Cannot buy a duplex in an LLC

[Laura Thorne]

I wanted to create an LLC and have the entity purchase a duplex in order to protect our personal assets from a potential settlement-hungry tenant. We found that no lender will structure a deal where an LLC buys the duplex even if you personally guarantee it. The reason is the lender needs to bundle the loans to sell to other investors and they can't bundle a mortgage from an LLC. If we bought a bigger property (more than 5 units) that would not be an issue.

Other than screening tenants really well and making sure you have a solid lease, having homeowners insurance and of course keeping your property safe, how do you protect yourself from liability?

[Derek Lacy]

David Dachtera

Respectfully disagree. Juries never know there is insurance involved. It's irrelevant to the negligence, therefore not presented at trial. They usually assume, but they don't know if you have $100 or $10,000,000 in coverage. So how does it sweeten the pot?

The fact remains llc's are very flimsy in protection. Also you are forgetting a huge fact. The lawsuit will never come in just your llc's name, they will include you personally. The attorney will assume if you have an LLC without high liability limits he will pierce the veil as he will claim improper management and the difference in the cost of filing is negligible to include another defendant.

This is why insurance companies always request jury trials.

But if you can afford the extra cost an LLC never hurts, especially from creditors, but lawsuits... That's hard to protect from without assets or lots of coverage.

Now I'm speaking for the insurers, maybe we can get some lawyers to speak to this.