Should I refinance or not? LLC or Umbrella insurance?

Question

I purchased a townhome in TX last year. Purchase price: 300K, with 10% down on 2.25% with my Mom and my name on title/loan. Currently, 3 friends paying rent which covers the mortgage. Plan to rent it out to 'actual tenants' (not friends & family) sometime next year in summer.

So I am paying PMI right now. The comp shows exact properties like mine are being sold for 400K right now. Which just gave me 100K equity. I know the rates are still low right now, but no guarantees for next year or so.

So the question is, should I refinance it to pull equity, get rid of PMI, and transfer the title to myself or LLC later? (or should I use portfolio lender to just refinance as LLC in the first place?)

Is it worth the risk of losing the low interest rate? My CPA suggested it would be better to keep it as it is and should be fine renting it out with my mom and my name on it and just getting umbrella insurance. Any suggestions?

John Mocker · Answer

Kevin,

From an insurance persective, I don't think the LLC vs Umbrella is an either or.  I think the additional Liability coverage is important and should be considered with or without moving to and LLC.  The greater the pool of Insurance money they can go after the less likely they will go after the assets.  The question becomes, what level of umbrella coverage (Policies are sold in $1,000,000 increments) are you comfortable with and whether or not the added protection of the LLC is worth the cost at that point.  You should consult with your Attorney about how much additional the protection your mom needs if her assets are more than yours.

Nathan Gesner · Answer

You can save by removing mortgage insurance, but you'll pay more for the higher rate and possibly eat up any savings. Talk to your lender and let them show you the options, then make an informed decision.