Whats my options for business entities or is it not needed?

Question

Hello investers!

I just closed on my first multi unit apartment in Chicago, IL. Its a FHA mortgage and I will live in one and rent out the other two units. Im looking for help on Whats my options olfor business entities or is it not needed at this time? I would like to make sure my family and I are protected and it works out the best for taxes as well.

Thanks in advance!

William Powell · Answer

Owning in your name isn't terrible. As you scale to 100 or so properties things may change. I have actually closed one of my LLC because tax man charges higher for corps. I saw no significant tax advantages that moved the needle. What I can say is most banks want you to transfer properties into your name before a cash out refi. The LLC is important if you are doing an economic area rehab that requires LLCs and there are other cases but for my small operation, it hasn't been a great thing. These ideas may change in the future and I am not an accountant or financial advisor. I only share how I do things in 2023. The protection thing: If someone sues you because of an accident on your property they are suing your insurance co. But if you beat up a tenant, that's on you. LOL

Eudith Vacio · Answer

Congratulations on purchasing a 3-unit property, I agree with everyone else. I definitely would recommend an umbrella insurance policy especially if you reside in the building. maybe once you move out and have it fully rented would I consider transferring it to an LLC :)

Jonathan Klemm · Answer

Hey @Festus Emore - Congrats on your first multi-family!  That is amazing.  Where in Chicago is the property at?

I honestly am with others...and wouldn't get too considered about an LLC...plus I don't believe you can transfer FHA loan into an LLC.  A better option for protection might be to get an umbrella policy from your insurance provider.

I still have several properties in my name myself.

Wesley I. · Answer

@Festus Emore

What state are you in? Like others have said, get your insurance straight(landlord). Look at your liability limits and see if youre comfortable with that, if not, raise it or get yourself an umbrella.

Make sure you fill out the homestead form and file it with your state.

I would at least put the property in a revocable living trust, esp if you have kids.

Get yourself a property manager if you can afford it.

Chris Seveney · Answer

@Festus Emore

Best way to protect yourself is to have umbrella insurance and an experienced property manager.

Yes there is a cost to both but the costs are well worth the headaches not having them cause.

Matthew Drouin · Answer

@Festus Emore

Long story short, since you owner occupy, you don’t need to worry about it right now.

Congrats on the purchase by the way!

Just make sure you are adequately covered insurance wise whether or not you own a property in your LLC or otherwise.

Too many investors go low bid on insurance.  Just keep in mind, there are companies that like to insure rental properties, some don’t.

Get an independent agent that can shop around and get multiple quotes!

Allan Smith · Answer

Llcs are expensive to maintain.

if you live in it, it CANNOT be an LLC.

Holding rentals in LLCs is not the answer all the time. In fact many times insurance is better.

Crystal Smith · Answer

Before taking my advice I recommend you check your loan paperwork to see if there's a due on sale clause & if there is then you'll have to make a decision on how to proceed.  The best way to protect your family is to purchase the property in a Land Trust.  In this case, you'd have to quit deed the property into the Trust.  (A quit deed may trigger a due-on-sale clause) Why a Land Trust versus an LLC? When you establish an LLC your name will still be on the public record so not much protection. With. a Land Trust what's on the public record is the Trust Name and number, not you or your LLC.

Regarding establishing an LLC. On the first building I purchased, I established a Property Management LLC and tenants paid their rents to the LLC. While it doesn't provide a lot of legal  protection, the building occupants did not know that I was an owner-occupant and since they never checked public records to see who established the LLC I was protected in the sense that my tenants dealt with an entity, not knowing it was me.

Basit Siddiqi · Answer

It is a house-hack which means it is a personal property.Entities are for business assets unless you are talking about a trust.What protection would an LLC provide to you if there is a personal asset in there?

William Powell · Answer

Yes, make sure you have Landlord insurance and not just some regular policy. In a perfect world, make sure your tenants carry renter's insurance. But I know this can be challenging in C, D, and F class areas.

Whats my options for business entities or is it not needed?

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