All Forum Posts by: David Rutledge

Hi David! Congratulations on finding your first two homes. Many others have weighed in with good insight. Here are a few things that may have been missed.

Regarding insurance - the insurance should follow title. If the property is titled in your personal name, the insurance should be also. If the property is titled to the LLC, the insured should be the LLC.

The insurance policies will be different than typical home owner policies. The type of policy for a rental home is called a Dwelling Fire policy.  This type of policy will offer landlord's liability coverage, and will offer the proper coverage for a rental.  I would recommend at least $500K in landlord's liability coverage. Any knowledgeable agent will know this and be sure you're covered correctly. 

Typically a Dwelling Fire policy will have very little, if any, personal property coverage. The easiest way to define personal property is "all the stuff inside the house" Since landlords don't usually provide furnishings, decor, etc., it's typically not included, but on the off chance that you're providing furniture or anything else for the tenants, it's easy to add personal property coverage, as well. Be sure to let your agent know if you have items in the home that need to be insured. (Built-in appliances are already covered)

As mentioned above, if you choose to title the properties under your own name, you will want the insurance in your name. Many insurance carriers will limit the number of rentals that they will insure on your policy. It's common to limit the number to four, but check with your agent on what they allow. If you purchase more rentals, you may need to look at a commercial policy... which may or may not be allowed in your own name, depending on the insurance carrier requirements.

If you choose to title and insure the properties under your own name, a personal umbrella is beneficial, although more risk (the rentals) will increase the cost of an umbrella policy (vs if you have a personal umbrella for your home and autos only). 

If you choose to insure and title the properties under an LLC, a personal umbrella does not protect you from claims on your rentals since the lawsuit will fall to your LLC. You will want a commercial umbrella policy for that coverage. However, you could also discuss raising landlord's liability to $1M on your individual policies. Again, talk to your agent to determine the best options for your situation.

Regarding deduction of expenses - Yes, you can deduct expenses with an LLC. You (or your accountant) will file a separate tax form for the LLC. You will want to set up a business checking account in the name of the LLC, and even if you don't set up an LLC, I would recommend a separate business account for your business transactions. It's easier to track income and expenses, and much more convenient if you are ever audited down the road. Whether you're using an LLC or your own name, be sure to run all expenses and income through the business account, if possible.

Best wishes for lots of success!

David Rutledge

I haven't had the chance to learn much about Charlotte. Still learning about the Raleigh area.

But I've wanted a multi since I was 21...now I'm 39 and by golly, I plan to get one.

I was just in SoCal last weekend for a family reunion. Next time I head that way, we should grab some coffee.

@David Rutledge,

You're very welcome.

Don't be intimidated by the whole "commercial" thing. You're in business now. That's what commerce is.

David Rutledge can't wait to see what you come up with. I actually do have a 2nd home in NC and just fell in love with the place, so I definitely wanted to invest there.

But keeping my options open.

@David Rutledge,

Actually, setting up a trust is a few forms you sign at your attorney's office and they do the rest.

Check with your tax accountant, but I believe any expenses against the business are deductible, within limits and conditions set up by the IRS.

If you start out right it's easier to stay on the right path than doing it the other way and trying to change later: lots to undo and redo.

Good question David Rutledge since I often wondered about this myself.

I'm from CA as well and have one rental here. Heading to NC to search for a rental there.

Funny, what made you choose NC to invest in?

I considered IN as well since my in-laws are there.

@David Rutledge,

He's talking about what's known as an "umbrella policy" which does NOT protect your assets, it only provides a prize for potential litigants to go after.

The business entity structure I described DOES protect your personal possessions in cases of litigation against your properties or the entities which own them.

Greg's right about one thing, though - an LLC alone is not sufficient protection. You need the multi-layered approach to be as safe as the law allows. He's in Canada, not the U.S. The laws there differ from here.

More trouble and more costs than it is worth unless you have employees. A LLC does not protect principals from being liable. Just get good insurance coverage and save the higher tax costs.

I'm also a newbie but have remembered reading that most lenders will not loan to LLC's, and if you transfer the title over to an LLC after you close you run the risk of the bank calling the mortgage due since it's technically hanging ownership. Keep those two thoughts in mind but let's see what some of the more experienced investors think!