Protection of investment held in personal name with a HELOC

[Nolan Gray]

Hello Bp Need advice on protection of a property that I have a home equity LOC on. In order to obtain the HELOC i had to use a personal guarantee (property title in my name) . Transferring title will trigger due on sale clause (stated in contract) Im only protected with basic liability insurance now. I need more protection... LLC possible ? Land trust ?

[Kenneth Garrett]

Nolan,

The LLC is the best Asset protection for rental properties. A couple of things to note:

When you put property in your own name you expose your personal assets to a lawsuit. This could include your home and any other assets you may have. If you do use a LLC you must separate your personal funds from the LLC. The LLC is a business no comingling funds. Separate bank account and treat it like a business. If you do not, then the LLC is a sham and your assets would be exposed potentially by the litigant piercing the corporate veil.

There a lot of opinions on this topic.  One important note is that the issue only arises if your insurance could not cover the liability.  I think if you are going to be landlord than it is a business and you should treat it as such.  Plus once you create the business you can take advantages of the tax benefits.   

Check out Mark Kohler on youtube.  He is an attorney and CPA and does a great job on explaining asset protection.  He also has a weekly podcast that is very informative and fun.  As fun as taxes and legal issues can be.

Good Luck.