Arlington Heights, IL · Member since 2016 · 5 posts · 0 votes
I have about 5 rental units in Chicago, that I own outright, along with a lot of personal equity.
I'm planning on getting more rental properties but want to make sure my liabilities are in check and that I protect myself.
I've looked at incorporating to reduce my liability, but we live in California and our units are in Chicago. I've been told that each unit needs to be it's own LLC, and you can't put all units under one LLC/entity? What we've done, which doesn't seem smart, is put everything under our Trust.. and then we have a big umbrella policy. (Doing individual LLC's for each unit is costly because of setup fees, filing fees, and tax accountant fees)
Property Manager · Chicago, IL · Member since 2016 · 69 posts · 51 votes
9y
@Joe Jackson, I'm no expert, but we got insurance and formed a series LLC here in Chicago which is allowed in some states, Illinois being one. It allows you to have multiple properties under one main LLC entity and branches for subsidiary LLC's under the main entity. This is good if you know you're going to have a big portfolio. It'll save you money and time filing a new LLC for each different property and also a ton of paperwork.
Here's a quick definition: "Assets owned by one [LLC] are shielded from the risk of liability of other [LLC] within the same series LLC. A series LLC is similar in concept to a corporation with several subsidiaries."
Maybe ask your lawyer about that? Click here for more details.
Attorney · Winchester, VA · Member since 2015 · 726 posts · 387 votes
9y
Good morning Joe;
It is good that you are taking the first steps into thinking about the best way to protect your personal assets as part of your business strategy. Generally speaking, most investors apply a combination model; both insurance and incorporation to protect them from a lawsuit. It would be my recommendation to find a local, reputable attorney to aid you in deciding what the best route for you would be.
Insurance is your best protection. A LLC by itself does not protect you in the worse case scenario and must be partnered with adequate insurance anyway. Insurance first, if a LLC helps give you a needed warm and fussy to sleep better at night do it.
Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
9y
@Joe Jackson Even with an LLC or Trust, you would still want to consider getting an Umbrella policy. For reference, you can get a $5M Umbrella policy for about $1200 per year which would be more than adequate for 5 rentals. That pricing wouldn't change until you surpassed 10-15 units.
Rego Park, NY · Member since 2016 · 4 posts · 1 vote
9y
Hi @Joe Jackson. I work in insurance. I am guessing that you have 5 separate units. Perhaps 5 SFR. Each property should have their own homeowner's policy. Each policy should have their own liability coverage. You can always talk to your agent about increasing your liability limits on each property. You can get an excess liability policy which is an Umbrella policy. Typically, the liability policy is your first layer of protection against liability claims and the Umbrella is the secondary layer.
In commercial policies, you can insure multiple locations under one policy should you ever go the corp route. You will have to sit down with a broker or agent and discuss your needs and see what options best works for you.
Property Manager · Chicago, IL · Member since 2016 · 69 posts · 51 votes
9y
@Joe Jackson, I'm no expert, but we got insurance and formed a series LLC here in Chicago which is allowed in some states, Illinois being one. It allows you to have multiple properties under one main LLC entity and branches for subsidiary LLC's under the main entity. This is good if you know you're going to have a big portfolio. It'll save you money and time filing a new LLC for each different property and also a ton of paperwork.
Here's a quick definition: "Assets owned by one [LLC] are shielded from the risk of liability of other [LLC] within the same series LLC. A series LLC is similar in concept to a corporation with several subsidiaries."
Maybe ask your lawyer about that? Click here for more details.
Arlington Heights, IL · Member since 2016 · 5 posts · 0 votes
9y
It's reassuring to know I have things setup properly.
My other question would be: should I put the properties under my Trust or not, or does it not matter? They're under our trust because they're long term rentals, with no plans of selling.. and if something were to happen to me, they wouldn't go into probate.
@Jason Bott: that's actually exactly what our umbrella policy is for. :)
@Sam samir: Thanks for the info. My attorney said that a series LLC is ignored in the state of California and treated as separate and that we'd have to pay the $800 yearly fee, per each property annually, and additional tax prep costs. I guess CA isn't friendly to LLC'so.
Given everyone's feedback though it seems like LLC's are last resort and don't really offer protection as is, plus given how CA treats them..
Investor · Naperville, IL · Member since 2010 · 105 posts · 52 votes
9y
@Joe Jackson--I'm not sure what you mean about the series LLC being ignored in CA...? The series LLC is set up in IL and you pay the fees associated with it in IL. I know people who own property here that way and live out of state. You may really want to talk to an accountant about this, too.
Attorney · Elmhurst, IL · Member since 2016 · 255 posts · 161 votes
9y
I would suggest forming a series LLC plus purchasing an umbrella policy. In Illinois, a series LLC costs $750 to create with the state. It takes about 4-6 weeks for recognition of this entity. Thereafter, every series that is designated within the LLC costs $50 to create with the state and approximately the same time for recognition. The series is the ONLY LLC that cannot be filed for/established online.
Investor · Woodridge, IL · Member since 2015 · 80 posts · 21 votes
9y
I live in Illinois and called Scott Smith from podcast 109, and he set up a series LLC in Texas (which is cheaper then Illinois, and has the charging order) and he put me in a trust. Give him a call.
Belleville, IL · Member since 2016 · 7 posts · 2 votes
9y
This is a great thread, thanks for posting. I've been trying to figure out my strategy as well. I'm a little turned off by the cost associated with LLC's in Illinois compared to other states. From what I've gathered from talking with various people 1) start with liability insurance and an umbrella policy 2) put the property in a land trust for personal privacy 3) use an entity (LLC or whatever) to manage the property. Does this make sense?
I would also advise pulling out as much equity as you can. Leaving it lying dead in a income property is extremely hard on cash flow but also makes you look ripe for picking. Pull out every cent you can and make it earn it's keep rather than have it costing you money doing nothing.
Real Estate Agent · naperville, IL · Member since 2014 · 193 posts · 53 votes
9y
Agree with Vincent Incopero and Sam Amir on the idea of Series LLC. I am in process of setting up Series LLC. Looking for an experienced attorney...will appreciate referrals....
Thanks