What would you do (and why)?

[J. A. Marin]

I have a duplex, my only property thus far. It is under my name and I am managing it. I would like to expand and I know at some point I will have to set up an LLC. I am facing a huge expense on my property so I was wondering if I should set up the LLC now and start building the LLC credit? I have the funds to pay for this (the capital expenditure and the LLC costs) outright now but I am just thinking for the future. Eventually I want to buy properties under the LLC.

[Matt Hurley]

As @William Glass mentioned, this is a very common approach and is known as a series LLC. It separates your properties so that if one person sues you can only lose that one property and not your entire catalog. This also unfortunately makes it very hard to build business credit because you're starting over with every property credit history wise. That being said, if you have a huge cap ex charge coming up, find a credit card with a New member bonus points! I put my roof on the chase card and got $1000 back in credit card benefits, then immediately paid the card off. If you decide not to go the LLC route, you should definitely get a sensible umbrella policy. Many people with five or less properties in my area choose to do this instead of the LLC.

Lastly, if you do decide to switch to an LLC be prepared to switch everything to an LLC. Quit claim deed your property to the LLC (but call your lender first to make sure they're not going to enable the due on sale clause with your mortgage). You should not only have a credit card but a bank account and run all of your properties money through it. If any part of your property is run outside of the LLC or the title is in your personal name, it pierces the corporate veil leaving you open for litigation and essentially making the LLC useless!