Business Structure and Insurance for Buy and Hold Rentals

[Connor Mather]

Hi Everyone,

I am in the process of transitioning my 3 townhomes out of my name and into my LLC. I was wondering how everyone structured their long term buy and hold rental properties.

1. Do you keep all properties in one LLC or is each property its own LLC?

2. What insurance do you carry and what limits do you have? How can I screen insurance agents to make sure they are knowledgable on what I need for these properties and not have them over sell me on coverage I likely do not need yet?  

I am new to this and want to make sure I am doing it the right way. Thank you all in advance 

-Connor Mather

[John Mocker]

Connor,

Since you are dealing with Townhomes, to screen agents I would ask them to explain:

1. Why you have to include Building coverage if the Association has it.   It they know what they are doing they will explain that in a Condo ownership setting, the association may not insure all parts of the building

2. Ask them how you should figure out what amount of coverage you need.  They should discuss that the Bylaws and Declarations of the Condo Association define the boundaries of your unit and what it includes.  Those documents also define the Common elements  which the association is normally responsible for insuring and the Limited Common Elements (things like plumbing and HVAC piping, wiring, etc. that service more than one unit but not all) which could be the associations responsibility or yours if they are in your unit.

3. Ask them what "Loss Assessment" coverage is for and how they would determine how much they recommend.  Loss Assessment is coverage for your portion of an Association Assessment to the owners.  In order to be covered it has to be for a peril (cause of loss) that would be covered on your policy.  So, if the building gets hit by lightening and the association does not have coverage they will assess the repairs to the owners.  If your condo unit policy covered Lightening, the assessment should be covered up to the limit for that coverage on your policy.

4. Ask them to explain what "Personal Injury" coverage is and why it is important especially to Landlords.  It covers Libel, Slander, wrongful entry, etc.  

How Much coverage is a question you need to discuss with the agent. One suggestion is to maximize the liability under the policies and get an umbrella policy above them. The more coverage you have the less the incentive to try to break the veil of the LLC or go after other assets of the LLC.