Best way to become landlord without an LLC
Washington DC area · Member since 2024 · 6 posts · 5 votes
Best way to become landlord without an LLC
Most Popular Reply
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2yQuote from @Aaron Wilkins:
I owned property in my personal name for almost 20 years before I created an LLC, and that's only because I set up a Trust. It is far, far more important to focus on knowing the law, obeying the law, and treating your tenants honestly and fairly.
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.
The DIY Landlord Book4.7248 Reviews
7 Replies
- 2yJoe HomsBusiness MemberFlipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
@Aaron Wilkins I am not an attorney or CPA, but you asked.
Keep stuff in my name so I have more lending options and better rates, including credit unions. All banks require this even if you have an LLC. Then you place it back into your LLC. There is way too much exposure for you to keep assets in your personal name.
Have iron clad insurance for myself as a landlord. The goal of any insurance company is to minimize there losses. Even having a iron clad insurance policy, which you should have anyway, is not a guarantee that the insurance company will make you whole. If the property is in an LLC then that is all you can lose. They can't come after you personally.
Move my top assets like my home and paid off cars out of my name into a trust to further protect me. Trust are privacy instruments and not asset protection.
Anyone see a glaring hole in this plan? Something I missed? Speak with someone who knows what they are doing to properly protect your assets. You will sleep better at night.
Good Investing...
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes2y
Quote from @Aaron Wilkins:
I owned property in my personal name for almost 20 years before I created an LLC, and that's only because I set up a Trust. It is far, far more important to focus on knowing the law, obeying the law, and treating your tenants honestly and fairly.
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.The DIY Landlord Book4.7248 Reviews - Washington DC area · Member since 2024 · 6 posts · 5 votes2y
Quote from @Joe Homs:
@Aaron Wilkins I am not an attorney or CPA, but you asked.
Keep stuff in my name so I have more lending options and better rates, including credit unions. All banks require this even if you have an LLC. Then you place it back into your LLC. There is way too much exposure for you to keep assets in your personal name.
Have iron clad insurance for myself as a landlord. The goal of any insurance company is to minimize there losses. Even having a iron clad insurance policy, which you should have anyway, is not a guarantee that the insurance company will make you whole. If the property is in an LLC then that is all you can lose. They can't come after you personally.
Move my top assets like my home and paid off cars out of my name into a trust to further protect me. Trust are privacy instruments and not asset protection.
Anyone see a glaring hole in this plan? Something I missed? Speak with someone who knows what they are doing to properly protect your assets. You will sleep better at night.
Good Investing...
Sincere thanks for your feedback sir. My question is did you have a LLC from the beginning or as your assets and risk grew you set one up? With the loan transfer from yourself to LLC you never had the bill due on sale/transfer happen to you?
- Washington DC area · Member since 2024 · 6 posts · 5 votes2y
Quote from @Nathan Gesner:
Quote from @Aaron Wilkins:
I owned property in my personal name for almost 20 years before I created an LLC, and that's only because I set up a Trust. It is far, far more important to focus on knowing the law, obeying the law, and treating your tenants honestly and fairly.
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.I spoke to my insurance guy and in its infancy with not starting an LLC to expedite things being in the background he said an umbrella policy would do the trick from his viewpoint. I'm not going to have a ton of assets to start of course. So you had the idea of putting your personal assets out of your name and into a trust as well to somewhat separate things is what it sounds like?
I think I'll definitely need to run this by someone with a legal background. - 2yJoe HomsBusiness MemberFlipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
Quote from @Aaron Wilkins:
Quote from @Joe Homs:
@Aaron Wilkins I am not an attorney or CPA, but you asked.
Keep stuff in my name so I have more lending options and better rates, including credit unions. All banks require this even if you have an LLC. Then you place it back into your LLC. There is way too much exposure for you to keep assets in your personal name.
Have iron clad insurance for myself as a landlord. The goal of any insurance company is to minimize there losses. Even having a iron clad insurance policy, which you should have anyway, is not a guarantee that the insurance company will make you whole. If the property is in an LLC then that is all you can lose. They can't come after you personally.
Move my top assets like my home and paid off cars out of my name into a trust to further protect me. Trust are privacy instruments and not asset protection.
Anyone see a glaring hole in this plan? Something I missed? Speak with someone who knows what they are doing to properly protect your assets. You will sleep better at night.
Good Investing...
Sincere thanks for your feedback sir. My question is did you have a LLC from the beginning or as your assets and risk grew you set one up? With the loan transfer from yourself to LLC you never had the bill due on sale/transfer happen to you?
I started over 40 years ago. I would suggest seeking some additional advise, but I always tell everyone to start out correctly from the beginning. When I purchase homes (in California) is use a land trust for privacy reasons and the beneficiary is my LLC for liability reasons.
Get the right info for your situation.
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
If you are going to carry insurance there is no need for an LLC.
Look for liability limits of $1-2 million per occurrence.
Someone mentioned above transferring their personal assets into a trust. Be advised that the Trust only provides privacy, not asset protection. The assets are still considered yours under the law and are subject to liquidation for personal debts and liabilities. Make sure you have adequate insurance -- everywhere including your autos -- so this never becomes an issue.
- Rental Property Investor · Member since 2018 · 15 posts · 5 votes2yAgree with most of what’s been mentioned by the other posters. I have my properties in an LLC. Despite being very careful, there have been instances where I accidentally took money out of the LLC instead of my personal account via PayPal or Venmo etc. Not sure how these will affect me if something ever goes to court. Also, I personally haven’t been able to find cases where having an LLC specifically helped a person in a real estate lawsuit.
Quote from @Joe Homs:
@Aaron Wilkins I am not an attorney or CPA, but you asked.
Keep stuff in my name so I have more lending options and better rates, including credit unions. All banks require this even if you have an LLC. Then you place it back into your LLC. There is way too much exposure for you to keep assets in your personal name.
Have iron clad insurance for myself as a landlord. The goal of any insurance company is to minimize there losses. Even having a iron clad insurance policy, which you should have anyway, is not a guarantee that the insurance company will make you whole. If the property is in an LLC then that is all you can lose. They can't come after you personally.
Move my top assets like my home and paid off cars out of my name into a trust to further protect me. Trust are privacy instruments and not asset protection.
Anyone see a glaring hole in this plan? Something I missed? Speak with someone who knows what they are doing to properly protect your assets. You will sleep better at night.
Good Investing...
The one thing the LLC does help me with is being very very organized - I treat each property as a separate business with their own bank account, and take distributions from them. There is no commingling that way.
I’m inclined to rely more on the protections offered by my insurance and umbrella insurance rather than the LLC itself.
Lastly, unless you own the property outright, moving it into an LLC might be an issue with your lender.
Good luck.
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