Time For Rental LLC Consideration.

[JayCinta Henry]

We have put up our house for rental after staying in it for one year, and onto the next.

1-Can you have an LLC as a landlord and for it to receive rents, sign leases, etc, even though I am the mortgage borrower?

2-If yes, does the LLC file it's own taxes or can you add it's financials as rental income in your personal taxes?

3-When do you consider placing properties in an LLC as a small scale landlord (2...3) properties? Is it advisable to place each in it's own LLC or for starters it's ok to have one LLC with multiple properties, possibly split them up in the future?

[Nathan Gesner]

Quote from @Srini Murthy:

@Nathan Gesner

What happens when you have say 25 properties in your name and you get sued? Wont the attorneys try to take them all based on the severity of the case?

Let's assume you have 25 properties and each one has $50,000 in equity. That's a combined total of $1,250,000 in equity that you could be sued for. Please take a few days to scour the internet and find me one Landlord that was sued for more than their insurance would cover and that lost their investment property.

What would have to happen for someone to sue you for more than $300,000? Most Landlord-Tenant disputes are over security deposits, evictions, wrongful termination, failure to maintain the home, Fair Housing violations, and then maybe injuries like a fall or a claim of toxic mold. First, the odds of a tenant suing for more than your insurance covers (usually at least $300,000) is probably 1% or less. Second, they would have to have the evidence to support their case and win. Third, the majority of lawsuits are settled outside of court and for significantly less than what insurance will cover.

I've been on these forums for 12 years and I've asked the question many times. Not one single person has shown me an example of a Landlord losing their property after a tenant sued. You may see it in the news, but it's always a slumlord, or someone forcing tenants to have sex, or some other egregious violation of human morality. I have never heard of a mom-and-pop investor getting sued and losing property or even having their personal assets touched.

You also have to remember you have to stay in compliance with your LLC or the protection goes away. If you are an evil person sexually harassing your tenants or refusing to fix the leaking roof, you can be held personally liable instead of the LLC. If you mingle personal money and LLC money the wrong way, you may lose your protections.

Again, there's a lot to this but the need for an LLC is dramatically exaggerated by real estate investors. There are benefits, but you need to assess your personal situation and see if it makes sense for you. Some people choose to just buy an umbrella insurance policy of $2 million. Personally, I prefer to just treat people honestly, fairly, and within the law. I'm managing 400 rentals with 12 years experience and haven't been sued once.