The debate between Personal name & LLC's

[Christine Wilcher]

Hello! I am curious to know. I have purchased 2 properties via house " hacking ". I purchase, do a light rehab and then rent it out after a year or 2 so I'm slowly scaling. I started an LLC about a year ago because I thought that was the correct thing to do but now I hear about this " corporate veil piercing " if I'm sued. Is it even worth is to have an LLC then if I'm going to scale this way? By the way I have not transferred either one of my rentals into my business name just yet. Both are still under my personal name and my banks are fine with me transferring them to my business name.

[Stuart Udis]

@Christine Wilcher A lot to unpack here. Starting with what you've done so far....I suspect when you say you "started an LLC", you mean you formed an entity. With repsect to owning real estate and whether it should be owned through an LLC I am generally an advocate for owning investment real estate through an LLC. However your situation becomes a trickier case study since these properties first served as your primary residence which could provide additional benefits form a tax perspective not available to an owner of investment real estate and nobody has a crystal ball and knows the property with certainty will transition into an investment property.

There are also additional costs to be mindful of when transferring title into an LLC even if your lender is accepting such as your case. Namely, transfer taxes based on the assessed property value (even if transferred for a $1) & presumably additional accountant fees related to basis.

I would ignore most of what's written on Bigger Pockets pertaining to LLC's and asset protection. 99% of the posts are grossly inaccurate. The truth of the matter is piercing the corporate veil is very difficult to do and most plaintiffs attorney's have no interst in doing so, even if the fact patter provides the opening. This relates back to the ultimate objectives of the plaintiff and the plantiffs attorney who will be counseling them. I've posted on this subject on multiple occassions, feel free to take a look at my past posts.

As for your next steps, there is no downside to transferring the properties to an LLC. There are a lot of potential benefits independent of asset protection when owned through an LLC as well. Also, the most critical elements of asset protection don't even relate to an LLC. More specifically the matter in which you operate your real estate business on a daily basis/ contractual relationships and your insurance coverage.