Investing in real estate with an LLC or without one?

[Junior Jaquet Hernandez]

Hi to everyone

I just want to know:

1- how could affect me as an investor in real estate without an LLC?

2- what benefits can I get with the LLC?

3- what are the pros and cons. Getting an LLC?

I would like to see your experiences and opinions

Thank you so much!

[David M.]

@Junior Jaquet Hernandez

This is posted on a lot in BP. Just to reinforce what's been said, the LLC is there only for asset protection via limited liability. Unless you are investing with non-spousal partners, you don't need it for tax purposes because the deductions are really identical. However, you do "pay" for the LLC in terms of needing commercial loans since legal entities are not eligible for conforming residential loans (I post on that a great deal about those people who move their Title back and forth --- bad idea in my opinion). Also, you need to operate the LLC as a separate entity (since legally it is) with its own bank account. Don't co-mingle your funds or use it as your alter-ego since there are sure ways to pierce your corporate veil. Do consult some qualified professionals and understand the difference between accounting/tax issues vs. legal issues. For example, many people, even here on BP, will claim every deduction under the sun (e.g. they installed new windows on their primary home) which "might be possible" for your tax return. However, ask them if they have been sued (which pretty much nobody has) and if the other side found out you weren't operating your LLC separate from yourself... hmmmm...

One opinion is to take the lead from the insurance companies. They are out to make money. So, they will have the risk covered. So, buy landlord insurance and an umbrella policy ($1m to $5M coverage) which kicks in 'over and above' and existing base coverage. So, for generally a few hundred bucks a year, have millions of additional liability coverage -- that's a pretty good piece of mind. When you own personally, this can be pretty nifty since you can also put it over your personal home, auto, etc. The LLC would have to have its policy. Usually any "regular" insurance company will offer an umbrella. I've had mine from my regular insurer providing home and auto insurance. Also, keep your property in good repair (i.e. don't be a slum lord) to eliminate/reduce your liability in the first place.

Ultimately, it does depend on your personal circumstance as to whether to use a LLC or multiple LLC's. Many investors on BP have mutliple single family rentals in their personal name. Even as many as over 50.

I hope this helps.  Good luck.