Should I start an LLC?

Question

We are closing on our first investment property on Friday. Thoughts on paying for an LLC to separate our personal liability?

Thank you for your help!

Keegan Darby · Answer

@David M. Thank you for the detailed response! That is very helpful!

David M. · Answer

@Keegan Darby

Generally, no.  LLC financing isn’t commercial, not residential, so more expensive.  You need to make sure you operate properly to maintain your corporate veil otherwise you really don’t have the legal asset protection.  While there are ways to legally line up a property where ‘Title held in LLC but mortgage in personal name,’ I persoanlly think after the first one you are definitely operating the LLC as an alter-ego, this piercing your corporate veil.  This question/topic comes up daily in bp.  Nobody, certainly not an attorney, has commented where the legal “limit” resides in how the veil is pierced other than don’t forget-mingle your funds.  I’m guessing it’s a mix of that’s “too” much free advice, not that many people get sued (don’t hear any complaints about it on bp, and it’s most Likely very State specific since LLC are legal entities registers by State.

Just get insurance and an umbrella policy.  Keep your property in good order.  It’s much cheaper and less headache of running the LLC correctly.

The main reasons for entity beside asset protection is for larger properties like commercial apartments or if you are in a partnership/business.  Once it’s more than husband and wife, you need the operating agreement to spell out the business arrangement and how profits/losses are split for tax purposes.  Otherwise, the entity has not effect on tax efficiency.

Hope that helps.  Good luck.