Umbrella policy vs. multiple LLCs

[Bryan Laufenberg]

To protect my personal assets, is it better to form an LLC for each individual investment property I purchase, or to just get an umbrella policy?

[Nathan Gesner]

Umbrella policy is simpler and cheaper.

Let's say you set up two LLCs. You have to keep separate accounts, checkbooks, paperwork, annual filings with the state, etc. I believe you also have to file separate tax returns. In my case, each LLC would cost me about $400 a year just to file taxes.

The point of an LLC is to protect your assets. Tenant falls and breaks their leg, decides to sue you. If someone sues you for more than your LLC is worth, you forfeit your assets within the LLC but everything outside the LLC is allegedly safe.

However, the average settlement is around $125,000. If you have a $2 million umbrella, there's almost no chance a tenant would sue you for that much and cause you to lose your assets.

In fact, ask around the Biggerpockets boards and see if you can find a Landlord that's lost an asset to a lawsuit.

Your best protection is to follow the law and treat your tenants honestly and fairly. Get an umbrella policy just in case.