If I was to take out an FHA loan and have my tenants pay rent to an LLC which I created. What would happen if they sued me?

6 Replies

Very new to all of this and trying to figure out the best way to start investing and protecting myself from legal liabilities. I am not sure if this is even possible.

The basis FHA loan that most folks mean when they discuss and FHA loan is for owner occupants ONLY. You have to move into the property, not rent it out.

Protecting other assets from lawsuits by tenants is part of a larger asset protection strategy. Its a complicated subject with a range of opinions about the best way to do it. If you do have significant assets you want to protect you need to discuss your entire situation with an attorney. Holding properties in an LLC might be part of that strategy. That does limit your financing options. FHA isn't a choice for properties owned by LLC and neither are conventional loans. Loans are available for properties owned by LLCs, but the terms won't be as good as for properties owned by a person.

Umbrella liability insurance should be another piece of your asset protection strategy.

Unless, of course, you are referring to buying a duplex or triplex! Then you can use an FHA loan as both a rental and an owner occupied strategy! :)

@Jon Holdman  , I heard somewhere that Umbrella liability Insurance won't cover your business, Only personal. Your Rental is consider business. 

Some one advise to use Commercial General Liability to protect yourself in rental. Can you help me clarify that ?

 Brandon is right, only rent out if it Duplex or triplex and you live in one unit. 

You can rent out a single family with an FHA loan after you've lived there for a year or so right? That's what I've always heard anyways.

If your holding single family homes in your personal name (to get conforming mortgages), an umbrella policy will cover your rental properties, just make sure the agent is aware of them

Originally posted by Account Closed:

@Jon Holdman  , I heard somewhere that Umbrella liability Insurance won't cover your business, Only personal. Your Rental is consider business. 

Some one advise to use Commercial General Liability to protect yourself in rental. Can you help me clarify that ?

 Brandon is right, only rent out if it Duplex or triplex and you live in one unit. 

 Yes, an umbrella policy will cover rentals.  Details depend on the insurance carrier though.  And probably even on where you live.  For example, in my area, StateFarm will let you add the first 4 (or maybe 5 - I can't recall) rental properties to your "personal umbrella" policy.  Beyond that, they write "commercial umbrella" policies - a little more expensive but still reasonable.

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