how to protect my property

Question

HI Bigger Pockets. I just got my first rental in April. I want to protect it as much as I can, is it best to place it under a Trusts and how do I go about it? Thank you in advance

Andrew Freed · Answer

@Javier Rosales - The key is to get the max liability insurance possible on your home owners insurance policy (I do a mil) and also get an umbrella policy if you feel the mil is not satisfactory. At the end of the day, people claim LLCs are the best way to protect your property, however if you are not business savvy and manage the LLC in the proper manner, it is super easy for lawyers to "piece the corporate vail" meaning they remove the LLC protection and can go after your personal assets. Personally, I have my properties in my name and have very large liability protections.

Daniel Hyman · Answer

I'm not sure why your CPA thinks that there will be more tax paid in an LLC. Perhaps they were referring to the $800 CA annual fee.

However, if you were to transfer the deed to the LLC, you would likely want to refinance the mortgage into the LLC's name.

Javier Rosales · Answer

If I would transfer my property to my LLC, than the mortgage company would call the loan due, right? I’ve asked my CPA if it would smarter to do that, put the rental under the LLC. He said it would not be a wise move. Only because I would pay more tax’s due to the income. Setting up an umbrella policy would sound better, but I also head. I should Waite until I get my second rental. Than get the umbrella and trust.

Patrick M. · Answer

Proper insurance will protect you and your property.

An LLC will not protect your property and depending on your state it will expose you to less legal protections then a personal asset.

Example: In NJ, if I want to refinance a property in an LLC it will likely be handled commercially. A hard money lender will insist on a prepayment penalty... so if you sell the property in 5yrs you will have to pay 5% of the loan. In NJ they cannot ask for that of an individually held property.

Are you prepared to properly insulate your LLC from your person? No one knows you own the LLC? You don't use a personal card to make purchases? Bills are all in the LLC's name... etc,etc...

LLC's require a lot more work than the vast, vast majority of individual investors realize, just to confer a protection that a good lawyer will likely be able pierce.

Get proper insurance, be attentive to your properties maintenance, don't drink and drive or do drugs and screen mercilessly.

Brenden Mitchum · Answer

Hey @Javier Rosales

Okay, I am definitely not a real estate attorney but everything I've read (written by folks much smarter and more experienced than myself) has said land trusts do nothing when it comes to protecting yourself. I'm assuming you mean protect your personal/other assets from a lawsuit pertaining to this first rental, correct? If so, the best thing you can do is throw that puppy in an LLC that holds nothing else. Also, max out your liability insurance and even throw an umbrella policy over that if you want to get really serious. However, the LLC properly holding the property is likely the most important part since insurance does not cover everything.

Hope this helps a bit! Please, feel free to reach out anytime if you have other questions or just want to chat!