Moving, want to rent my house out - LLC or no?

Question

Hello everyone! I am moving out of state and would like to rent out my house rather than sell it. I am wondering if I should create an LLC for this rental (this would be my first rental property). If I open an LLC for this, is it okay to put the business address as the address where I'll be renting it? Not sure if this would cause issues with me moving out of state. Also, do I need to put the house in the LLC name or can I leave it under my name? Obviously I am new to this and am just looking to gather some information. Thank you in advance for any advice you guys have!

Nathan Miller · Answer

Agreed with the others, putting it in an LLC probably not worth it.  But be sure you convert your homeowners insurance to landlord insurance so you have proper coverage.

Nathan Gesner · Answer

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

Fulton Abraham Sanchez · Answer

@Tristan Desforges, hi. There are advantages to forming an LLC associated mainly to anonimity, asset protection and tax implications to beware of. You can form your LLC on your own but its always best to get proper legal, expertise advise from an Attorney or CPA to help you see the bigger picture. Best of luck!

Tristan Desforges · Answer

It does have a mortgage. Okay thank you! I'll not mess with an LLC

John Underwood · Answer

Does the house have a mortgage? If so don't mess with an LLC.

Bjorn Ahlblad · Answer

I have properties in my name and others in LLC. The LLC properties is like my 12 unit apartment building. Duplex and SFR is in my name. LLC's cost money just keep your rental in your name. It makes OS issues a lot simpler. YOU are the owner.

Moving, want to rent my house out - LLC or no?

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