Hello to all,
I’m in the process of buying a home for my family to live in which has 2 extra apartments which we will be renting out. What I wanted to know is:
Thanks in advance!
Darius Studdard
Depends upon your goals.
If your goal is to protect your property from attack in the event of a lawsuit from one of your tenants, holding the property in a business entity will not shield your property any more than holding it in your own name.
What the business entity does do for you is limit your liability from your tenant’s lawsuit to only those assets held by the entity. In other words, your personal assets (bank accounts and other property you hold in your own name) will be sheltered from liability exposure when your tenant sues your business entity. In the worst possible outcome, you lose the property owned by the business entity but not everything you own in your own name.
On the other hand, let’s say you are at fault in an automobile accident in which someone is killed, and you are then sued personally. Everything you own in your own name is at risk. A properly structured and maintained business entity could shield the assets held by the entity from liability exposure when you are sued personally.
The answers to the rest of your questions should be addressed to your attorney who may be in a better position to suggest the best business entity for you when your other assets and financial posture are taken into consideration.
A corporation is not always the best solution for every scenario.
thanks for the info! anyone else have any insight?
no one should ever own rental property in their own name.
So there’s no chance that a lawsuit can get past your entity? I thought the worst possible outcome is that the courts ‘pierce the corporate veil’ and DO go after your personal property, no?
Of course they can. But that’s not what he said.
The entity creates a barrier between the company’s assets and your personal assets. The companies assets are always at risk from company activities. The entity separates your personal assets from that risk.
Likewise, the company is not liable for your personal debts. The assets within the entity are protected in the event you rear-end someone, as in Dave’s example. (Well, LLC assets are protected, but not corporate assets in this case)
You are not personally liable for corporate debts as long as you don’t: sign something making you liable, mismanage the company or operate the entity in a manner that pierces the veil (like paying personal bills out of the company checkbook). Generally the veil of a properly operated corp or LLC cannot be easily pierced. Regardless, your personal assets are better protected with the entity than without.
Now, you can still be personally sued, as property manager for example, if you personally didn’t see to it that that loose board was repaired timely, violation of fair housing laws, etc. The entity will not keep you from being personally sued.
So why bother? Because for contingency lawyers time is money. If they have to take time to pierce the veil, only to find that you have no personal assets in your name or the best they can get is a charging order that is worthless, it cost them time. And makes it increasingly likely that they won’t take the case in the first place.
The first strategy for winning a fight is to try and avoid it in the first place.
As much as possible, seperate yourself from your assets and the assets from the risk.
Wow, great response; I was mostly posting that rebuttal because I see a lot of postings here that make it seem like as soon as you sign those papers, your personal stuff is immediately out of reach, which isn’t always the case (mingling personal/entity funds, like you mentioned). Anyways, that was a very informative post, thanks.
what if i already got a 4 family house, and one of the units is my primary residence? whats the best way to take this house off of my name? and what happens to the mortgage? it’s made out in a way that it states that this is my primary residence.
thanks.
you could place the property in trust, with LLC as beneficiary.
you could deed the property to an LLC and become a tenant like the other 3, paying rent to the LLC each month.
either way takes the property out of your name.
thanks.
would the mortgage be untouched if i did any of these two things?
to get full protection, who should i elect as a trustee?
“touched” ? no comprendo tu pregunta.
LLC as beneficiary is best.
what i mean is: what happens to the mortgage when i put the house in a land trust? would the lender be against something like this?
technically, yes, very much so.
but I’ve never seen a lender call a performing note for this reason.