LLCs: The big 3 or your home state?

[Michael Oliver]

I have purchased a primary residence that I will turn into a rental in Michigan.  I plan to do deals throughout the country though. 

Should I register my LLC in the famous 3 of Delaware, Wyoming or Nevada? Or stay in m y home state?

Thanks!

[Bill B.]

Speaking as a small guy with a dozen properties in a couple states I’d still say none. You’re going to add compliance costs, you’re going to add financing costs, you’re going to add tax prep costs, you’re going to add banking costs. Repeat that sentence with complexities and you have the downside.

Now what’s the upside? You might get privacy from the curious but lazy. There’s almost zero chance you’ll get liability protection if there’s enough reason to sue. Try to imagine a reason where you get sued but it’s not even remotely your fault, otherwise you’d be sued personally and it wouldn’t matter how many llc’s you have in any state. 

The only risk you have is the equity you have. Imagine 5 years from now you’ve bought 5 properties for $2million with $400k down. If you were forced to sell to cover a lawsuit you’d have about $200k in closing costs and you have $200k in equity. I’m sorry but most home owners have bigger worries.

Get a $1million umbrella and call it a day. You’ll save money, you’ll make your life easier, and YOU will actually be covered instead of just your rental property. How many stories have you heard on BP with its thousands of members about people losing everything to a lawsuit? I’ve only been here 10 years but I’ve never heard it. Let your insurance company who doesn’t want to lose a million or more provide the free lawyers for you. That alone might be worth more than any llc where being innocent can be too darn expensive.