What type of loan do you have? If you have an FHA or Conventional loan you can't own property in the name of an LLC. I just purchased a 4 plex with a conventional loan and they made me change the purchase agreement and titling to my personal name.
If you are paying cash or if you have a portfolio loan this won't be an issue, you can title it however you want.
Attorneys are outrageously expensive...I try to avoid them. Why do you need an LLC? Why not just a DBA, since the LLC is just a pass through entity, anyway. And why a trust? If you are just starting out, acquire some cash flow first, before seeking out one of these other options.
I have a Conventional loan.
Originally posted by @Josh Cook :
I have a Conventional loan.
Then you can't put this property in an LLC.
You could play the game of setting up an LLC, creating a contract with you and the LLC that the LLC is going to do the property management for a fee, then you could operate as if the LLC owns the property. One would question whether this would really afford you any protection because if you had a claim above your insurance limits they would likely go after the owner (you) instead of the management company (LLC) anyhow.
It would make no sense to put this in a trust. You would also likely run into the same issue of not being able to convey the deed. Trusts aren't cheap, sure it could avoid probate on the back end but I would move into the property before you are worried about passing ownership to the next generation.
If you have a LOT of assets outside of this property an umbrella policy may make sense but otherwise if you don't have much to lose this isn't really going to offer much protection. Just be a waste of cash. I mean what is the likelihood that a claim against your property is going to exceed your insurance limits??
There is some risk in RE however if this if your first investment as an owner occupied duplex I would first worry about getting moved in, a tenant in place, and getting going. Legal entities and structuring of assets can be valuable for some people but in the beginning it is generally an administrative cost which slows down progress.
If you talk to the wrong attorney they will sell you the sun and the moon but if you talk to a good one who weighs the practicality and cost I think you will find that you should do nothing.
I would talk to @Brandon Hershey about getting an umbrella policy and use the funds you would have spent on an attorney on insurance and sleep well at night.
I use Attorney Daniel Reiff in St. Louis Park. I have an LLC with my one property titled to my LLC. I am conservative regarding protecting my assets. Reiff has treated me fairly. He offers advice appropriate to my situation and does not sell me things I don’t need. Last meeting was short and he charged nothing.
Umbrellas are always a good idea to protect your assets. If you want, reach out to me and I'll be of value however I can. For law, I personally use David Oenstein at Dewitt Law.
@Brandon Hershey have you heard of anyone who was held liable for an amount higher than their insurance limits on a real estate investment? If so, what was the claim for?
I could see this happening in a slumlord situation where neglected repairs caused a fire or something but for a property in good condition I am struggling to find the added risk.
Great Question @John Woodrich ! No one ever plans for a rental property claim, but even with the best landlord and property, it could happen.
I have seen a few in my 5 years in the industry and my dad has seen his fair share in his 31 years. The most common though is slip and falls. The landlord gives the tenant a break on his rent for shoveling the driveway and sidewalk out front. The tenant is on vacation during a snowfall and the mailman slips, falls, and cracks his head open causing sever damage. An instance like this depending on the damage could go well above the liability limits of a regular rental policy.
One we had recently actually. Tenant had some friends over drinking. One of the friends fell down the stairs breaking his wrist. That friend happened to be the #1 amateur golfer and was about to make his debut on the tour. It was figured he missed out on potentially 2 million dollars by this wrist fracture. Fortunately our client had an umbrella so we paid the 2 million.
The list goes on and on. Umbrellas are always a good idea and they are very inexpensive, $150/year or so. I work in the industry, own rentals, and carry an umbrella... that should tell you something:-)...
Hope this helps, feel free to reach out with questions.
Sounds good, your company paying $2m for the possibility of lost income seems quite odd but I guess people pay to get out of lawsuits. With relative certainty I can almost guarantee my renters will not have drunk celebrities at my properties :)
The mail person one always gets me, it would seem that it would have to be a tendon severing incident to get the medical bills that high and it would also be a workman's comp claim as it was an injury on the job.... But I guess the claim is possible. Have heard of this risk several times but have never heard of it actually happening. If I get time maybe I can do a BP search for accidents exceeding insurance limits.
The last umbrella policy I had was through SF and I thought it was around $350 for 6 months.... Remember it reducing some auto policies but my motorcycle coverage may have caused the premium to rise. Suppose that put me at a greater risk of hitting my limits or something. Probably around 20 with multiple vehicles.
Insurance is good but to me it sucks paying $600-$700 per month for what I have going on and I never need it. I will let you know if I decide to look into this again, $150 per year is cheap and maybe my problem was that it was through SF, I was sold on something I didn't need, and I was young.
$350 per 6 months seems really high for an umbrella with SF, unless you have 2 millions with all the bells and whistles. If you ever want an honest review I'm happy to help!
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