Placing Rental Properties in LLC's

[Ethan Painter]

Up until this point, I have only flipped houses, but I want to begin searching for rental units to purchase. I have heard it is best to start an LLC for each rental property you purchase, so that if you get sued, they can only go after the value of one property, instead of all of them. Is this true? If so, how do you make this happen logistically, because you would have to put the offer in on the house, and once it was accepted, file for an LLC, but that can take a lot of time. So what is the best way to make this happen?

[Mike S.]

When your LLC gets sued, who pays for the lawyer to represent the LLC? If your asset does not maintain enough insurance to cover a claim or you don't keep up with the added expenses to maintain the LLC as a separate entity (comingled accounts, personal checks paying for expenses, etc.) will a judge pierce the corporate veil and come after you anyway? For most situations, and until you get to a certain size, an umbrella policy makes more sense. If you have a $1,$2, or $3 million dollar umbrella policy, you have a $1,$2, or $3 million dollar legal team that will go to court to reduce or eliminate your liability. If you pay for sufficient coverage on your insurance and umbrella policy, then why do you need the overhead of the LLC? If you don't have this coverage, then the judge is going to start looking at you personally.