How is your business/banking structured

[Brad Mccarter]

I own one duplex held in my name and will be buying more soon. How do you set up your business? LLC for each property? One for all properties? None at all, just a good umbrella insurance policy?

How about banking? Seperated accounts for each property or is everything co-mingled.

I am interested to know how everyone is doing it (and why.)

Thanks,
Brad

[Jeff Takle]

The LLC only protects your liability in very uncommon circumstances: you must get sued, not settle, lose in court, receive a judgment in excess of any insurance you have, and have the viability of your LLC stand up in court (aka not have the court "pierce the corporate veil"). This requires a lot of paperwork and maintenance to establish and maintain a defendable, functioning LLC. Don't get me wrong; you can create an LLC is about 90 seconds and $100 check to the state corporation commission. That's easy. Making it defendable in court as a viable business entity and not your personal liability shelter takes real work.

Most of these problems can be overcome by increasing your insurance coverage on the properties. Changing from $100,000 to $1,000,000 in coverage will cost about an additional $50/year for a typical fire policy. You'll spend more on that in LLC filing fees and the LLC structure protects you under far fewer circumstances.

One good reason to start an LLC is if you start owning a large number of properties: in Virginia (and other states) if you own more than 4 rentals, even if they are not all in Virginia, then you are subject to their Landlord and Tenant Act which has all kinds of restrictive policies that greatly increase your liability. For this reason, people often clump properties into groups of 4, sell them to their LLCs, and effectively each entity then owns no more than 4 properties and thus are not subject to the more restrictive laws. In Massachusetts, you have new restrictions at 10+ properties. You'd have to check your state landlord tenant law to see if this applies to you. Nolo has the best starting point for finding your landlord-tenant laws at: http://www.nolo.com/statute/state.cfm

My advice for people just getting started: Get a huge insurance policy and leave it at that. LLCs are super easy to start up, but take far, far, far more work than you think to properly function as a business. You don't need to be spending your time filing county, state, and federal taxes, business licenses, certificates, and other crap for an LLC--you need to be finding and buying deals. :beer: