To LLC or Not to LLC

[Danielle Dickens]

Hello!

I recently purchased my first duplex in Minnesota. There is a lot of discussion around creating an LLC or not and thought I would just create my own thread in hopes to grab a few opinions and or re-post's of good threads to read. Here are a few options that I have thought about.

1. No LLC at all and just have an umbrella policy

2. LLC for "property management" but properties are still in my personal name

3. LLC for multiple properties (once I get a few, only one currently)

4. LLC for each individual property.

I have contacted a few lawyers in regards to asking a few questions regarding this before hiring them, but unfortunately get a little bit of a run around because they don't want to share too much information before being hired (understandably so).  I just want to find a good lawyer who really understands the different options and is willing to explain things to me in detail and will look out for my best interest.  If anyone knows of a good lawyer let me know as well!  

In the mean time, I will keep the interview process going :)  Thank you all in advance for your input and advice.  

Take Care, 

Danielle

[Drew Sygit]

How does an LLC Logically Protect a Landlord?

A lot of landlords are advised to put their properties in the name of an LLC for asset protection.

While this is basically true, the reality isn’t what most landlords think.

If a legal issue occurs with your property resulting in a lawsuit, there's a high likelihood the plaintiff's attorney will be successful in "piercing the corporate veil" of your LLC and being able to sue you directly.

Why? Because most landlords don't follow all the legal requirements to maintain their LLC as a separate entity.

So, what else can a landlord do to protect their personal assets from a business lawsuit?

Well, what types of lawsuits is a landlord most likely to face?

Lawsuit from tenants for personal injury!

How many tenants have the funds to pay a retainer fee to an attorney to handle the lawsuit?

Not many! Most will find a personal injury attorney that will take their case on contingency – meaning the attorney will charge very little, if anything, upfront, but take a third or more of whatever they collect.

And here is the secret of using an LLC to protect your personal assets – by "hiding" them!

You see, there’s nothing worse for an attorney taking on a contingency case, fronting all the legal expenses and investing their time to win a case and obtain a court judgment – then NOT be able to collect on the judgment.

So, astute attorneys will research the available assets and insurance before accepting a case on contingency. If they can’t find either, why would they waste any resources on the case?

If all they can find is the property in the LLC, it may not be worth the additional hassle of trying to force a sale of the property to collect on their judgment.

So, they'll research who owns the LLC and what assets that individual has.

If you act as the agent for your LLC and use your personal address – guess what? You've just made it super easy for them to find you and now they can research your other assets and probably sue you!

So, if you're going to go through the effort of setting up an LLC, be sure to take the extra steps to find an attorney, CPA or other professional willing to act as the agent for your LLC and allow you to use their address. Most will charge an reasonable annual fee, but think of it as insurance.

Lastly, consider just getting more insurance, typically an umbrella policy to cover your entire portfolio, instead of OR in addition to an LLC.

Of course, discuss all this with an attorney!