All Forum Posts by: Andrew Kessler

Quote from @Kevin Pinkard:

1. Call your lender and explain what you want to do. They will approve it or deny it. They will most likely approve it.

2. Go to your county and ask for instructions on filing a quitclaim deed or warranty deed. They can probably provide you with instructions, samples, etc. My wife had zero experience and transferred all of ours with no problems.

3. Update your lease and other documents to reflect the LLC. Set up the LLC business bank accounts.

Moving to an LLC increases costs, work, and complexity. Make sure this is the right track before making your life more difficult.

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney, and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State's website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appear on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your primary insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 14 years of experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require extra, on-going effort to maintain.

On the day of closing, you hand them an introduction letter with your contact information, payment information, how to report maintenance, etc. At the same time, collect updated contact information and schedule their first inspection so you can document condition, answer questions, etc.

Gradual rent increases are awful. If the tenant can afford it, bump them to market now. If they can't afford it, get them out and find someone that can. Incremental increases creates confusion, increases the chances of payment problems, may result in the tenant eventually reaching a point that it's unaffordable, or it can create animosity. At the same time, you're losing money by not raising immediately.

If they are more than 15% below market, I prefer to move them out and start fresh. if they are 10-15% below market, I'll consider keeping them with an increase. If they are less than 10% below market, I'll negotiate a smaller increase (maybe 5% or 7%) to keep them IF they are really good tenants.