I don't see the benefit of an LLC - if liability is the issue....

[Cameron K.]

I'm an owner of a 4-plex, I've had for 10 years now. It was a condo building, each unit having its own address and deed when we purchased. It's doing very well and one of the units is an Airbnb. My husband and I have just owned and managed the building for years now. However, we have heard dozens of times the advice that we should put the building into an LLC - with each unit in an LLC.

After researching..... I just cannot see the benefit of all these LLCs. If the issue is protecting our assets in case of a lawsuit, it seems like a good umbrella that covers our "net worth" will do the trick. I understand that if someone goes after us with a lawsuit, someone can get the equity of all the units if they win the lawsuit. With each unit in an LLC, supposedly it separates each entity and the person suing could only go after the equity of one condo. OK, I got that.

It has come to my understanding that if you don't account perfectly for expenses, a lawyer can argue that the LLC ultimately leads to me and my husband, and that our personal assets would get compromised anyway. Or, if I purchase another property under my own name and then transfer it to an LLC, the lines between personal finances and business finances wouldn't hold up in court anyway. It just seems that the LLC is a fragile line between personal and private monies, but that it can be easily argued against.

Overall, It seems like an LLC is fancier, more "clean" and official and separate. However, we would go from passive income as landlords to having to pay self-employment taxes, plus commercial insurance (which is double the cost), plus all of the costs of setting up these LLCs, plus added taxes, etc.

I manage the property and do basic repairs, but everything else is contracted.

So, for all you real estate gurus...

Can anyone explain why to do an LLC?

I am seriously leaning towards the insurance route.

Thanks!

[Thomas S.]

About 50% of investors in the US have real estate in a LLC of some sort. It is highly over sold as a be all end all solution. No one on BP will come forward with a first hand example of being protected by a LLC and you are right that they can be pierced and insurance is more than adequate protection. If on the other hand you have employees I understand a LLC does have a value.

I believe the entire LLC situation is highly over hyped and not necessary, it being more of a encumbrance than anything else. Supports of having a LLC will only argue there is a psychological security value to having one. No evidence to the contrary has in the past been presented to support the value of a LLC for small time real estate investors.