LLC (by Brandolph [WA]) Aug 8, 2016 1:39 PM
LLC (by Jim in O C [CA]) Aug 8, 2016 1:50 PM
LLC (by Jeff [CO]) Aug 8, 2016 1:57 PM
LLC (by Nicole [PA]) Aug 8, 2016 2:20 PM
LLC (by WMH [NC]) Aug 8, 2016 3:02 PM
LLC (by Gary [OK]) Aug 8, 2016 4:44 PM
LLC (by Mike45 [NV]) Aug 8, 2016 4:47 PM
LLC (by TAz [CT]) Aug 8, 2016 5:52 PM
LLC (by Brandolph [WA]) Aug 8, 2016 6:20 PM
LLC (by RB [MI]) Aug 8, 2016 6:52 PM
LLC (by Ray-N-Pa [PA]) Aug 8, 2016 7:15 PM
LLC (by Deanna [TX]) Aug 8, 2016 7:16 PM
LLC (by Vee [OH]) Aug 9, 2016 4:36 AM
LLC (by razorback_tim [AR]) Aug 9, 2016 5:30 AM
LLC (by Jeff [CO]) Aug 9, 2016 6:15 AM
LLC (by John... [MI]) Aug 9, 2016 8:35 AM
LLC (by John... [MI]) Aug 9, 2016 9:10 AM
LLC (by Deanna [TX]) Aug 9, 2016 1:08 PM
LLC (by John... [MI]) Aug 9, 2016 1:21 PM
LLC (by Mike45 [NV]) Aug 10, 2016 3:41 PM
LLC (by Brandolph [WA]) Posted on: Aug 8, 2016 1:39 PM Message:
Hi there! I am about to purchase my first investment house (I will rent it out).
My question is: Do people usually put it in an LLC? (Limited liability company) for liability protection? Or, just leave it in their personal names.
Someone recommended doing the LLC route, but I wanted to run it by all of you since you have so much experience! And I'm a newbie.
Thank you so much for your input! --73.11.xxx.xxx |
LLC (by Jim in O C [CA]) Posted on: Aug 8, 2016 1:50 PM Message:
The LLC does not provide much protection if any. Carry your regular liability insurance and an umbrella policy for $1million or more. I have 6 free and clear houses and carry $3 million.
Join a local landlord association to get all your states forms. My local association costs $79 with no added charges. --108.196.xxx.xxx |
LLC (by Jeff [CO]) Posted on: Aug 8, 2016 1:57 PM Message:
An LLC is a great idea. It helps to protect you from personal lawsuits and liability. Make sure that you follow the rules regarding LLCs. --174.47.xxx.x |
LLC (by Nicole [PA]) Posted on: Aug 8, 2016 2:20 PM Message:
I disagree with experienced Jeff above and I also have a lot of experience. For me personally, a LLC is a waste of money.
What this means is that you need SPECIFIC PAID FOR legal advice regarding YOUR individual circumstances. --72.70.xxx.xxx |
LLC (by WMH [NC]) Posted on: Aug 8, 2016 3:02 PM Message:
We did this for 12 years without an LLC. Our attorney who originally advised AGAINST an LLC said that with our growth it wasn't a bad idea after all. So now we have two LLCs (it worked geographically and from an inheritance standpoint!) and we'll see. --173.22.xx.xx |
LLC (by Gary [OK]) Posted on: Aug 8, 2016 4:44 PM Message:
Brandolph, welcome aboard. This fourm has a ton of experience to share. Before this thread dies you may see a lot of views from both sides of the road. We are using an umbrella policy. Educate yourself on LLCs. There are does/don't and can/can't you need to know but that applies to running your business in a LLC or not. And as Nicole said you may need advice for your individual circumstances. --98.184.xxx.xxx |
LLC (by Mike45 [NV]) Posted on: Aug 8, 2016 4:47 PM Message:
OK, LLCs again.
I do not think that an LLC provides a hands-on owner with any protection from a competent lawyer who represents a severely injured tenant or visitor, unless you are willing to commit perjury and go to a lot of trouble to hide things. Of course, this presupposes a catastrophic injury which involves monetary damages in the 6 figures or higher. For lesser injuries, you should have plenty of insurance to cover the damages without worrying about asset-protection.
If you are active in managing your properties, you can be held personally liable for anything that goes wrong, even if you have an LLC. If the Tenant electrocutes himself, it was you, not your LLC, who did the wiring work or who did not install the GFIC outlet or you who negligently selected the incompetent handyman instead of a professional electrician. If there is a good attorney on the other side, you will be sued personally. The LLC will also be sued, but if YOU as the active manager were negligent for what you did or did not do, you should be named in the lawsuit. And if you were the one who was personally negligent, the judgment should be against you individually as well as against the LLC.
Some people say “put every property in a separate LLC so that only the equity in the property in question is vulnerable.” Even if all of your properties are in separate LLCs, once your personal liability has been established, all of the equity in all of your LLCs will be reachable by the injured tenant to satisfy a judgment against you. Because YOU own all of those LLCs and YOU are personally liable. Just like if I own stock in Microsoft and Apple – if I am liable for an injury in one of my rentals, the stock I own can be levied against, sold and the money paid over to the injured party.
If you have a separate corporation, ABC Property Management, Inc., doing your management, then the injured tenant can sue both the LLC and the management company, and perhaps get a judgment against both. Who owns the management corporation? Is it adequately capitalized? Can the corporate veil be pierced? Are you actively managing the management company, and are you the one who affirmatively decided to use a handyman without permits instead of a qualified electrician? Are you, the one who made that decision, personally liable for the damages, along with your “employer” the management company?
Of course, if the LL (“Landlord”) were to falsely testify at some hearing that he had no assets, maybe the person suing him would not discover that the LL really owned a bunch of rental units – I don’t know if the LL’s name appears on any public records – but I don’t commit perjury.
So LLCs do not provide protection to a hands-on landlord. For passive owners, who have a management company do all of the work, that is a different story.
I recommend lots of insurance instead of trying to hide things.
But this is just my personal opinion. Many people disagree with me. Especially those who go to seminars and pay good money to some talking head who extols the virtues of LLCs, and who sells LLC packages.
--76.3.xxx.xxx |
LLC (by TAz [CT]) Posted on: Aug 8, 2016 5:52 PM Message:
Welcome to LL'ing. I agree with Mike45, but mostly it comes down to how active you are going to be with the property. If you are going to be actively involved, then I won't suggest doing an LLC. I had an LLC, but decided to get rid of it. Here are some thoughts: 1) if you sign a mortgage and then put the quit claim the property into an LLC, you could trigger a due on sale clause. If you don't know how to set up an LLC and transfer the property with a quit claim deed, then you are going to have to pay for that. 2) Once you get the property transferred if you need to evict a bad tenant, you legally cannot represent the LLC in court because you are not an attorney (even though you own the business). This is why I don't have an LLC any longer. 3) if you don't keep the LLC separate and run it separately with a business account, you risk piercing the corporate veil and tenants getting to your personal property any way. 4) you have the ongoing expense of operating the LLC, attorneys, and other business expenses. Option #2 carry the umbrella insurance. --32.211.xxx.x |
LLC (by Brandolph [WA]) Posted on: Aug 8, 2016 6:20 PM Message:
This is Brandolph, the person who wrote the question to this thread.
I am reading every posting. Everyone is so kind to take the time to share their experience and opinion.
I will read every post!!
Thank you sooo much!! --73.11.xxx.xxx |
LLC (by RB [MI]) Posted on: Aug 8, 2016 6:52 PM Message:
Not here.
And I do not lose any sleep over it. (unconventional) --24.180.xxx.x |
LLC (by Ray-N-Pa [PA]) Posted on: Aug 8, 2016 7:15 PM Message:
When you are starting out, you probably don't need a LLC.....if you stay at it long enough, a LLC is just one tool in a toolbox.
I have multiple LLCs, but they are not for everyone and eacjh one has a separate purpose. --72.23.xxx.xxx |
LLC (by Deanna [TX]) Posted on: Aug 8, 2016 7:16 PM Message:
We're on our third LLC right now... it costs about $325 for filing fees, and I need to submit two pieces of paper to the State every year saying "I'm still President" and "This is why we're not paying franchise tax this year." If DH had his druthers, he'd have each house in its own LLC box...
One of the things that makes him like the LLC's is that they protect the properties from *his* day job, which is very litigious. We have single-member LLC's in my name only, but if anything ever happened to "us", half of the real estate is his as our joint property...
It's been very difficult to get "big finance" to accept the LLC's as their own entities, though. Checking accounts are no problem. But for example, when we were going through a period of great growth, we took a loan out against a paid-off house owned by the LLC. But just having the house as collateral wasn't sufficient. I had to personally guarantee the loan myself. And because I didn't have a W2 job, DH had to personally guarantee me, when we were trying to keep him totally removed from all the biz stuff. Likewise, I had applied for a Lowe's credit card in the biz name to try and get the discount that went along with it... but got declined for "lack of revolving credit." --96.46.xxx.xx |
LLC (by Vee [OH]) Posted on: Aug 9, 2016 4:36 AM Message:
Lots of info here and prolly other places, once you have your law degree it will begin to make sense, in the meantime print out your local and state tenant laws - this is most important before opening for business, a local landlord group is helpful to get a grip on how the courts work which you will be in taking care of tenant business - screen better than you do your kids overnight guests. --76.188.xxx.xxx |
LLC (by razorback_tim [AR]) Posted on: Aug 9, 2016 5:30 AM Message:
As others have said, if you are an active manager a LLC may not do much for you from a liability viewpoint. We're all responsible for our own torts whether those occur within an LLC or not. However, I do like LLC's for other reasons. For partnerships, a good operating agreement will dictate the terms of the partnership, including the break-up via a buy/sell clause. This may be the most important part of a partnership. Even for a single member LLC I like having the properties titled in the LLC and the leases between the LLC and the tenant. It makes it a whole lot easier to be the manager. There have been some good points brought up about representing yourself in legal proceedings. Here I can represent the LLC in small claims court but not in an eviction proceeding, but I wouldn't represent myself in the eviction here even without the LLC. So for me there's no difference. For you there may be. --166.137.xxx.xx |
LLC (by Jeff [CO]) Posted on: Aug 9, 2016 6:15 AM Message:
Save yourself a couple of hundred bucks and expose yourself to much more liability.
Doesn't make sense to me, but what you do is no one's business but your own. --174.47.xxx.x |
LLC (by John... [MI]) Posted on: Aug 9, 2016 8:35 AM Message:
Very much agree with what Mike45 said -- very well said!
Remember that LLCs were originally designed to "limit the liability" of NON-MANAGING members. People see the name and think "Great! This will limit my liability!" when it simply isn't accurate for managing members.
No matter what, regardless of if you do an LLC or not, get a large ($1 million when starting out probably) umbrella insurance policy. That is your first line of defense.
Then worry about other such things.
Also note that, in many areas, if the unit is owned by an LLC, then you cannot represent yourself in court with something as simply as filing for eviction. You'd have to pay a lawyer to represent the LLC for you.
- John...
--207.241.xxx.xxx |
LLC (by John... [MI]) Posted on: Aug 9, 2016 9:10 AM Message:
Jeff: You say that this is saving a couple of hundred bucks and "exposing yourself to much more liability."
That's the disagreement. Many would argue that you absolutely do NOT expose yourself to any difference in liability by using a single-member LLC.
There are a couple of exceptions in some states -- but the reality is that, in most cases, you simply aren't exposing yourself to any less liability by using an LLC when you are the only member (or a managing member with multiple members).
- John...
--207.241.xxx.xxx |
LLC (by Deanna [TX]) Posted on: Aug 9, 2016 1:08 PM Message:
I don't know if TX is different, but the way it was explained to me was that if I'm acting as Deanna(TX), President of Happy Houses, LLC, then my liability is limited to Happy Houses, LLC. My real estate in Spiffy Houses, LLC and Sparkly Houses, LLC is protected, as well as my personal stuff. So it's important that I make clear all my actions are performed as President, not as me personally, so that I establish that operational history.
If I formed an LLC on paper, but then failed to treat it as a proper biz, I would definitely not expect it to give me any degree of protection. --96.46.xxx.xx |
LLC (by John... [MI]) Posted on: Aug 9, 2016 1:21 PM Message:
Deanna: That is often how it is explained to people, but rarely how it works in reality, IMO. What happens is that they don't just sue the LLC. They sue the LLC and you personally for actions taken. In which case, your liability is not limited to only things held within the one LLC.
In other words, a decent attorney at all will find a way to hold you personally responsible for your actions.
Think about it with this hypothetical: You own a rental house on ABC Drive that you've got under ABC LLC. You're over there one day because the tenant reported a small drain leak under the counter and you want to check it out. You go over, see that it is just a loose nut on the drain, tighten it up by hand, and all is well! The tenant thanks you for being so prompt and taking care of the problem. You are then walking out the door and the tenant says "Oh, by the way, while you're here -- I noticed that the railing on the outside steps is getting a little loose or something -- it doesn't seem to be attached to the house very well." You say thanks and that you'll check it out. You check it on your way out, agree that it is coming loose, and make a mental note to have it fixed soon.
Then you get busy with life. A few other things come up. You forget to send anyone over to fix it and you just don't have time yourself. 3 weeks go by.
Then a friend coming to visit your tenant grabs onto the railing to go up the steps, it pulls right out of the side of the house, and she falls to the ground -- breaking her hip. It is incredibly painful.
Now, SOME people think that the LLC is going to protect them. That they can't sue for anything beyond what is owned by that LLC (which is just that one rental). But the reality is that even an average lawyer is going to sue the LLC and you personally. They are going to argue that your personal negligence in that situation caused the injury and pain and suffering to that guest. You were informed of a problem personally -- and neglected to do anything about it in a timely manner -- creating a dangerous situation.
They will, in my opinion, fairly easily pierce that LLC veil because of your personal negligence. It wasn't that the LLC didn't fix the railing. It was that YOU didn't take action to make sure the railing was fixed and/or safe.
They would then get a judgement against both the LLC and you personally -- and start attaching any assets that you had to pay that off. And that is where a good lawyer will then argue that you own lots of other properties through other LLCs too -- so those should be able to be attached for proper payment.
Maybe you'd be fine. Maybe you wouldn't. But it very much is not anywhere near as easy as "I was acting as President of ABC LLC at the time, so my personal negligence doesn't matter."
- John...
--207.241.xxx.xxx |
LLC (by Mike45 [NV]) Posted on: Aug 10, 2016 3:41 PM Message:
John, great explanation. --76.3.xxx.xxx |
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