Form LLC for the rental property?

Question

I'm moving to Tampa and considering keeping my 2 fam in NY as a rental property, and possibly purchasing another rental in the Tampa area. Would you form an LLC for each of the rentals and why?

Nathan Gesner · Answer

No. An LLC creates an additional level of complexity and cost that is typically unnecessary. There's a cost to set it up. New bank accounts. Separate tax filings. Annual filings with the State. It's a lot of work that is mostly unnecessary.

Your insurance company will give you $300,000 or more in liability protection. The majority of lawsuits are dismissed or settled outside of court for well below the coverage limits. I've never found hard data, but I am certain very few Landlords are successfully sued for more than their insurance will cover. The only ones I've ever found are major news stories about big-city slumlords, Landlords that sexually harass tenants, or major violations of Fair Housing/ADA.

If you're still concerned, contact your insurance provider and ask them to give you an umbrella policy of $1 million. That will provide an additional level of protection for a small fee and without all the extra hassle.

Kristina Kuba · Answer

I would go a step further.  Put each in an LLC and then put each in a land trust.  We live in a litigious society where most injury attorneys are paid on contingency.  A quick google search without any type of anonymity shield shows your properties and networth and puts an easy target on your back.

Joshua Adlam · Answer

John

I would 100% file as an LLC. Outside of protection to me the biggest thing it does it helps you enter the mind of a legit business owner. You properties are businesses and should be ran as such and this includes having an LLC. The cost is minimal

Cameron Moore · Answer

I love what @Megan Templeton says here. The only thing I would add is that you should keep a General Liability policy attached to every LLC. It usually carries a $2 Million limit and protects you even further. Those type of policies are meant to pay out on lawsuits so there is very little push back compared to the policies you have on each house which may have a small limit for liability but are focused more on property damage.

Megan Templeton · Answer

Hi there! Stats say that if you are an investor for more than 10+ years, you have a 90% chance of being sued at some point. For long term investors, its not so much of if you will be sued, but when. While insurance is a good first line of defense, it is not conclusive. Insurance ompanies are a business and inside of that looking to mitigate costs. In doing so, they will often find reasons to not pay out on a claim. If thats the case for you, you want a true line of defense in a lawsuit - thats where an LLC comes in. An LLC separates you from your business so that if your are sued, your personal assets arent at risk. There are always ways to mitigate business liability by seperating out assets. Using an LLC not only provides liability protection but can open up opportunities for you for working with 3rd parties such as lenders or partners who require an LLC. If your LLC is set up correctly, the operations and financial pieces of it can be minimal and easy to manage. I recommend using a streamlined structure such as a series LLC to minimize bookkeeping, banking, etc. It is recommend that you put only one proeprty per LLC to minimize liability. If you have all proeprties in one LLC, they are in one "liability bucket" so if one property gets sued, the other(s) are at risk. For that reason, I would recommend one LLC per property or using a series LLC which is scalable. The series LLC will allow you to put on property in each child series so liability is minimized.

Dan Travieso · Answer

John - the purpose of forming an LLC is to offer protection to your personal assets. An attorney can provide more specifics but basically by having the LLC as the owner of a property (versus you and your family), you are somewhat protected if a tenant decides to file a lawsuit.

In regards to forming separate LLCs per rental, some people do. Again, best to speak to an attorney but unless you are buying large multifamily properties it may be overkill to establish separate LLCs for every property.

Form LLC for the rental property?

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