BLL has already answered your LLC question. Some state’s LLC laws have been well tested in court while others have not. How well a particular state’s LLC law will limit your personal liability might depend upon the case history in your state.
I was invested in OH from 1986 to 2001. In all that time, the local economy was stagnant. Price appreciation lagged behind the rest of the country, I started at the top market rent and could never raise the rent – the market would not support it. In fifteen years, my cash flow never improved year over year. I left that market to invest in other more promising areas.
For each rental I own, I purchase a rental dwelling policy with a $1 million liability rider. In all my time in the trenches, I have never been sued. I have never had a tenant file an insurance claim against my policy either.
If you manage your rental business professionally, make repairs in timely fashion, treat everyone fairly and equally, and, have sound and defendable tenant qualification criteria, chances of a lawsuit are small. The chances of losing a lawsuit are slim to none. In the unlikely event of a lawsuit, adequate liability insurance is probably good enough.
SC is not a very litigous state, nor are the other states where I am invested. So I feel comfortable operating without an LLC. If I happened to be invested in an area where lawsuits are filed at the drop of a pin, then I might feel differently as might my attorney. My attorney feels that trusts and LLCs have a place in an orderly estate plan where probate avoidance, continuity of business operations, and an orderly transfer of wealth are the primary focus. His concern is that we eliminate or minimize federal estate taxes, maximize stepped up basis, and avoid ancillary probate for all those out of state properties. “Asset protection” is not even in the discussion unless I bring it up.
Yes hire a mentor.. Make sure youre hiring the guy and not the guys assistants... Also make sure he or she understands your world of investing.. I hate rentals so I wouldnt be a canidate... Theyre out there just look.
Did I mention that if you make friends with the successful landlords at your local REIA, they will be happy to help you FOR FREE? Don’t ask them for “mentoring”, just ask for a hand on whatever problem you need help.
They are a lot more expensive then that... They will suck you in to buy this and that and that other thing and before you know it youll have spent 10k... Rule: go to them without your wallet or credit cards...ALWAYS..
Ridiculous! I have been going to my local REIA for years and haven’t bought a single thing (except a REIA polo shirt for $15). Many REIAs do have speakers who offer their products for sale, but I am not a chump that can’t tell guru hype from reality. I carry my wallet with my credit cards to every REIA meeting and haven’t had a single vendor get my money yet.
However, for that $100 membership fee, I did meet a very successful landlord that took me under her wing and taught me all the ins and outs of being a landlord (for free). That landlord saved me tens of thousands of dollars in mistakes. In addition, I have met many disgruntled and desperate landlords there and have picked up hundreds of thousands of dollars in equity and thousands of dollars in monthly cash flow from the rentals I have bought from them. I also have had a couple of occassions when I had too many deals come together and I sold a couple of those deals to REIA members.
So, what’s my return on that $100 REIA membership fee? Incalculable!
For each rental I own, I purchase a rental dwelling policy with a $1 million liability rider. In all my time in the trenches, I have never been sued. I have never had a tenant file an insurance claim against my policy either.
That’s interesting, because I don’t know a single large landlord that hasn’t been sued. Again, I would like to point out that insurance doesn’t normally cover mold, lead paint, asbestos - i.e. some of the big dollar things tenants sue for.
As a shout out to propertymanager, as he seems to be the rentals guy here, is this also the course of action you recommend?
It’s your life, what are YOUR GOALS? You need to determine your goals and then develop a plan that will help you meet those goals. Here’s what YOU said in an earlier post:
Cashflow is my primary objective, and thus duplexes up to larger apartment complexes will be my focus. I'm not really into the flipping or other capital gains investing quite nearly as much.
I guess I am not that large a landlord or maybe I have not been noticed. I don’t allow those situations you note to develop. I purposely avoid the lead paint and asbestos issues in my residential dwelling units by only buying property built since 1980. I have never had a mold issue in my current properties. I don’t purchase any property that may have a mold issue. My property managers conduct regular maintenance inspections and we make prompt repairs. Mold needs a wet environment to develop and grow. If there is evidence of any water infiltration, we take care of it immediately. We don’t give mold a chance.
I purposely avoid the lead paint and asbestos issues in my residential dwelling units by only buying property built since 1980.
That would be nice. However, almost every rental property that will cash flow (even when bought at a HUGE discount) was built well before 1980 (a lot of them before 1880).
Well, it depends upon your market. I find that I can buy properties for less than $100K and still cash flow in my markets. I don’t buy 10 a year as you do, because I don’t get as many opportunities in my property segment.
The exact situation you describe for your market why I liquidated my OH holdings in 2001. I could not purchase cash flowing property built since 1980 and get a decent return on investment.