when you install (every 10 years) or change batteries on smoke/carbon detectors, have them sign off on a movein doc that says windows open, smoke detectors, test. Put it in their lease they need to test on a regular basis. Pressure wash surfaces that may be slippery. Etc, etc. But there is always the slight possibility that you get a crazy tenant that says your house has mold and it hurt their lungs forever, someone randomly gets attacked on your property and says you did not provide adequate protection, you discriminated against them.
Rental Property Investor · Phoenix, AZ · Member since 2020 · 47 posts · 18 votes
5y
@Misael Carlos Vera
While LLC's provide asset protection, if you're starting out in real estate, then you could title the property in your name. IF you go that route, then I'd highly recommend an umbrella policy. The umbrella policy is relatively inexpensive and the insurance company can write the policy to cover not only your rental property but also primary residence, auto, watercraft, etc....
Once you scale, then you could file a quit claim deed and transfer title to your LLC. Be advised that if this is a financed property then the bank could exercise a due on sale clause (calling the note)...While this usually is rare, consult with local experts whether the risk is worth it
Investor · Tampa, FL · Member since 2017 · 589 posts · 251 votes
5y
I would say for smaller deals you don't necessarily need an LLC. You would just need some strong liability insurance. Landlord/umbrella would work great.
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
5y
Mel: the product can go by different names but it is the basic insurance product for rentals that you own. In contrast, homeowners insurance only provides cover if you live in the property. There is a property/fire component and a liability component. Typically the liability cover is $300K but you can usually purchase additional liability protection for a reasonable sum.
Rental Property Investor · Member since 2019 · 55 posts · 44 votes
5y
@Sarah Langley
One thing I think many people are unaware of is that insurance policies are also written to avoid them covering you where possible...the biggest thing here is if the lawsuit claims anything fraudulent (you covered it up), most insurance policies, including umbrella, won’t cover you. And the unfortunate thing is, anyone can claim fraud with no facts to back it up. And to fight it, will cost you a lot of legal fees, and insurance won’t pay for those.
Rental Property Investor · Tampa, FL · Member since 2020 · 77 posts · 42 votes
5y
@Misael Carlos Vera that's why you don't buy under your LLC. You buy under your sol prop then quick claim in to your LLC after closing. People will try to scare you and say your bank can call the loan by doing this but no one can really show any examples of it every happening.
Some insurance companies won’t cover an umbrella policy if you own real estate. Some have limits on how many homes. Geico I think is 4. We were just canceled when we tried to raise the policy limits. They found out we have more than 4 properties.
Most people who do the LLC rout like mentioned are doing it to protect assets. I would not recommend it for each property or for your entire portfolio. Both of those cases don't really benefit you. The first is just too expensive paying fees for every unit. The latter we'll if ever pierced by a judge and you loose it all anyways. But if you set a limit say 1 million per LLC then you can protect groups. So group together properties of 1 million in LLC's. So if you do get sued only that bubble is affected.
Also protect all of those LLC's inside of a Delaware or Wyoming corporation which will hide them from prying eyes. What people can't see will help protect you. But learn as much as you can and be careful not to get scammed by these fast talking Attorneys who want to charge you insane amounts to do this. Find a good local realestate Attorny who's reasonable. And get you a good CPA who's only in to real estate. Not saying they are a scam because I don't want to get sued but this Anderson law firm has insane rates. I don't see how anyone uses them and is still able to profit. But maybe they find it somewhere.
Rental Property Investor / Director of Business Development · Miami, FL · Member since 2018 · 45 posts · 21 votes
5y
@Christopher Smith
As an outsider to your business, with a law degree, and properties of my own, I will disagree.
I’m not going to assume and get into nuisances, but there’s certainly a reason behind protecting your investments (legally speaking). Think of it as added insurance, etc., but this is of course on a per case basis.
Typically you can have one LLC for all of your properties, if ownership interests are the same, but again, everyone's situation is different.
The best advice I can proffer is to check with professionals in your state, as sweeping generalizations here can be incorrect.
Real Estate Agent · Colorado Springs, CO · Member since 2019 · 26 posts · 15 votes
5y
@Misael Carlos Vera, there are advantages of owning properties under an LLC such as as asset protection and being able to expand your portfolio of financed properties above the max personal limit of 10. However, it is much harder to refinance when the property is not in your name. I'd say if you own less than 10 properties, keep them in your own name and just be sure to have adequate umbrella protection.
Here's a tip though, do open an LLC to act as the property management company for all of your properties. It's a great way to stay organized and to keep things clean. Collect all of your rents and manage all of your property expenses through this company. Start building company credit! This is how I built up my portfolio and have been able to pick up quite a few BRRRRs leveraging business credit instead of my own. If I find a good deal, I can borrow from my company to secure it, rehab it, and then refinance it out to payback my LLC. I have done this dozens of times and the strategy works great.
Rental Property Investor · Maitland, FL · Member since 2017 · 11 posts · 2 votes
5y
@Keith Andrews You read my mind. I filed for an LLC in Florida and I was thinking I may have wasted my time. I started thinking "what if I collect rent through the llc" to keep things clean. I also prefer they pay my LLc and not me personally. I imagine you still pay the mortgage from your personal accounts to avoid commingling funds? All other income/ expenses related to your "property management/rental business" are recorded under the llc?
Real Estate Agent · Colorado Springs, CO · Member since 2019 · 26 posts · 15 votes
5y
@Marvin Rios Precisely. The LLC receives the rents, holds 10% (as a fee) and pays me personally and a few of the LLCs I also own that hold properties, so I can pay the mortgages.
As an outsider to your business, with a law degree, and properties of my own, I will disagree.
I’m not going to assume and get into nuisances, but there’s certainly a reason behind protecting your investments (legally speaking). Think of it as added insurance, etc., but this is of course on a per case basis.
Typically you can have one LLC for all of your properties, if ownership interests are the same, but again, everyone's situation is different.
The best advice I can proffer is to check with professionals in your state, as sweeping generalizations here can be incorrect.
Unfortunately you've totally missed the issue Counselor, the issue is not one of legal protection, and even if it were LLCs don't offer bullet proof protection to begin with, not by a long shot.
But rather the real issue is whether the cost of setting up an LLC structure, the cost of maintaining it and the hassle, inconvenience and awkwardness of operating it justify the extraordinarily remote risk of addressing a material claim not otherwise covered by insurance (regular property liability insurance or umbrella if necessary).
The answer is clearly not for your typical mom and pop owner of passive rental property operation.
Rental Property Investor · Maitland, FL · Member since 2017 · 11 posts · 2 votes
5y
@Keith Andrews Thanks for info. Another question, since the llc will manage my personally owned properties, I should not need a real estate license correct? Only if managing other properties? I may have to confirm in FL.
I have personally been sued on a property one year after I sold it. The lawsuit had no validity, yet they found a snakey lawyer willing to put it through, knowing it would cost us more to fight it than to just settle. Insurance wouldn’t cover it because they put “fraud” in the lawsuit....even though they had nothing to back up the suit, it cost us $7k in legal fees just trying to get insurance to cover us, responding to the suit etc. and another $5k to settle. It would’ve easily cost us $20k minimum to take it to court, even if we won, which I was confident we would.
From my experience, and talking to many many lawyers on the matter, there are too many people out there that use frivolous lawsuits to extort people for money, because it’s always cheaper to settle with them than to fight in court.
For that reason, I will always use LLCs.
Without getting into the facts of your case and even assuming your costs were necessary, it would cost me well over $7,000 a year (every year) if my properties were in LLCs, and that's not even addressing the cost of set up.
That would be over $150,000 as long as I've had my properties (well over 20 years with never even the hint of a suit).
Seems to me that proves the point conclusively (certainly in my case it does), that LLCs amount to little more than a ridiculously expensive false security blanket for wildly overblown risks that can be addressed much more economically and convieniently by other means.
Of course if you're seeking affirmation of your choice to utilize something from a class (i.e., many many attorneys) that stands to benefit from it, the answer will always be a fait accompli.
Rental Property Investor · VA · Member since 2020 · 26 posts · 2 votes
5y
@Dennis Cosgrave- Hi Dennis.
Are you saying that (after verifying the loan documents) that you can buy a property in your name and transfer the deed/title to your LLC to shield you as the owner?
My thinking is very long term.
Acenario - if I were to be disabled and need long term health assistance.. if Lord forbid I needed a nursing home or assisted living as an example, can i do that to shield my ownership of property assets?
I know, this should be a question for my financial guy, but for now, you peaqued my interest and thought I'd get some feedback