Yup, this is brought nearly daily on BP. There really isn't a simple answer. Its up to and your risk tolerance.
First, read about LLC's below. Remember, they only provide limited liability protection, not accounting/tax benefits (unless you are investing with a non-spousal partner).
As mentioned, many investors just use insurance. with or without a LLC, you need a homeowner/landlord policy. Without a LLC, you will need an umbrella insurance policy. If you have a LLC and you want the extra coverage, each LLC will need its own umbrella policy. Remember, its about adding "layers of protection." Also, you want the insurance so that you can let their lawyers fight the lawsuit, otherwise you'll go broke just defedning your LLC.
Then, there is the extra overhead with operating with a LLC. The very first link should address most of it. But, let me highlight financing (which there have been several recent threads started). Legal entities, such as a LLC, are not eligible for conforming residential loans. This means you will have to use commercial financing, i.e. non-residential loans. Many investors get "around this" either knowingly or unknowlingy by transfering Title back to their name, getting the loan, and transferring the Title back to the LLC. As I write about in the below post, this is a bad idea in my layman's opinion. You need to protect your corporate veil by not co-mingling funds or using the LLC as an alter-ego. Lenders don't have a responsibility to protect your corporate veil. Also, most lenders are residential only. So, the only way for them to sell you a loan is to have you transfer Title. But, I don't see this as being in your best interest.
Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
5y
The best way to avoid loss of properties is adequate and proper types of insurance. Chances are you will get a lot of different advice in this thread from LLC's are BS to you need LLC's. I fall on the LLC side of the debate and when I started I started with many more than I needed in my opinion. I did 5 properties per LLC and for me, in the end, the cost and hassle of accounting, taxes, different checking accounts etc was too great and I no longer to that. We have clients that have many (like over 50) properties in a single LLC and we have clients that have 1 property per LLC. There is no "right" answer for this. I would for sure ask your team (accountant/lawyer) for their opinion as well.
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
5y
LLC's are mostly an REI fashion statement. I have some properties in an LLC and others in my name. I make sure we have enough liability insurance so we won't be hurt in case something unforseen happens. Adding another million to your umbrella is 150 to 200 dollars per year.
Yup, this is brought nearly daily on BP. There really isn't a simple answer. Its up to and your risk tolerance.
First, read about LLC's below. Remember, they only provide limited liability protection, not accounting/tax benefits (unless you are investing with a non-spousal partner).
As mentioned, many investors just use insurance. with or without a LLC, you need a homeowner/landlord policy. Without a LLC, you will need an umbrella insurance policy. If you have a LLC and you want the extra coverage, each LLC will need its own umbrella policy. Remember, its about adding "layers of protection." Also, you want the insurance so that you can let their lawyers fight the lawsuit, otherwise you'll go broke just defedning your LLC.
Then, there is the extra overhead with operating with a LLC. The very first link should address most of it. But, let me highlight financing (which there have been several recent threads started). Legal entities, such as a LLC, are not eligible for conforming residential loans. This means you will have to use commercial financing, i.e. non-residential loans. Many investors get "around this" either knowingly or unknowlingy by transfering Title back to their name, getting the loan, and transferring the Title back to the LLC. As I write about in the below post, this is a bad idea in my layman's opinion. You need to protect your corporate veil by not co-mingling funds or using the LLC as an alter-ego. Lenders don't have a responsibility to protect your corporate veil. Also, most lenders are residential only. So, the only way for them to sell you a loan is to have you transfer Title. But, I don't see this as being in your best interest.
Real Estate Agent · New York City · Member since 2020 · 818 posts · 639 votes
5y
Ideally, you want to have each property in its own LLC. This insulates assets and keeps them safe from litigation associated with another property. It is a very cheap and effective form of insurance.