I just bought a duplex to house hack. Should it be in an LLC?

Question

I recently bought a duplex and will be fixing them up and living in one side while renting the other. From those who have done this before or otherwise have knowledge on the matter, should I hold this property as an individual, or should I incorporate it into an LLC?

Scott M. · Answer

Never understand the comments of no, don't get and LLC but get umbrella insurance.  As if one has anything to do with another.  No matter if you own in an LLC or personal name you should have an umbrella policy and your should have your tenants get renters insurance.

Also makes no sense because the protection and LLC provides isn't insurance.  Not like you have an LLC and your sued your LLC will pay out like an insurance policy.  If you are going to argue the benefits or not of an LLC then at least argue things that actually apply to both.

Someone else made the assumption you bought on a mortgage, maybe that is right, maybe not you didn't say.  If you did it can be more complicated, if you bought cash then there is nothing complicated about getting an LLC and putting property in it.

It does provide a level of asset protection by keeping your personal assets and business assets separate.  Is it bullet proof?  No.  Some do it for privacy but in today's world most of this is public record anyway.

I am a fan of doing an LLC for your investment property as it offers a layer of protection (not bullet proof) that insurance doesn't provide but you need insurance either way you go.  One is not a replacement for the other.

Blake Choisnet · Answer

I recommend owning it under your own name but getting an umbrella insurance policy and requiring tenants to have renters insurance. My Umbrella Policy is for $3M and is something like $38/mo. You can get an LLC, but it's not required in the least bit. And also, if you move your property deed from your personal name to an LLC, you run the risk of the lender calling your note due. They tend not to do this on 'performing' (ie 'paying') properties, but it's still a risk you incur.

Jon Schwartz · Answer

You should keep it as an individual. The loan is in your name; for simplicity's sake, keep the property in your name. Otherwise, your lender might call the loan.

For protection, take out an umbrella policy with your insurer for the full amount of your net worth. It'll do you better in an unfortunate scenario than just parking your property in an LLC.

I live in a duplex and didn't open an LLC. Actually, my duplex is owned by my living trust, but that's for probate purposes (in CA, if you own property and have children, it behooves you to put the property in a living trust so that it's doesn't have to go through probate court if you die.)

Best!

Jon

Tim Delaney · Answer

@Chris Kunz congrats! If this is your first property you are probably better off just keeping it in your personal name and getting great terms on a conventional mortgage. Get a good insurance policy. I’m not an expert on umbrella policies, but if this is your only major asset an umbrella may not be worth the expense yet - look into that when you have a few more properties or other substantial assets. Having a good relationship with an insurance broker can help with that.

Lawrence Briggs · Answer

This great advice! I am in contract for my first single family investment property. The property will have a mortgage on it. Property value is about $75K At the moment, I have landlord policy quotes with about $500K of liability. I will still require tenants to have renter's insurance. Do you all still suggest umbrella insurance, if so recommendation of coverage amounts?  Last thing, do you all restrict certain dog breeds because of your insurance policies?

Sorry, I know this thread was meant for "LLC" info. My apologies if my reply should not be here regarding insurance.

Chris Kunz · Answer

I bought it with hard money and am in the process of refinancing, so kind of in limbo at this point.

Chris Kunz · Answer

You guys are awesome, thank you!

John Mocker · Answer

Chris,

The most common way to insure an owner occupied duplex is with a Homeowners policy.  If you change it to an LLC you will need to make sure the Insurance company will write a Homeowners on the LLC.  As long as the LLC does not do anything else or does not have LLC Members that are not immediate family, many Insurance companies will insure the LLC owned home.  You will need to be named on the LLC policy (for the contents coverage, loss of use, personal liability, etc) or you will need a separate renters policy.  The LLC is a separate entity from you and normally does not own the contents of the house.

An umbrella policy provides an additional limit of Liability that kicks in when the limits of your homeowners, auto, boat, RV, ... are exhausted in a claim.  In most cases, the umbrella is sold in increments of $1,000,000.   To keep the rates down, the Umbrella usually specifies the limits you must have on the underlying home, auto, etc. policy.  If you do go to an LLC, make sure both you and the LLC are named.

I would recommend reviewing with an attorney to see if the policies having both the LLC and yourself as insureds would be advisable from the standpoint of avoiding "piercing the veil" of the LLC

Bud Gaffney · Answer

Congrats! and No, no need.

I just bought a duplex to house hack. Should it be in an LLC?

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