Greetings Smart People! :smile
I have a Single Family Home (in my name) that I want to rent out. Should I consider moving this property to an LLC; is that possible to do if it’s already in my name and not in a business entity name?
I’m a little confused on how to get started, and would really appreciate your help.
Best Regards,
Mike
Get a liability insurance policy, maintain the property well, follow good business practices and you will have few, if any, problems. When you have a net worth of 5-10 M, you will have the resources and the need to do property asset protection planning.
The decision to form a LLC depends on your risk tolerance level, the general nature of the property, the type of tenants, and the extent of your other assets. I will typically recommend a person create a LLC for rental property to protect themselves from the liabilities associated with the real estate and the real estate from the owner’s liabilities i.e., you or your children are involved in a car accident. There is an old saying “I would rather have it and not need it then need it and not have it”. I have recently heard from many people whom I met two and three years ago that now desire the protection of an LLC. Some of these investors have one or two properties underwater and the bank is threatening foreclosure plus a deficiency judgment. These people would like to place their performing properties into LLCs to protect them from the bank and to take them out of their name so they can possibly work out a short sale. The problem – too late for asset protection because the investor is under a reasonable degree of certainty they will be involved in legal action.
Thanks for the great information! Here’s a follow up question I hope you could answer.
My home is in my personal name, and I need to get a Business Licenses and Rental License from the city.
Should I create an LLC for the purpose of collecting the rent? Or does that not make sense at this point in time?
I wouldn’t because the costs and hassles outweigh the benefits, IMO. Unless you have significant, non-RE holdings or other businesses, the liability separation of the LLC isn’t needed as insurance will pay most judgments and defend a bogus suit.
Do you plan to acquire additional real estate? I recommend establishing LLCs for rental property. Some of my clients desire one LLC for each property while others prefer to group their properties based on equity values, tenants, and property types. I prefer to group my properties on the criteria I described. Why create an LLC to hold your property – added protection because you can’t predict the future and insurance will not cover everything notably at hot item is black mold or lead paint. I have a number of clients who are defending these cases out of their own pocket. Again this always comes down to what is your personal risk tolerance level. I view a LLC as inexpensive insurance. When set up properly, you can limit your annual maintenance costs to the state filing fees. I prefer to work with LLCs that are set up as disregarded tax entities to avoid filing federal tax returns. However, do not make the false assumption that you do not need insurance. Insurance is important and must be maintained regardless of how the property is held.