Advice on LLC set up and/or recommended attorney

[Katherine Weekes]

Looking for advice (and/or a recommendation for an Ohio attorney) on whether I should set up a company to hold my investment property(ies). I am looking to purchase a SFH in Cleveland, and hopefully a couple more within the coming year. Protection of assets is commonly cited as a reason for holding investment properties in a company, however what protection does this provide since the bank still has a mortgage over the title? I have seen other downsides e.g. county's fine schedules are more aggressive for LLC held properties.

[Zak Franklin]

Hello. I'm an attorney and I hold a 4-unit rental in my name. I looked into this quite a bit before purchasing my first property. There are several factors to consider, but I think an LLC is often not worth the hassle and added cost. Here are some things to think about:

1. Your mortgage will likely have a due on sale clause which would make it risky to transfer title from yourself to the LLC. If the loan servicer learns of the transfer, it could require you to pay the full amount immediately. You could try to get the lender to not include such a clause, or get the loan servicer to waive the clause, but that might be difficult to accomplish. Many people will tell you that the loan servicer will never find out, but it's possible that it will.

2. If you're self-managing, the LLC doesn't provide as much liability protection as you might think. If you're sued, the plaintiff will likely include a cause of action against you personally for negligence. So, even if title is in the LLC, you could be personally liable under a negligence theory.

3. A court could choose to pierce the corporate veil, effectively ignoring the LLC's limited liability provisions, and hold you personally liable. This is more likely if you do not observe corporate formalities (e.g., maintain proper documentation, segregate your and the LLC's accounts, and keep adequate reserves in the LLC's account(s)).

4. You should probably get insurance regardless of how you hold title.

5. LLCs are usually not free. In many states there is a yearly filing fee. And you may need to hire a lawyer to draft the documents.

6. In some states, if an LLC is the owner of the property, only a licensed attorney can represent it in court. So, if you live in one of these states and hold title via LLC, and you need to appear in court for any reason, perhaps including an eviction or to defend against a lawsuit, you would need to hire a lawyer.

(I am not your lawyer. This is not intended to be legal advice.)