Should you put Rentals in your own name or business LLC?

[Lucas McAnallen Jr]

Thank you to anyone that reply’s! I’m just really stuck on this one. I’m really new to investing so haven’t bought anything just yet.

[Zach Westerfield]

There is a ton of discussion on here on this topic, so I wont spend too much time. Also, I am not a lawyer, the following is just my opinion, and what I have learn through research and speaking with others. 

The number one reason for holding properties in an LLC is for liability protection. I will not go deep into what this entails as there are numerous books and resources to explain this. Liability protection should always be a multi-tiered approach. The LLC structure is just one level to this tier. The two main disadvantages to an LLC are 1) increase costs (yearly fees vary by state) and 2) inability to get the best loan terms.

When designing your liability protection strategy, ask yourself how much of a target is on your back? if you are new and have little to no net worth, its far less appealing for a lawyer to come after you versus if you have substantial assets that can be attacked. In general, most people buy in there personal name when starting out, and once they build up net worth transfer into LLCs. Also, you eventually will run out of agency debt loans on SFRs, so at this point there is less reason to buy in your personal name. 

Here are some general tiers to liability protection, to get started with before you start an LLC.

1 - policies and procedures - an absolute must, make sure you know landlord tenant law in you state and strictly abide by all rules and regulations. Without this the rest of you liability tiers may be voided.

2 - Umbrella policy - pretty much another no brainer - its cheap protection. 

3 - manage debt loads - if you are comfortable keeping a higher debt limit, it is a strategy to reduce your net worth and make that target smaller. this comes into play when considering tapping equity in existing properties.

these 3 should get you started. but its all up to your own risk tolerance. A final note when you do go the LLC route. Just because you open an LLC does not guarantee protection. That company must look and act like a true company, with all expenses and bookkeeping kept separate from your personal finances. Otherwise, it may look like you simply opened an LLC to skirt liability, which has a high potential of being pierced by a decent lawyer. If you are new and have never ran a company before, I definitely recommend having a lawyer set up you first LLC, and have them walk you through all the necessary steps to maintain full protections.