First Rental Property

[Christina Wrightsman]

Hello, I am in the process of closing on my first rental property. I've read/been given differing opinions on whether I should transfer title into an LLC right away, thereby making the lease between the tenant and the LLC. My goal is to mitigate risk and personal liability. Some seem to feel insurance and other risk mitigation factors will be just fine with one property. Other say set up the LLC right away, even if it is just one property. Is one option or the other the best approach?

[Marcia Maynard]

Welcome to Bigger Pockets, Investing and to Landlording! You may want to participate in the Landlord forum! The Renters forum was designed for discussions from Renters. :-)

If your goal is to mitigate risk and liability, an LLC may not protect you. A better way to protect yourself and your assets is to have a hefty umbrella policy in addition to adequate insurance on each of your properties. Of course to mitigate risk, you also need to effectively screen for good tenants, have a great rental agreement in place and enforce it, take care of your properties, keep an eye on safety issues, and comply with all the laws for your jurisdiction, (including non-discrimination laws and fair housing laws).

For conventional loans, many lender's will require you to own the property in your name, rather than in the name of an LLC. In addition, there is the added risk of a loan being called (DOS) or accelerated as Ben mentioned.

Are you setting your business up as a sole proprietorship or a partnership? We use LLCs for our partnerships for reasons other than liability. It is one way to nail down a solid operating agreement and present a business entity, but is not always necessary for the solo investor.