(MO)

Hello all, having 3 rental homes , should I LLC or not , cons and pros. If yes to LLC one for each house or all 3 under one. Does having LLC cost me more for home insurance or other expenses that goes with LLC

Thanks

The biggest pro today for an LLC is the new tax law greatly benefits pass through businesses and most especially landlords.

LLCs in Missouri are very inexpensive to set up and easy to maintain. The only negative I can think of is we have to hire an attorney to represent us in court, so if you're a DIY eviction person you can't do that any more. Otherwise, I think the mildly decent anonymity and legal protection it may provide is worth it. Set one up on the Secretary of State's website in about 15 minutes. The hardest part is coming up with a name that hasn't been taken.

SID:

An LLC in NC can represent themselves in small claims but if the tenant appeals it goes to District Court and there we must have legal representation.

Pre lawsuit: I don't need to put anything in an LLC. I have a lot of insurance.

Post lawsuit: Every property including the sandcastle in the fish tank is an LLC. Why the $@?' do we even have insurance?

Homer: If it's a single-member LLC it's considered a pass-through entity and you just report it on your own tax return.

Rents Due,

What is your GOAL with the LLC? Contrary to popular belief, LLCs are NOT DESIGNED to "limit the liability" of managing members. Therefore, in most states, a single-member LLC provides no liability protection. This idea that you can put a house in an LLC, be negligent in some way, and protect the rest of your assets is a farce.

Also, from what I've seen so far, the new changes to the tax law are not impacted by having an LLC or not. Owning them in your name or having them under an LLC should not make a difference at tax time.

If you're going to do it anyhow, then so be it. But I recommend that your first step is a large umbrella insurance policy of $1,000,000 (or more depending on your financial status). THEN worry about other entities.

If you're looking at an LLC before a personal umbrella policy (like many people do), then I think you're going about it the wrong way and making incorrect assumptions about what LLCs can provide.

- John...

I'd probably just form one LLC for all three.

Matt an LLC is a legal entity. For example if your tenant slips and falls their attorney will sue the LLC. They will try to sue you as well, but if your company is set up properly and run properly they won't be able to. Your insurance will also be in the company name, so they will be involved in the lawsuit as well.

An LLC is not magic though, they need to be properly set up and run. Ie each LLC needs its own check book to run its own funds and needs to file tax returns every year. If you run everything out of one check book or even worse out of your personal checking account an attorney will be able to pierce the corporate vial.

This is why I'm not a fan of having each house in its own LLC unless you only plan on ever owning one or two. Each LLC between various state fees and tax prep costs me about $2k a year to properly maintain.

I have things set up a little different...

In Florida you really can not hide ownership with LLCs, etc...

CPA, suggested that I consider forming a LandLord LLC. Not against the law as long as I only manage properties that I own. Bounced it off the Family attorney and my local LL/T attorney, neither found fault. So, the rental properties are leased to the Management,LLC and the Mgmt, LLC is listed as the Landlord on all residential leases. Both I(as property owner) and the Mgmt.,LLC as the Landlord carry separate Liability policies.

Each property has it's own set of books/accounting, however all rental income and expenses are run through the LL/Mgmt, LLC checking account.

Works for me.

Chris: Why do you think the attorney wouldn't be able to sue you too personally? Since you'd be the cause of the negligence.

That is what so many people don't get about single-member LLCs. If it is a SMLLC, then YOU are the only responsible manager. Therefore, if you are negligent in something, then you absolutely can be included in the lawsuit no matter how good you were with the LLC.

A quick example... Your LLC owns your rental. The tenant notifies you that there is a problem with the front steps -- something seems lose. You tell them that you'll check it out soon, but then get busy and a week goes by. In the meantime, someone going to visit the tenant steps on the front steps and it breaks loose. They fall and break their hip -- they'll need traction for weeks.

Any decent lawyer is going to sue your LLC and YOU PERSONALLY for that negligence. The LLC is not going to protect the rest of your assets because you were personally negligent in that action.

That is why an LLC does not limit liability like people assume because of the name. Again, they were intended to have multiple members of both managing and non-managing types -- with limited liability for the non-managing members so they wouldn't be held accountable for the actions of the managing members that were outside of their control.

Sure, SOME states have done a bit to make it better for SMLLCs. But, in most, it doesn't really provide that liability protection -- because it was never INTENDED to do so.

- John...

Note that you MAY be able to do some tricks with multiple LLCs that own each other and other such crap -- but my view on that is that if you're going to go to THAT level, then go ahead and form a proper entity, not an LLC.

- John...

JOHN:

You are correct about single vs multi partner LLC as far as protection. There are ways to create a multi giving the a partner a VERY limited interest with the advantage that you do get asset protection as well as the flexibility to shape the business as you want to.

Agreed. My point remains though: most of the people that just drop in asking about making an LLC to protect themselves (like this post) aren't really doing themselves any good. They aren't setting up some complex system like you mentioned. And, in most cases, very few LLs here even recommend that. Most of them are just like "Yeah, easy to set up in your state; go for it!" because they are under the same misinformation thinking that the LLC is protecting them. :(

I think WAY too many people recommend LLCs. If people want to do it "just as an extra layer" AFTER they have done an umbrella policy and such, then so be it. But, in my opinion, once you've done the umbrella policy, it just isn't worth it in most states to do the LLC -- because of things like losing the ability to represent yourself (again, in most areas).

- John...

Agreed -- but it is MUCH better "protection" than a SMLLC in most cases. That's the point I'm trying to get across here.

The "holy grail" is FAR from an LLC and/or umbrella policy. I'm just saying that an umbrella policy should be a priority well above LLC on the list...

- John...

Why not put the properties into a trust and then have a LCC manage the places.