Insuring Rental Properties Deeded into LLC's w/ conventional personal loans attached

Raleigh, North Carolina
Insurance
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Insuring Rental Properties Deeded into LLC's w/ conventional personal loans attached

Veronica Solomon
Member since 2020 · 6 posts · 7 votes

I have 6 rental properties & have been advised by an attorney group to open 6 separate LLC's . All the deeds will be transferred into the LLC's . This is causing absolute chaos for me now with my insurance company. They are saying these are now business/commercial properties so they need to be insured as such . This means an additional $200 per policy on top of what I already pay . Another issue is these homes have standard 15-30 year loans in my personal name ..... so that is another issue ! I have to insure them as "123 ABC, LLC additionally insured "me"". or EVERY loan company is saying "hey .... the insured does not match our records on your loan ."

I'm feeling seriously frustrated with opening up these LLC's & I have already paid an attorney to get everything ready to record these deeds . This feels like I have been advised to start an avalanche of yearly expenses , additional paperwork etc. ! ( I'm also getting advised to put them in land trusts on top of the LLC's now $$$ to avoid issues with my loan companies & having them in LLC 's

I feel EVERYWHERE you turn you hear never have rentals in your own name put them in an LLC

In retrospect , I am wondering why I would not have been petter off to keep them ALL in my personal name with 1 giant 5 million dollar umbrella policy for liability  ........ This just seems a ridiculous amount of money & a crazy complex amount of paperwork that I have regrettably signed up for ....

Any advice or experience in this area would be extremely helpful !


Thanks!

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V.G JasonPro Member
Investor · Member since 2022 · 3k+ posts · 3k+ votes
2y

This post will open a can of worms. You don't need 6 LLCs, you need probably half that. A holding LLC in a protected state and two LLCs--one in the state you operate and one that has title.

All titles go into one LLC, all operations go in the other. It's owned by a parent LLC in a protected state by your living trust. Keeps it way more simplified than an LLC per. You can also get an umbrella for your LLCs if you feel that need.

Before someone comes on here and says they've never heard anyone needing an LLC. It's cause it never gets that far, and it's largely a deterrent. And I am one that can speak on the behalf of being lucky to have one, if not multiple. As I have had first-hand experience, and also know someone enough intimately to where nothing was drawn up against them simply because of the proper structuring.

Before someone says you'll pierce the veil, you will that's why you need to make sure you're well capitalized and keep bookkeeping separate. You need to make sure you have an additional endorsement on your title insurance if you're transferring title, and there are insurance agents in raleigh that'll keep your LLC as the proper name on your insurance because that's how all are mine are in Raleigh and Durham.

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y

    I fully agree with your final assessment. I too once went down a similar path, although I grouped seven properties each into two LLCs. The other problem you have not encountered yet is when you want to do a cash-out refi. You can either refinance with a commercial loan at worse terms or you can move it back into your name and wait 6 months for the deed to season. I found that all of these limitations were not worth the trip. I've also heard some lawyers question whether or not the corporate veil is pierced by having the deed in an LLC and the mortgage in your name. I later unwound the whole structure and went with $500K liability per property and a $2M umbrella.

    The added benefit of that structure is the umbrella not only protects you from issues at your properties, it protects your properties from something you might do.

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    This post will open a can of worms. You don't need 6 LLCs, you need probably half that. A holding LLC in a protected state and two LLCs--one in the state you operate and one that has title.

    All titles go into one LLC, all operations go in the other. It's owned by a parent LLC in a protected state by your living trust. Keeps it way more simplified than an LLC per. You can also get an umbrella for your LLCs if you feel that need.

    Before someone comes on here and says they've never heard anyone needing an LLC. It's cause it never gets that far, and it's largely a deterrent. And I am one that can speak on the behalf of being lucky to have one, if not multiple. As I have had first-hand experience, and also know someone enough intimately to where nothing was drawn up against them simply because of the proper structuring.

    Before someone says you'll pierce the veil, you will that's why you need to make sure you're well capitalized and keep bookkeeping separate. You need to make sure you have an additional endorsement on your title insurance if you're transferring title, and there are insurance agents in raleigh that'll keep your LLC as the proper name on your insurance because that's how all are mine are in Raleigh and Durham.

    4Reply
  • Jonathan Bock
    Accountant · Bryn Mawr, PA · Member since 2023 · 409 posts · 321 votes
    2y

    Everyone will have a favorite structure and attorneys and accountants will tell you different things.  

    It really depends on your situation and you probably have low or small transfer taxes not sure of your exact location.

    In PA just transfer taxes alone depending on your valuations may deter some owners. 


    Any more color on why from the attorneys or reasoning behind this much separation and isolation?  

    Ultimately, it's about you and what works to give you enough comfort and protection from all the unknowns.  

    0Reply
  • Veronica Solomon
    OP
    Member since 2020 · 6 posts · 7 votes
    2y
    Quote from @Greg Scott:

    I fully agree with your final assessment. I too once went down a similar path, although I grouped seven properties each into two LLCs. The other problem you have not encountered yet is when you want to do a cash-out refi. You can either refinance with a commercial loan at worse terms or you can move it back into your name and wait 6 months for the deed to season. I found that all of these limitations were not worth the trip. I've also heard some lawyers question whether or not the corporate veil is pierced by having the deed in an LLC and the mortgage in your name. I later unwound the whole structure and went with $500K liability per property and a $2M umbrella.

    The added benefit of that structure is the umbrella not only protects you from issues at your properties, it protects your properties from something you might do.


    Yes, thanks Greg. It is interesting that you later "unwound" the whole structure . I have already spent a ton to have these "unlimited LLC" structures" & haven't pulled the trigger on the recording of the deeds yet , but I will also need to pay for the attorney's time.

    I've been in a "holding pattern" trying to figure out my property insurance issues .

    In retrospect ... I think doing something similar to you ie 500 K liability & 2 Mil umbrella would have been better.

    0Reply
  • Veronica Solomon
    OP
    Member since 2020 · 6 posts · 7 votes
    2y

    Hi Jonathan,

    Yes , they advised it was all to protect the assets . If I lump them into 1 LLC they would all be at risk in a lawsuit . The more equity they have the more I would have to loose . Separating them would only expose the 1 property with the lawsuit.

    0Reply
  • Veronica Solomon
    OP
    Member since 2020 · 6 posts · 7 votes
    2y
    Quote from @V.G Jason:

    This post will open a can of worms. You don't need 6 LLCs, you need probably half that. A holding LLC in a protected state and two LLCs--one in the state you operate and one that has title.

    All titles go into one LLC, all operations go in the other. It's owned by a parent LLC in a protected state by your living trust. Keeps it way more simplified than an LLC per. You can also get an umbrella for your LLCs if you feel that need.

    Before someone comes on here and says they've never heard anyone needing an LLC. It's cause it never gets that far, and it's largely a deterrent. And I am one that can speak on the behalf of being lucky to have one, if not multiple. As I have had first-hand experience, and also know someone enough intimately to where nothing was drawn up against them simply because of the proper structuring.

    Before someone says you'll pierce the veil, you will that's why you need to make sure you're well capitalized and keep bookkeeping separate. You need to make sure you have an additional endorsement on your title insurance if you're transferring title, and there are insurance agents in raleigh that'll keep your LLC as the proper name on your insurance because that's how all are mine are in Raleigh and Durham.

    Hi V.G. ,
    Thanks for your feedback.  I have been advised that the property insurance would be titled in the LLC & my name as additionally insured.  In your experience with insurance did that change your policy to commercial / business ?  I'm told each one now would need their own separate liability policy , each adding about $190 .  Can you expand / comment on the "additional endorsement on my title ".  I think I am suppose to now look into every title policy with some special working that would allow it to move the property to an LLC without affecting the title insurance .  I have heard this is title policy specific .
    Is that what you are referring to ? Are you able to give me names / insurance companies on this post?

     Thanks!

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Veronica Solomon:
    Quote from @V.G Jason:

    This post will open a can of worms. You don't need 6 LLCs, you need probably half that. A holding LLC in a protected state and two LLCs--one in the state you operate and one that has title.

    All titles go into one LLC, all operations go in the other. It's owned by a parent LLC in a protected state by your living trust. Keeps it way more simplified than an LLC per. You can also get an umbrella for your LLCs if you feel that need.

    Before someone comes on here and says they've never heard anyone needing an LLC. It's cause it never gets that far, and it's largely a deterrent. And I am one that can speak on the behalf of being lucky to have one, if not multiple. As I have had first-hand experience, and also know someone enough intimately to where nothing was drawn up against them simply because of the proper structuring.

    Before someone says you'll pierce the veil, you will that's why you need to make sure you're well capitalized and keep bookkeeping separate. You need to make sure you have an additional endorsement on your title insurance if you're transferring title, and there are insurance agents in raleigh that'll keep your LLC as the proper name on your insurance because that's how all are mine are in Raleigh and Durham.

    Hi V.G. ,
    Thanks for your feedback.  I have been advised that the property insurance would be titled in the LLC & my name as additionally insured.  In your experience with insurance did that change your policy to commercial / business ?  I'm told each one now would need their own separate liability policy , each adding about $190 .  Can you expand / comment on the "additional endorsement on my title ".  I think I am suppose to now look into every title policy with some special working that would allow it to move the property to an LLC without affecting the title insurance .  I have heard this is title policy specific .
    Is that what you are referring to ? Are you able to give me names / insurance companies on this post?

     Thanks!

    I am not a lawyer, so take that for what it's worth. Are you opening up a single member LLC? If so having it as the named insured is sufficient, and don't need additional insured with your name on it. It still allowed the policy to be residential, and I could buy commercial umbrella as another backstop. This applies to not only my RTP properties, but Texas, Georgia, South Carolina, New Mexico, Tennessee, etc., I've done it the same way there.

    In regards to title-- you have title insurance likely when you got the mortgage for the house. You still want to keep that, so find out who your title insurance carrier is and ask if you need to add an additional insured(if so add your LLC) or if any entity is single-member owned by the original owner of the title insurance it then applies too. So basically if your name is on it, then your LLC is inclusive of the policy. Ideally to really keep everything separate you'll want to just have your LLC, and not your name, on it and that'd likely require a novation or a new policy(full cost of title insurance paid again). I've noticed all carriers are different so communicate what you want and ask them the options.

    Changing from personal to LLC is time consuming and kind of costly, but in my opinion worth it. It's more paramount to do it from the start so less hassle. You'll also want to file these taxes all separately and not just as under your personal name, and as a disregarded entity. This also will cost more in tax preparation, and I know sound tedious to do it but that's really where liability is truly parsed.

    Taxes, insurance, title insurance, bank accounts, finances, basically everything is LLC run. This is a business.

    1Reply
  • Veronica Solomon
    OP
    Member since 2020 · 6 posts · 7 votes
    2y

    Thanks V.G.

    Yes, single member .  Its helpful to feel in your opinion its worth it .  I'm feeling a bit nauseated because of the increased cost & increased continuous paperwork I will be taking on.

    The issue with my property insurance not having me personally listed as "additionally insured" is the confusion with my lender . I currently have my insurance escrowed for ease & simplicity . I have thought about paying it separately as that too has caused confusion because when the lender went to pay the insurance company & saw it was in an LLC they basically said "that does not match our paperwork" we are not sending you the insurance money.

    So, the loan companies are all "personal investment property home loans" . When I have asked the mortgage companies how to avoid the confusion they have said add the "additionally insured " on the insurance . So, when the insurance company sends them my Declaration page it will have the LLC which would be on the deed & my personal name .

    Every LLC will be an additional $200 yearly ( as you know ) & my insurance will go up several hundred on each property.

    One issue was my insurance company I think had been trying to save me money by having a Personal Umbrella Policy to cover all the personal properties for LIABILITY.  I was likely "underinsured ". Non of the insurance policies had individual liability it was wrapped into the umbrella.

    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y
    Quote from @Veronica Solomon:

    Thanks V.G.

    Yes, single member .  Its helpful to feel in your opinion its worth it .  I'm feeling a bit nauseated because of the increased cost & increased continuous paperwork I will be taking on.

    The issue with my property insurance not having me personally listed as "additionally insured" is the confusion with my lender . I currently have my insurance escrowed for ease & simplicity . I have thought about paying it separately as that too has caused confusion because when the lender went to pay the insurance company & saw it was in an LLC they basically said "that does not match our paperwork" we are not sending you the insurance money.

    So, the loan companies are all "personal investment property home loans" . When I have asked the mortgage companies how to avoid the confusion they have said add the "additionally insured " on the insurance . So, when the insurance company sends them my Declaration page it will have the LLC which would be on the deed & my personal name .

    Every LLC will be an additional $200 yearly ( as you know ) & my insurance will go up several hundred on each property.

    One issue was my insurance company I think had been trying to save me money by having a Personal Umbrella Policy to cover all the personal properties for LIABILITY.  I was likely "underinsured ". Non of the insurance policies had individual liability it was wrapped into the umbrella.

    For me it's worth it, because REI is just one avenue of my family's income. I have 40 houses +, and most of my net worth is in other places. So this is a liability shield.

    For others I feel it's worth it, because this is all they have. It is a cost burden, but it should not be that terrible. Most of it is upfront, there are insurers in Raleigh that can get you a better rate for an LLC. If your lender is being a pain about that, then it's best to heed their advice and if/when you re-fi make it into a DSCR or nonQM loan to have your LLC as the real title holder. That may be a more plausible option, just to have an umbrella policy for now. Plan to re-fi down the road and create entities then to put it in, and fully keep it separate. You'll be exposed for some time, that's your down side.

    Most of this board opts for this route of umbrella coverage, but I disagree with a lot of what this board pushes. For me personally, I've had a reckoning and the LLCs have been a great deterrent from first-hand experience. 

    2Reply
  • Veronica Solomon
    OP
    Member since 2020 · 6 posts · 7 votes
    2y

    Helpful.... Thank You!

    1Reply
  • Adam SchneiderPro Member
    Lender · Raleigh, NC · Member since 2012 · 955 posts · 639 votes
    2y

    Veronica...you are raising a great topic. Do the attorneys advising you also want you to open 6 separate bank accounts? You'll need to decide where you are on the Risk / Risk-Aversion pendulum at some point. If you grow to say 15 properties, do the attorneys want you having 15 of everything? The costs to have a separate entity per property is going to be big.....many people have a mindset where they want to limit their exposure in one LLC to a dollar amount (say $1M or $2M of inventory per LLC). Other people have one LLC for everything. If you are looking to get bank loans and keep having a new business/LLC, that can be a challenge! Then, there are other people who are quite sophisticated with their structures and choose to invest money on the structure (you'll hear references to Trusts)...and then you'll have people talk about piercing the veil....and you'll hear some people say that as long as you have enough insurance, you are fine....and others will say that you have to be careful about relying on insurance to protect in all matters. If you talk with enough people, you'll get enough different answers to decide not to invest, and just sell all 6 of your properties! If you decide to do that, I'm sure that someone on this site will help you out!!! Ha!

    1Reply
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