How to shield my paid for personal residence

Question

Hello, I have a question about shielding my personal residence. Quick background, I have a paid for house and my wife and I have saved enough cash on the side to get into the brrr game. Still very new and learning. I've started an LLC, maybe prematurely, thinking I'd be able to somehow keep a mortgaged rental in it to shield my personal assets. After some reading on bp I'm now aware that it isn't that simple, can't get a personal mortgage then transfer it without the bank likely calling the loan due. So, that said I had another idea. Could I keep the rental property in my own name then transfer my personal residence to an LLC thus creating a gap? Do nothing else with the LLC, just leave my house there, call it an investment or something. What about some sort of trust?

David Dachtera · Answer

@Eric Nelson,Here is a link to a post I recently made on this topic. It explains the structure where in you have control, but not ownership.

David Faulkner · Answer

I agree that an umbrella policy is likely the best way for the level of asset protection you need at this time. You can also take out a HELOC on your primary residence. Any lawyer that starts poking around will see that there is a HELOC and it is not a free and clear property ... they would need to dig much further in order to determine the amount owed on the HELOC, even if the balance is zero. They are inexpensive to setup, you only pay interest on the amount you take out, and it is also a great way to fund flips and brrrs all cash on short notice without paying hard money points and interest. When you sell the flip or refinance the brrrr onto inexpensive long term fixed interest debt, then you use the proceeds to pay down/off the HELOC and repeat. The HELOC should be good for 10 years or so keeping it open to use or not use as you please, and then you can likely extend it or convert it to long term mortgage if at that time it has a non-zero balance.

David Dachtera · Answer

@Eric Nelson,Now, here's what the others aren't telling you ...An umbrella policy over your other insurance may pay damages sought by a plaintiff (and then again, it may not!), but your entire estate and its contents will then be public knowledge and fully exposed. Anyone else needing a few extra bucks will find a way to take what you have away from you through litigation.Control everything, own nothing.

Mike McCarthy · Answer

You'll get a few different camps of thought on this one... by here's mine: For your first 1-5+ properties, don't worry about the LLC. Get a $1-2M umbrella policy along with landlord insurance for your rentals. As hard as you try, with a few rentals you will not be able to run it enough like a business to protect you from liability. That's what your insurance is for. As you grow, you'll be able to prove that you're running it as a stand-alone business, and you can start looking at LLCs, trusts, etc.

Account Closed · Answer

@Eric Nelson Placing a personal home that you paid off into an LLC means the LLC then legally owns the asset. If the LLC goes out, incurs a liability or a lawsuit, the assets within the LLC is then at risk for the LLCs actions if the LLC had no insurance or insurance is exhausted to address the claim. You typically want to leave personal assets outside of the LLC, to insulate your personal assets from any liability the LLC incurs or use a trust to hold personal assets.

Dale T. · Answer

Second the umbrella liability policy. If you get sued, the insurance CO will be paying/providing your legal defense or settling the case.

Eric Nelson · Answer

So this is what I'm going for. How do I control it without owning it in a way it couldn't be taken by a slip and fall lawyer?I'm also hearing from this conversation I'm already behind the curve and I probably shouldn't be talking about paid for houses.

Eric Nelson · Answer

Thank you for the replies! How would taking the equity out of my house shield it? It being the equity, not the house. The house is a house, not the family farm in this case. I mean to shield the equity somehow.And I've certainly thought about eventually pulling the equity to get into more properties, it's just that at the moment I'm just trying to get started and don't need it yet.

Derek Lacy · Answer

I sold a $30,000,000 umbrella policy today (3 daily drivers, 3 exotics, 2 personal houses, 22 rentals) for $4,400. So $4,400 will get them out of $30,000,000 of liability. It would seem, tax compliance, entity filings and just general hassle of an LLC would be close to that cost, and the umbrella policy actually pays if there is a claim. An LLC just possibly shields.

Thomas S. · Answer

Umbrella insurance and remove the equity from your personal home.LLC is not necessary.