What types of protection do I need for my rental properties?

Question

Hello, all. I am still preparing to buy my first rental properties. For my properties, what types of protection are best to protect myself and my assets? Do I need to have the properties under an LLC and what are the benefits of having an LLC? What are the pros and cons of going the LLC route versus having insurance policies that protect my property?

Anthony King · Answer

@Tim Matthews

Skip the LLC and buy $1,000,000 umbrella policy on top of $300,000 liability.

Tammy Mason · Answer

@James Gleeson Is there a limit on the number of properties or number of partners within an LLC? Also, if I create an LLC in one state, can I buy and add properties in a different state under the same LLC? Thank you in advance.

George Mastrosavas · Answer

Okay.. Great... I recommend a PUP Insurance policy (1,000,000). Hope this helps. Good Luck!

Tim Matthews · Answer

I don't own any rental properties at the moment. I'm still gathering info so that my business setup is appropriate for my investment strategy.

George Mastrosavas · Answer

@Tim Matthews how many rental properties do you own?!

Tim Matthews · Answer

Thank you very much for your answer. I assume the fire policy in your example is part of the landlord insurance, right?  Based on the collection of answers provided thus far, it seems the best way to have the most protection of my assets in case of a lawsuit (except in cases where the corporate veil is pierced) is to form an LLC to provide that layer protection, get liability insurance and an umbrella policy. This does seem to be a thick composite of layers. One could forego the LLC route and just get landlord insurance and umbrella policy, I suppose.

Mikel Kaubfa · Answer

Does a LLC offer the same liability protection across state lines? I have a LLC owning a rental in one state, but buying a rental in another state. Can I put the new property in same LLC, or do I need to set up a new LLC?

John Mocker · Answer

Tim,

An umbrella policy is a policy that provides additional coverage if the limits of the underlying policy (home, auto, rental dwelling fire, boat, etc.) are exhausted by a claim.  Say there is an accident on your rental property and you are sued.  You are found to be at fault and the policy covers the loss.  The judgement is for $500,000 and your Dwelling/Fire policy on the rental only has a limit of $300,000.  The Dwelling/Fire would pay the $300,000 limit and then the Umbrella policy would step in to cover the remaining $200,000.

Umbrella policies are normally written in increments of $1,000,000.  The rates will depend on things like, # of vehicles, # of homes/rental dwellings, # of other policies (motorcycle, snowmobile, boat, etc.).  If your agent can not get you an umbrella, check around, there are several companies (USLI, Personalumbrella.com, RLI, etc.) that provide standalone umbrella policies.

Good Luck on your purchase.  Feel free to PM me if you need help with any other Insurance questions.

Tim Matthews · Answer

Thank you both for your responses. The differences in your responses are why I prompted my initial questions. What is an umbrella policy? I saw the term floating around but I'm unclear what it covers when it comes to rental properties, and why this is recommended over forming an LLC.

James G. · Answer

You want to both have your property in an LLC and have liability insurance. Liability insurance will be your first layer or defense, and the LLC will be your second layer.

What types of protection do I need for my rental properties?

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