Two property LLC - Do I need business insurance (eg. E&O)?

[Char Tovar]

I have been able to acquire a few properties to start my real estate investing business and currently have two of them that are rented and in an LLC. We have been following the operating agreement regarding financials, bank accounts, reporting, etc., but the subject of "business insurance" has not come up. Is this something we should get for the LLC?

[Account Closed]

Originally posted by @Char Tovar:

@Account Closed Thanks Mike, umbrella for the properties or the LLC business? Or both?

Most people do Either LLC Or umbrella insurance. An LLC is only necessary when your EQUITY reaches a point where it is attractive for an attorney to sue. So, if a lawsuit runs $50,000 (typical number) then having that amount or more equity in a single LLC might not make sense. If you have 10 properties and each has $2,000 in equity, then one LLC is more than enough to have all 10 properties in. It's all about equity and risk.

The reason to do the insurance is that most people don't follow the Operating Agreement and in a lawsuit there is the ability to pierce the veil if the OA is not followed and documented. It's cheaper and easier to have Umbrella Insurance on the properties.

Since you already have the LLCs, if you follow and document everything correctly, your LLCs are typically fine. Except in King Co. Sanity, rule of law and common sense do not apply in King County and the risk skyrockets. Think of the anti-landlord sentiment in Seattle for instance. You are far more likely to be sued in Seattle than in cute little lovable Gig Harbor. Pierce is far friendlier a Co. But, since we haven't actually gotten to it, depending on where the properties are you plan accordingly.