All Forum Posts by: Joshuam R.

There is no need to put single-family into an LLC. Keep $300,000 liability on each house and have a $1 million umbrellas policy in place over all of your property for protection. Plus, moving it to an LLC is considered a sale and the note is due in full at that time.

Thank you guys for your help and advice!  Looks like keeping them completely separate is the safe and sure bet. 

Scott:

I think you did a good job summarizing the issues. I would add a few thoughts for you.

Where most people get sidetracked is they want to get a conventional mortgage AND have the property in an LLC. Fannie Mae will not allow this. So, some will get the mortgage in their name and then move it to an LLC which technically violates the due on sale clause. Usually the bank won't call the note, but theoretically they could so this adds risk of a different kind. While not a lawyer myself, I could see one arguing that with the mortgage in your personal name, you are effectively comingling funds. This situation also creates additional problems if later on someone wants to refi. If the property is in an LLC, your options are more limited.

I've heard John Hyre describe a situation where a NYC cab company put one taxi cab each in its own LLC. After an accident the company got sued. The judge threw out all of the LLCs because it appeared the LLCs were created simply to shield liability and that an individual cab was not a viable company. In other words, there are more ways to pierce the corporate veil than just what you've listed. Each LLC must past the sniff test as a real business operation.

Finally, I would say there is a cost / benefit and risk / reward to any decision. On this forum I've seen recent college grads that don't have two nickels to rub together out forming LLCs. No attorney in their right mind is going to go after them. Most attorneys are lazy. They will go after the low-hanging fruit. Typically they don't go beyond what insurance offers. If you run your properties correctly and legally, your property insurance plus umbrella insurance is a far more enticing target than trying to get a jury to force you to sell you personal residence to pay off a lawsuit. If my name were Elon Musk, I'd definitely put everything in an LLC as I'm a huge target. I sleep very well at night without having my single family rent properties in an LLC, but I run my properties correctly and have excellent insurance.

Your solution is what you said you "definitely don't want to do".  Why?  You don't lose your equity if sell,...you just move it to a Market/State where it is more favorable to be a landlord.

REI is a business. Like any and every other business, if your clients (tenants in this case) don't pay their bills, you stop selling your product/service to them. If the product/service that is your business isn't making you money, you either get out of that business, change your market and/or product/service, or go bankrupt.

You have the same three choices here.  Thus far, your choice has been the 4th one...none of the above.

@Joshuam R. They are under my personal! Thank you for your reply. What kind of institution are you getting your HELOCs through? Trying to figure out how best to narrow down my search.