I was talking with a friend of mine who owns a Property Management co. in California. She was telling me land trusts aren’t any good in California and trying to protect your assets with LLC’s aren’t any good because they require too many other things in contracts that make them not worth the time. I had a gut feeling that she was speaking from experience, a bad one to be exact. But I wanted to hear from other people who invest or have invested in California before I go and believe hear say. I currently own no rentals but plan to after I wholesale a few deals and master wholesaling, short sales, and foreclosures. So I just wanted a heads up on how to protect in CA before I even acquire rentals.
Your friend is correct. Buy a big insurance policy and revisit the question when you have a net worth of 5-10 million. Use the LLC money to grow your business.
ok thanks. So for every rental I own, I will have to get a separate policy for each? That sounds very expensive, so do I jack up rental prices to include insurance payments? Or are insurance policies like annual fees?
Not sure what your friend meant when she said land trusts “aren’t any good in California”. Land trusts are not recognized by statute in CA but they are recognized as a title holding vehicle for real estate. (Legal distinction) Think of an LLC as a name change. When you create a business entity you are changing the way you hold yourself out to those with whom you conduct business. A LLC will not complicate your life unless you have difficulty managing more than one checking account and are not comfortable changing your rental agreements etc. from John to ABC LLC as the property owner. I have several LLCs and they are extremely easy to own and operate. Some attorneys can complicate running an LLC because it is in the Attorney’s best interest i.e., if you are confused you will need your attorney for life.
In your situation I do not see a need for an LLC until you begin making some money. If you forsee a lot of expenses in the near future you might consider a corporation for your short term investing. If you are not a real estate agent or broker etc., you may not be able to deduct these expenses as an individual.
Just get a 1-2 million dollar umbrella policy. That will cover all your properties. Speak with your insurance agent to figure out what is best for you.