I am looking for advice on whether or not I should set up an LLC. Currently, I have the property I live in, one rental house and I am getting ready to close on another property that I will keep to rent. If I set up an LLC, will it protect me from being sued if something ever happens at one of my rental properties?
Probably not.
I don’t think it’s going to protect you at all. In my opinion, setting up an LLC is grossly overrated. It is just guru-talk, but not practical. Have good liability insurance. Don’t have a shoddy rental. Respond immediately to any red-flag dangers on your property. Jump, when the tenant calls about a problem. You’ll have happy tenants and less chance of them suing you.
When you get up into the big bucks and multiple units, you will have the money to seek out legal advice to better protect your assets.
Good luck, and forge on.
Furnishedowner
Hi,
I believe you should get an LLC. This is a real business
with real business consequences like getting sued and
opening your personal assets to potential problems.
With that said, the bigger benefit are all the deductions
you can claim as a business owner. Things like start-up
expenses, home office, meal and travel, etc can and will
save you money. Now, you don’t have to be incorporated to
claim deductions but it helps prove to the IRS that you’re
really in business and not just running a hobby.
You can set one up real fast online by going through a
company like Nolo or www.llc.com. There are MANY others.
The key for me have been hiring a professional to help
with tax matters. An accountant, either an EA (enrolled agent)
or CPA can assist you with all your deductions and necessary
record keeping.
If for no other reason, start an LLC for the experience.
It will teach you how to be a real business man verses
someone who just reads and talks about it. :cool
I hope this helps!
The LLC will offer very little separation from your personal and business assets if you are managing the LLC and/or doing the repairs and maintenance yourself. You have virtually no limited liability if you go with a single member LLC.
Kelly,
I would disagree with your position that you should do it just because you can, or because it gives you experience in doing it. I don’t buy CDs just to have the experience in buying them and tying up my money for a certain amount of time. I do it for investment purposes. I don’t lease a brand new BMW because I should have the experience in leasing a BMW, especially when I don’t need or want a BMW.
Perhaps he is using his Self Directed IRA for investing, or He’s got a financial Partner who is investing with him. Perhaps he already has a living trust that holds one of his properties and he’s thinking about transferring it out of the trust into the LLC.
Well as you can see, simply saying Yes DO IT! DO IT NOW! DO IT for the EXPERIENCE! DOOOOO IT! is misleading and can cause lieberman1 more headache then he deserves.
Ashon,
What’s your learning edge? Where are you pushing the envelope of your learning?
What are you into right now? :bobble
Learning is like life-an evolution from something small to something bigger.
We grow as people over time, and a big part of that is based on what we’re
learning AND doing.
Experience is the best teacher. All the “How To Books” are no substitute for
experience. It seems to me that you analyze things to much and pull out the
pieces that best support your point without giving full consideration to everything.
What’s the worst case scenerio of starting an LLC?
The likely and probable end result of him starting an LLC is he will run his real estate
business like a business. He will learn! He will make more money!
The likely and probable end result of comparing apples to oranges as you have is
50 years on the job and a gold watch!
Which life do you want…does ANYONE reading this want? :cool
The worst case is he creates an LLC such that he increases his expenses and wastes resources on maintaining the formality of an LLC or he creates a tax situation that hurts him. That is a very likely scenario since he can’t afford quality counsel and most of the DIY/self-help LLC material is not very helpful or just plain wrong.
The time and money spent on an LLC are better spent building the business. Having an LLC will not make someone run it like a business. They will run like a business because that is the way they do things, LLC or not.
Lieberman1,
Well there you have it…the reasons to AND not to start an LLC.
I hope this has helped your decision…
I guess one could go through boot camp “just for the experience.”
see the world
be all you can be
but if it’s a business, it pays to make smart business decisions; not dumb, expensive ones “just for the experience.”
You incorporate to avoid liability or gain asset protection. If you can insure against the liability on a reasonable basis then you need to question the cost of incorporating to avoid liability.
As an asset protection device, an LLC can be excellent particularly if the LLC is more than four years old. The protection is only good against claims that don’t involve the assets that are owned by the LLC. If a tenant falls and gets a judgment (not all that likely these days), then any assets in the LLC will be liable to pay the judgment. So you don’t want all your eggs (houses, etc.) in the same LLC basket.
On the other hand if the judgment is from a house not owned by the LLC or a judgment against you individually from something unrelated, like a traffic accident, then the LLC can be very effective. Membership interests (like stock) in an LLC cannot be taken away unlike stock in a corporation. All the creditor can get is a charging order to get income that will not be paid out.
As one person pointed out, there are times when you can have personal liability that will not shield you if both you and the LLC are involved in a transaction.
Whether you are a sole owner or not, normally limited liability will apply IF you follow the rules and keep the LLC operating just like you would if there were 5 owners.
I have defended LLCs and owners successfully numerous times. I have also gone through trusts and improperly documented LLCs and corporations like a hot knife through butter. All depends on doing it correctly.
Are you doing anything differently since Olmstead Vs. FTC? Have you ever encountered a plaintiff/creditor sophisticated enough to use what Chris Riser calls a “charging order with teeth”? If so, please share what you can.
I also think so.thanks