Rental LLC vs umbrella insurance ?

Question

Have a couple of rental properties around the Boston area. Would like provide protection of my assets but don’t know the best way to go about it. I’ve read about rental LLC and umbrella insurance but not sure which would be better.

Jonathan Styer · Answer

You will have a hard time finding someone who will recommend an LLC if you have a few rentals, when you get into double digits you may want to look into it. For now keep it easier for yourself and just get an umbrella policy.

JD Martin · Answer

I have an umbrella policy and have for years. I max out my limits on the rentals and then double that with my umbrella.

David M. · Answer

@Franco Epifania

It’s really up to you.  I’ve posted on this relentlessly...

For a couple of properties, insurance and umbrella policy should be enough.

Don’t forget that LLC’s are not eligible for conforming residential loans should you decide to refi...

You also need to operate the LLC as a separate entity to maintain/protect its corporate veil otherwise you’ve defeated the purpose.  It’s not necessarily that hard or impossible.  But, it’s something you need to be mindful of.

Also, depending on your State’s statutes, the amount of charging order protection varies.  Remember, legal entities are State formed entities so all the specific rules/laws are specific to your State.

So, consult with a few qualified professionals. Good luck

Zachary Ray · Answer

Insurance is what will go at bat for you. Always have a beefed out policy.

David M. · Answer

@Franco Epifania

Hmmm...  Its not quite an either/or situation....

option #1:  landlord insurance and umbrella policy

option #2:  LLC with landlord insurance (potential commercial) and you may want an umbrella policy.

Option #2 should provide more asset protection, but you'll have all the direct and indirect costs with going that route.  Also, if you don't maintain/protect the corporate veil of your LLC, then all the costs, direct and indirect, incurred with the LLC were pointless to making it harder for somebody to get at your personal assets.  And, you won't really know if you messed up your corporate veil until somebody files a lawsuit against you.

That's my layman's understanding of the situation.

Franco Epifania · Answer

@David M. Of course the properties are insured but was wondering which better for added protection for my assets

David M. · Answer

@Johann Jells

You should be able to get an umbrella policy for a LLC.  It might be a specific issue/circumstance with your properties???

Yeah, LLC's tend to be oversold for investing.  I feel they have their uses, but not for everything.  Have you thought about dissolving your LLC?  You taxes/deductions should be the same.  I've done it, but I think i shouldn't be that hard.  You should be able to save money in the long run.

Johann Jells · Answer

I have my 3 multifamilies in one LLC, and tried to get my insurance agent to price me an umbrella, but he came back with just 3 prices to increase the individual policies. What was that about, are they available for LLCs?  And yes, we're a little regretful about the LLC, it was mostly done trying to protect assets on college aid forms. Turned out to be irrelevant.

David M. · Answer

@Stephen J Davis

You have no insurance on your properties in an LLC?  That's bold...

Stephen J Davis · Answer

I only use insurance on single-family and not LLCs. On my apartments, they are all in LLCs.

Rental LLC vs umbrella insurance ?

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