Hi everyone. I am totally new to the forum and just starting out learning about rental properties in general. I am also an Iraq war vet. My question is about how to protect your personal finances from tenants in the event that something happens while they are renting from you. One piece of advice I have come across a few times as I have been learning about rental properties is to not own the property personally, but rather create a business, LLC or similar, to own the property to protect your personal assets in the event you get sued for something. I was wondering how this would work if you are using a VA Home Loan to purchase a "multiplex". Can you start a business that essentially owns the other units of the property (the ones you are not living in) in order to protect yourself?
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
6y
This topic comes up at least once a month. Get good insurance.
I owned a number of triplexes over the years, got liability insurance, and umbrella insurance for all my rentals. Lawyers suing you will sue the LLC ( or S Corp, C Corp) with you personally anyway. Bought a business from someone who had it in an S Corp, was sued for $3 million, only had $1 million coverage for a S Corp because he was told business is in an S Corp, he should be safe. Tried to get the suit against him personally dismissed but was denied.
I owned a business in an LLC, got insurance for the LLC, but got an endorsement so insurance policy will cover me also. The insurance agent advised me that people suing an LLC normally sues the LLC and LLC members personally by default.
LLC means you also have LLC fees, and unless you're a single member, additional tax returns on the state and local levels. I figured why go through all of this for my rentals if I get sued personally anyway. Many others feel they could sleep better with one.