House Hacking - Legal Structure for Rental Unit?

[John Franczyk]

My son is buying a 2-unit building in Milwaukee. He is buying the property in his own name. He intends to renovate the building while he lives in one unit and rents out the second. Without going into the technical legalities of how to do this, what's the best structure to manage the rental?  For example, does he set up a separate corporate entity to manage costs and expenses? How can he shield his personal assets from liabilities if the entire building is in his name? etc.  Thank you for any geuidance here.

[Marcus Auerbach]

Here are the 5 layers of defense your son should set up:

1.) Make sure your property is safe and compliant; don't be negligent.
2.) Screen your tenants well
3.) Use a bulletproof lease, rules®ulations, lead notice, smoke/CO detector notice, non-standard rental provisions to clearly regulate the rest
4.) Carry proper insurance on the building, which includes landlord liability
5.) Get an umbrella policy for $1 million that covers liability in excess 

I've been a landlord in Milwaukee for 15+ years, I am on the board of the RPAWI and see a lot of legal stuff (like the Koble case at the moment) and as an agent, I've been working with house hacking clients for a decade. We pretty much have house hacking ready in a can for clients, including how to do background checks, all the paperwork etc. - DM me for details. You could set up an LLC, but that has also downsides and if you can't proof in court its an actual company it may not hold up - lawyers call that "piercing the veil". But it depends, setting up a corporate structure makes sense once your building's equity or your net worth exceeds your umbreall insurance coverage. Otherwise your juice is not worth the squeeze for a attorney trying to take you to court.