Do You NEED an LLC for Rental Property Investing?
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- Опубліковано 31 тра 2024
- Do you need an LLC for rental property investing? Ask some investors, and they’ll hit back with a resounding “of course!” But ask another group of investors, and they’ll tell you “not at all!” This duality causes many rookie investors to become confused, not knowing when to protect their property with the limits that come with an LLC. So how are millionaire investors setting up their properties and partnerships? Or, more specifically, what are Ashley and Tony doing to protect themselves?
Welcome back to this week’s Rookie Reply! We’ve got some great questions queued up for our cabin and campground co-hosts, Ashley and Tony, to answer! First, we take a question about what to ask a seller during a final walkthrough, and how talking to tenants may be worth the extra time. Then, we hint at when to ask a listing agent for financials on a commercial property, the great LLC vs. umbrella insurance debate, and finally how to buy an investment property when you’re strapped for cash!
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
00:00 Intro
03:31 Questions to Ask a Seller
09:11 When to Ask for Financials on a Property
13:15 Do You Need an LLC for Rental Property?
18:11 The Best Way to Buy with NO Cash
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Join the Real Estate Rookie Facebook Group:
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Find an Investor-Friendly Agent in Your Area:
www.biggerpockets.com/agent/m...
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Do Landlords Need an LLC for Rental Property?
www.biggerpockets.com/blog/pu...
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LLC or Umbrella Insurance: Which Is Better for Investors?
www.biggerpockets.com/blog/ll...
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Reduce Your Risk, Use An Estoppel Agreement (Free Form Included!):
www.biggerpockets.com/blog/20...
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10 Things to Look for in a Final Walk-Through
www.biggerpockets.com/blog/10...
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Connect with Ashley and Tony on BiggerPockets:
Ashley: www.biggerpockets.com/users/e...
Tony: www.biggerpockets.com/users/t...
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Shoot Ashley and Tony a Question on Instagram!
@wealthfromrentals or / wealthfromrentals
@tonyjrobinson or / tonyjrobinson
Episode 248
Show notes at: www.biggerpockets.com/blog/ro...
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If I have my multi-families under my personal name under conventional loans, would it be safe to transfer the deed under an LLC? I’ve heard about the risk of this triggering the Due on Sale Clause?
So umbrella insurance is ideal for a landlord who has multiple properties across several states because they can all be conveniently covered under one policy. Whereas an LLC can also provide liability protection but can be a pain to set up and maintain. Still have to figure out which is more expensive in upkeep (I assume not as cost effective with am LLC in CA though). But if a landlord only has one property so far do you think they can get by with the standard liability coverage?
They can but since you are running a business you should do it properly from the start. Set up an LLC to purchase the property in, and also get special liability insurance for landlords for the property. Eight hundred bucks to set up an LLC in the state of California and another $25-50 a month for liability insurance is a small price to pay when you're getting rents in the thousands per month. Check with your accountant on how to write-off the LLC setup costs in your first year of business.
@@jalabi99 Thank you so much
Thanks for this - I bought a rental property this year, and also set up an LLC this year, but I didn't realize the property could be under the LLC or that I could write off the fees of setting up the LLC. Are you saying that in order to write my rental expenses and depreciation off under my LLC that business name had to be on the mortgage? (My LLC is my personal name followed by LLC).
The last thing I would do is putting any properties under an LLC which is named after me! You might as well get a big red arrow labeled "Please Come and Sue Me and Take Me For Everything I Own" pointed straight at you 🤣
Before transferring the rental property into your LLC, either file for an LLC name change of your current LLC with your state's secretary of state, or create a whole new LLC strictly for this purpose. And this time don't name it after yourself! Give it a neutral name like "AMM Enterprises LLC" or "AMM Ventures LLC" or "The AMM Group LLC". If you create a new LLC (which is what I would do if I were you) get its EIN from the IRS, then take the EIN letter and the LLC's Certificate of Formation and the LLC's Operating Agreement with you to a bank or credit union and open a business checking account for it. Then you can transfer the property out of your personal name into the name of the business by quitclaim deed.
(Consult with your lawyer and with your accountant to make sure you can do this without triggering any "due on sale" clause that your mortgage holder may want to enforce. Ninety-nine out of a hundred times the mortgage holder won't trigger the due on sale clause because they can clearly see that there was no "sale" that occurred since the property is taken out of your name into the name of an LLC that you own, but better safe than sorry.)
Your renters will pay their rent by check or by ACH directly into your LLC's business checking account. Then you do an ACH from that account straight to your mortgage holder's account to pay your mortgage.
@@jalabi99 I'm not sure I follow. Isn't the whole point of having an LLC to protect me from liability. What difference should it make what it is called?
Also, my question was - can I still deduct the expenses for the property as business expenses via the LLC, even though the LLC is not on the title?
@@theresamcgallicher an LLC isn't a magical shield against all and any "liability". It's in the name of the business structure: *limited* liability. One of the ways operating your business through an LLC is beneficial is to separate any liability that would accrue to your *business* and any liability that would accrue to *you, personally.*
A simple example is you use your LLC that is named after you to purchase a rental property and then someone slips and falls in the property and breaks their leg. When they decide to sue, the first thing their lawyer will do is try to find out who owns the LLC. Since your personal name is plastered all over the name of the LLC, you've just given the lawyer all the ammo they need to come after not only all of the assets of the LLC, but also all of the assets of the person who owns the LLC. That's YOU! Their lawyer could very easily argue that your self-named LLC isn't really a separate corporate entity from you the person and that you're up to no good, so when they sue, they will get all of your assets and all of your company's assets as part of the damages they're seeking. (Look up "piercing the corporate veil" for more details.)
But by giving your LLC a name that doesn't in any way contain your personal name, you're at least providing more of a buffer between you personally and your business. So when the slip-and-fall victim's lawyer tries to sue, only the assets of the LLC will be at stake, and not also the personal assets of the LLC's owner.
There's many more means of asset protection available to LLCs and to the LLC's owner, but not naming your LLC after yourself is one of the simplest. The UA-cam channel of Clint Coons, Esq. goes in to all of that in great detail, so you can check it out.
_can I still deduct the expenses for the property as business expenses via the LLC, even though the LLC is not on the title?_
The way it seems to me is, if the LLC isn't on the deed, then the LLC doesn't own the property. If the LLC doesn't own the property, how could any expenses you make on the property be written off by the LLC when the LLC doesn't own the property? So just as a layperson and going off of commonsense, I'm going to say "No." But please don't take my word for it, ask your Certified Public Accountant or tax lawyer to know for sure.
@@jalabi99 Thank you for your reply. I initially acquired the LLC for a different business in which branding and recognition were important for customers to find me, but since I also closed on a STR this year, it occurred to me that I could use it for that too.
Hi awesome advice and I enjoy all your episodes. But $25 a year for LLC filing? Florida is $150 ish and MA is $500 or so for renewal. Did I miss something?
The Limited Liability Company business structure is run at the state level. Since there are 50 different states in the USA, that means that there are fifty different costs for setting up an LLC in each state. That is why the cost of setting up an LLC varies from state to state.
Illinois $500 to start up, not sure about renewing.
Illinois $500 to start up, not sure about renewing.
If I have my multi-families under my personal name under conventional loans, would it be safe to transfer the deed under an LLC? I’ve heard about the risk of this triggering the Due on Sale Clause?