Is LLC really necessary when you just start out?

[Becky Lu]

Hi BP members,

My husband and I started our RE investing and bought a 29-unit apartment in Texas and a 16-unit in North Carolina this year. (We bought our residence with a VA loan back in 2011 in California.) After reading many posts on BP, we're now more leaning to purchasing an umbrella insurance, instead of forming an LLC for a few reasons.

First, it's harder to work with a bank. We really took advantages of OPM and are now building the equity by improving the property and plan to refinance in a few years. Lenders don't typically like to work with properties under a LLC. (Our Texas property has a fixed rate now but will have an adjustable rate after 5 years.)

Second is the cost, even if we form the LLC in Texas, where one of the 2 properties is located, we still need to pay the $800 to California state for California has strict rules about LLCs, in addition to the fees to Texas.

Lastly, based on our situation, we don't really have much personal assets to protect. An umbrella insurance of 1M~2M should be sufficient to cover our assets. But as we continue to purchase more properties and build our wealth, we'll for sure form LLCs in the future.

Did any investors, especially out-of-state investors like us, have similar experiences and might be able to pinpoint things I don't see? I don't want to simply form a LLC just because everyone else does and would love to hear any experienced investors' comments. Thank you!

Becky