All Forum Posts by: Sylvia H.

Welcome to the BiggerPockets forums!

You don't need an LLC. I know people with 50+ rentals owned under their personal name. Please read my guide below and think about what is truly important at this stage in the process.

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 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 appears 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 basic 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 12 years 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 likely to be higher, then 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 additional, on-going effort to maintain.

Hello! My quick view from 1000 miles away and not knowing your situation at all :) 

For me it comes down to the Math. 

If you buy out of state even in a lower price you will have to put down at least 20% to 25% and if you buy where you live you could buy a primary home for 3.5% to 5% down. 

The difference : 20% on $200k : $40k plus closing costs  And 5% on $400k : is $20k plus closing costs which is much lower for a more expensive asset. (Or to control more money with leverage or a loan). 

If you don’t own a home yet: this is a no brainer in my book. If you own a home already, rent it out and buy another primary home. 

We first bought a condo, then a SFH and next another SFH at 5% down again - with a higher price.

You know the area, you know the demographics and economics. You will can meet your core team members face to face and get a sense of what you will need once you go out of state if you ever do! 

There’s a lot more of course: Rent to price ratios, prices, etc etc 

Let me know if you have any questions and if you need referrals to Realtors or Lenders anywhere! 

You could start in your town or in your state, get the hand of it, build some equity and force some equity by renovating or additions, ADU's and then move the equity to lower price point areas.

For example: I’m in CA : where prices are between $600k and $800k : buying at 5% down payments still make sense! Appreciation at 5% per year will be around $35k per year and loan pay down about $20k to $25k per year: so in theory, in 5 years I could have at least $200k of equity to deploy in for example: Ohio and buy 1 or 2 homes cash for cash flow for 3 to 4 houses with 25% down. 

Build your strategy and plan first and then make a decision and get started! 

Hi Everyone - I'm new to real estate investing and hoping to purchase my first MF property soon. Should I form an LLC before I purchase the rental property? And I hope to eventually purchase multiple MF properties, can you use 1 LLC for all your investment properties? I'm looking to purchase in the Midwest.

Hi there.  A couple things.  This lease provision is being used by a relatively large operator in my local market, and has been since at least 2014.  I am not sure if he was ever taken to court on it, but I can assure you based on his unit count in class-C, I know his attorney is in court regularly.

I haven't spent a day in law school, but as I understand contract law as explained to me by counsel, if it's in the contract and does not violate statute and is not deemed ridiculously unilateral (judge discretion), I think it stands.  As many progressive folks are crowing these days, "fair does not mean equal."

Secondly, the following provision protects the rest of the lease from being invalidated.  I have seen several leases from other housing providers in my jurisdiction, and they all (including me) have the following:

33. VALIDITY: If any part of this Lease is held to be invalid or not legal, its invalidity or illegality will not affect the validity or enforceability of any other provision of this Lease.

Add a provision to your lease that rent includes utilities up to X dollars, but everything above that will be charged back and divided among the units.  Like this one does for water:

41. NO EXCESSIVE WATER USE

No washing cars, playing with water, filling swimming pools or other excessive misuse of water please. $150 worth of water usage per apartment per water billing period is included in the rent. If the bill for the building exceeds $150 per billing period per apartment the excess amount will be split evenly among tenants in building.