Mortgages in Personal Name versus Business Entity

[Jonathan Taylor Smith]

My first 3 properties were financed with 30-Year Mortgages (@ ~4.5% Fixed) in my personal name (Yes, I know... Bad, Bad, Horrible - Worst thing I could possibly do); and my $300K Liability per property + $3M Umbrella Insurance Policies are not certain to protect me.

I will someday deed these properties to my business entity or trust and see what happens with regard to the dreaded "Due on Sale" clause; however, my latest purchase will be within my entity from the start - but the terms are far less favorable @ 5.5% Fixed for 5-Years (Balloon) amortized over 15 years.

5-Year Balloon scares me to no end, as the property may not be paid off by then, and I cannot be certain of the ability to refinance at that time. This seems to me to be a far bigger risk to take than getting sued over one of the properties in my personal name and the insurance not covering me, so I'm paying more, for a bigger risk... No?

So should I stay awake at night worrying that someone may sue me and insurance not cover? Or should I stay awake at night worrying about this 5-Year Balloon? Currently I sleep like a baby, but as I progress with multiple balloon loans, that may change.

J.T.

[Jack Halldin]

I don't know that I would be too worried about either, according to a recent survey in BP most smaller investors held property in their own name. With adequate liability insurance and assuming no willful negligence at your properties I think $3m should cover almost anything out there. Insurance companies don't sell that much coverage for as little as they do if there were many times it was utilized to the max. Over most recent history the balloon would not have been an issue getting refinanced, worse case if things are looking or trending poorly in financial markets you can refinance early.