Property management as LLC?

Question

In the process of buying my first SFH for BRRRR. For a conventional mortgage/refi, I'm buying it in my name. It sounds like it isn't worth the higher rates for portfolio or private lending. I'm good with this plan. Does it make any sense to create an LLC for the property management portion? I feel like having a company name, company checks, company bank account, company name on the rental agreement, etc would seem more professional as opposed to keeping everything with my name. Am I overthinking this at this point? Should I just keep it simple for now and everything in my name until I grow larger than the conventional mortgage process? Or jump right in and set up an LLC even though the it doesn't help the liability side too much? Thanks in advance for your thoughts. -Mike

Anthony Lee · Answer

@Mike McCarthy Either way, whether you decide to put the property under an LLC or keep it as an individual, i cannot stress the importance of having a good insurance policy in place. Especially being that it's your first BRRRR. If you set up an LLC for property management, I would also recommend that you have a liability policy in place for the LLC specifically also.

Amber Gonion · Answer

Another point on the llc, my attorney friend says the first step when he takes a case is to ask for the llc papers including minutes and make sure that everything is in order. He said most people just file for a llc and forget about it meaning they have no protection at all. Be sure to file property papers, have minutes etc.

Robert Gilstrap · Answer

With one house I'm not sure you need to set up a full blown company to manage it but owning rental property in your personal name; no way. Get it out of your name and into a trust (which will circumvent due on sale clause) and have your beneficiary be an LLC which you are a member of. Never smart in my opinion to own things personally. Too many risks and potentials for ancillary problems. Agree with John about having good insurance but not sure what he means by an LLC won't protect you? Maybe I misunderstood but they actually do protect you.Also not understanding dba offering asset protection? It doesn't.Seasoning for an LLC? The only reason an LLC might need to be seasoned is if you are borrowing in the name of the LLC and it was a lender requirement. Again not trying to refute what anybody is saying perhaps I'm just not understanding in what context they mean.

Mike McCarthy · Answer

Thanks John Anderson I was not planning on the LLC owning the house, I'm not into surprises like a due on sale popping up. Matt Turbitt The dba is something I'll look into. I've heard of it as it relates to 'renaming' a corporation, but never as a personal attachment. Interesting idea though. I didn't realize the LLC 'seasoning' thing either, so it might make sense to plan ahead, even if it is a bit more work upfront. Thanks much!

Matt Turbitt · Answer

if you are more into the name portion of the llc then the asset protection portion and can always just dba. Then the name can be past call you whatever you want and it's cheaper then an llc. But as motivation to use an llc, llcs need seasoning time if they don't have substantial assets. So creating and using it now can help you 3 years from now when you actually want one.

Robert Gilstrap · Answer

So placing property into a living trust or land trust (same thing for all intents and purposes) can be done in 5 minutes and the beauty of trusts is they are not filed anywhere on public record. So the deed is the only indication of a trust but the details of the trust are kept private. This is a really loooooong discussion but the best way I've found to protect ones privacy and provide legal liability protection is to have the trust own the property and have the beneficiary of the trust be your LLC and then the membership of your LLC can be whoever (you personally, a Family limited partnership, etc.) So using Ricks example above about his attorney friend asking to see LLC minutes, etc. this would not happen if a trust owned the property because the attorney would have no knowledge of who the underlying beneficiaries are because it's not filed anywhere public. An attorney would have to sue the trust first to even find out who was behind it and then sue them in a separate action. Long story short trusts are an excellent tool for anonymity. Trusts also circumvent probate, they also aren't subject to partition actions, they offer incredible ease in transfer of ownership, and about a hundred other positives. All that being said if you're just buying your first property don't let trusts and all this exotic stuff stop or even slow you down. That can all come later.

Mike McCarthy · Answer

@Robert Gilstrap, I too am curious about the trust. I've been struggling with my first rental property. I really don't want to spend a few extra % on a private/portfolio loan when I can get a cheap conventional mortgage. I would love to do an LLC for asset protection, but from what I've read and spoken to loan advisors, it's not doable without a significantly higher interest rate. @Tyson Hosey - not a hijack at all, I'm working through the same questions!

Tyson Hosey · Answer

@Robert Gilstrap Can you explain a little further the trust portion of your post there? I have my first rental property in my own name (because it was previously my primary residence) and I don't want to go through the headache of transferring it into an LLC. Is it still a headache as far as paperwork and only circumvents the "due on sale" clause? @Mike McCarthy (sorry don't mean to hijack the thread with a "rabbit trail" topic)