I am a lawyer and I recommend LLCs.
Here are the arguments against them as I understand:'
1. They don't work for asset protection-
I met with a home builder yesterday to discuss filing bankruptcy. He has an LLC. He had 7 or 8 lawsuits over the past few years. Here is the mental calculation I have to go through- first, who is being sued? If it is the LLC, I can completely ignore it. That got rid of all of them except one between him and a business partner. They work. They end lawsuits. They are expensive to fight against.
Can they be defeated? Yes. Everything can be done wrong if you try hard enough. Someone's poor management skills are not an argument against them. That is a reason to do a good job, which is a different argument.
2. They are expensive or difficult to manage-
The OP said it best. If you are not willing to learn how business is done or can't afford it, maybe you should reconsider what you are doing. You should be able to set up your LLC for a few hundred dollars and the yearly fees are less than $100 in every state I know of. ($25 in Oklahoma.) Find out what the actual costs are. You will probably be pleasantly surprised.
3. My attorney said I don't need one-
There are some bad attorneys out there and they give bad advice. Talk to three attorneys who actually litigate civil cases and see what they say. Here is one for free- I am a licensed attorney in the state of Oklahoma. I primarily practice under the federal bankruptcy code. I spend all day dealing with individuals who had financial problems in life. Legal entities should be properly used by anyone operating a business.
4. Person X doesn't use them and he/she is fine-
Yeah for you! Seriously, that means you have personally figured out how to do things right and nothing very bad has ever happened to you. That is awesome for you. That is even statistically correct for the majority of individuals out there. When I was in Law School, my wills and trust professor started our class out by saying she did not have a will. Sounds stupid right? Well here is the deal. Our laws are set up to do what most of us want. In the case of the will, my professor understood that the law would do what she wanted anyway because she was the norm. Most of us don't have life shattering problems in our real estate businesses and if you ignore me, you will probably be fine too. Your individual experiences are one data point. That is a very small data set. The people who had real problems are probably not on a website touting their experiences to the world.
5. I can't get a loan/ buy a house in an LLC-
I have two houses that are not in my LLCs. One is my first home which I have a mortgage on and I turned into a rental. It was how I started out and why I got that loan. House hacking indicates you are finding a loophole in the system to get started. It is not how you should base your business structure. My second one was my first fixer and I was too lazy to get my business structured correctly. It has been a problem ever since. Set up your structure for what you want to be and you will grow into it. Don't waste time and money or become paralyzed by it. It should be a very small part of the process along the way.
6. I don't need it because I have insurance and I don't do anything wrong-
This is an extension of #4. Be fully insured. Do a great job running your properties. LLC's are not substitutes for these things. They are an additional layer. Every lawsuit involves two people who think they are right and every time one of them is wrong.
Newbies- don't become focused on LLCs or paralyzed into inaction. LLCs are a good idea when you can afford them and are ready. Talk to your attorney and accountant about when that point will be for you. If you are trying to house hack, you probably can't use them. House hacking is using the benefits of being a home owner to start your real estate business. If you are otherwise established in life and have a pool of money to invest, start out right.
There are no absolutes in this discussion.
