To LLC or to not LLC?

[Bob Foglia]

I am a relatively new investor and haven't yet put any properties into another entity. I currently have two SFR's (self-managed) and am in the process of turning my current primary residence into a third SFR and moving out of state... I have a management company lined up, and would like to stay "anonymous".

I will contact my accountant but was curious about what is typically recommended by the more experienced community here? 

[Jeff Copeland]

A CPA will tell you one thing, an attorney will tell you another, an insurance broker will tell you another, and a lender will tell you something else. Ultimately, you have to do what works for you based on your financial situation and risk tolerance. 

If you place your properties into an LLC, you'll need to update your insurance coverages to reflect the new ownership (and to maintain an insurable interest in the property). This in turn often tips off your lender (who is a named insured on your insurance policies) if you have financing in place in your personal name, and can (but doesn't always) trigger the due on sale clause in your mortgage(s). 

Advantages: Improved (but still imperfect) asset protection via a "corporate veil". More anonymity. Possible tax benefits depending on how you distribute the income. 

Disadvantages: Higher insurance costs (the same insurance coverage, but in the name of an LLC, is almost always more expensive). Risk of causing issues with existing financing. Lots of hassle (transferring title, changing insurance, setting up new bookkeeping, etc)

If you keep the properties in your own name, insurance coverage is key. Most landlord/homeowner policies max out on liability protection at $100k, $300k, or sometimes $500k. This isn't enough for an investor who owns multiple properties. You need to insure against a worst-case scenario: A wrongful death that occurs at one of your properties. This can me done via a $1M or $2M umbrella policy. 

It's important to note that your insurance company doesn't just stroke a check for the policy limit anytime there's a claim. On the contrary, they have a duty to defend you against claims, and will fight tooth and nail to minimize payout. So, when (not if) there is a claim, your insurance company will assign counsel and fights the lawsuit on your behalf. 

I'll PM you some additional info on asset protection and insurance. 

(Also, be sure to update your insurance coverage when you convert your primary to a rental!)