​Which comes first? LLC or Umbrella Policy?

[Ayodeji Kuponiyi]

First off I want to apologize to those of you reading that has seen a post talking about Umbrella v LLC. After doing some research I found out what works best for me and wanted to share in case a fellow investor is still confused about this topic.

It's become quite clear to me that an Umbrella policy works best for investors that are hands-on or manages their own properties as oppose to an LLC. An active investor/landlord, who manages their own property(s), is personally liable for anything that goes wrong. For example, If a tenant electrocutes themselves, it was you (the owner/landlord) not your LLC, that hired someone who was inept rather than a professional. You and the LLC will be sued; but YOU as the active property manager were negligent for what you did or didn't do therefore you are not protected.

On the other hand, if you have a separate company, ABC Property Management Inc, doing your management, then the injured tenant can sue the LLC and the management company and possibly get a judgment against both. The question now is who owns the management company? Are you actively managing the management company and were you the one who decided to use an unlicensed/uninsured electrician instead of a licensed/qualified electrician? Are you the one who made that decision? If you are then you can be personally liable for the damages along with the management company you hired.

LLCs offers little protection. If the landlord were to falsely testify at a hearing that they did not have any assets, the person suing them may not learn the landlord really owned a couple of rental units since the properties have an LLC however that would be perjury.

Therefore an LLC does not provide assets protection to a hands-on landlord. An investor should take out an umbrella coverage up to your net worth or a higher.

For the passive investors/owners, who have a management company to manage their properties and do all the work, an LLC would work well if an accident like the example above occurs.