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  1. #1
    Join Date
    Jan 2011
    Posts
    1

    Default Should I Start an LLC for a Single Rental Home to Protect Personal Assets

    My question involves real estate located in the State of: PA

    We were unable to sell our PA home during the housing crisis and instead are renting it out, it is adequately insured (we believe) and being managed by a property management company.

    We are not seeking to start a business and quite honestly hope to sell as soon as the market allows. We definitely do not have the stomach to be landlords and are very, very concerned about liability issues and risk to our personal assets (we have had some not so great experiences with lawsuits). But to focus on our specific question:

    Does it make sense for someone with only a single house to use an LLC to protect our personal assets? What are the pros and cons? Our understanding is that if the home is under the name of the LLC that any personal liability issues (slip and fall, injury, etc) can only be directed at the LLC and that our personal assets would be protected in the case of a lawsuit against us. But I have also heard that this is a rather ideal description and that in reality the problems with transferring the deed and the name of the mortgage and insurance to the LLC name make it prohibitive for just one house. I have also heard varying things in terms of the actual protection an LLC affords. Thanks.

    So to summarize:
    -Is it a worthwhile pursuit? Why or why not?
    -If so, if our current address is in a different state than the house, should the LLC be in the state that the rental property is in or our residential state?

    Thanks,
    newbie

  2. #2
    Join Date
    Mar 2008
    Posts
    1,995

    Default Re: Should I Start an LLC for a Single Rental Home to Protect Personal Assets

    Quote Quoting bearfamily
    View Post
    My question involves real estate located in the State of: PA

    We were unable to sell our PA home during the housing crisis and instead are renting it out, it is adequately insured (we believe) and being managed by a property management company.

    We are not seeking to start a business and quite honestly hope to sell as soon as the market allows. We definitely do not have the stomach to be landlords and are very, very concerned about liability issues and risk to our personal assets (we have had some not so great experiences with lawsuits). But to focus on our specific question:

    Does it make sense for someone with only a single house to use an LLC to protect our personal assets? What are the pros and cons? Our understanding is that if the home is under the name of the LLC that any personal liability issues (slip and fall, injury, etc) can only be directed at the LLC and that our personal assets would be protected in the case of a lawsuit against us. But I have also heard that this is a rather ideal description and that in reality the problems with transferring the deed and the name of the mortgage and insurance to the LLC name make it prohibitive for just one house. I have also heard varying things in terms of the actual protection an LLC affords. Thanks.

    So to summarize:
    -Is it a worthwhile pursuit? Why or why not?
    -If so, if our current address is in a different state than the house, should the LLC be in the state that the rental property is in or our residential state?

    Thanks,
    newbie
    I own rentals, personally manage them, and I don't place the properties into an LLC. I owned some rentals for over 25 years.

    Reason is if you personally manage them, something goes wrong, the LLC and YOU would be sued personally. I purchased a business from a couple, something in fact went wrong at the business, the business and they were personally sued.

    You'll be sued personally for negligence.

    If you hired a property management firm to do the managing, then the LLC and the PM firm would be sued as you are only an "investor".

    You'll have to look at the costs. Here in NY, I have to spend over $1,500 in publication costs besides everything else to set up my LLC. For two members, the LLC reporting fees run well over $500.00 annually. Then there's a few hundred extra for my CPA to do yet another tax return for the LLC.

    I actually operate a business via an LLC.

    If you'll check out insurance rates with your local agents, you'll find $500 to $1,000 annually would pay for a few million dollars extra in umbrella insurance. Lots of insurance would be your real protection. I recall at one point, $500/year paid for an extra $2,000,000 umbrella for a small number of properties, as long as I'm not paying commercial rates for over six properties, which then starts at $1,200/year, still not bad. Paying 10% of the rent as PM fees, which is the going rate to PM firms would run a little more than the LLC fees, and take you off the hook as well.

    If you handle the rentals personally, paying extra for insurance, and make sure it covers EVERYTHING would be the way to go. You'll have to have rent interruption insurance, to covering extra living costs for your tenants if there was a fire at your rental, and they live at a hotel. Many of these extras are not part of standard insurance where you'll be covered if something goes wrong.

    As to being out of state, if you gone to FL, and put everything into your new home, that would do it too. One of my guys who worked for the prior owner went to a deposition, and the plaintiff attorney wanted to know where the owners moved to after hearing they sold the business. My guy said FL, and the attorney almost fainted.

    In FL, the entire homestead is safe from lawsuits. After that, we heard nothing more from that attorney as we were getting the notices at our office.

  3. #3
    Join Date
    Mar 2009
    Location
    Key West, FL
    Posts
    2,350

    Default Re: Should I Start an LLC for a Single Rental Home to Protect Personal Assets

    Also in Florida, the Supreme Court virtually eliminated any liability protection for single owner LLCs.

    A multi-party LLC is generally a nightmare and from all the issues that get postd here, and from personal knowledge, I would never be involved in one.

    Personally, a standard corporation is a much better option and the law is far more developed for a corporation than an LLC. You can take the subchapter S option with the IRS and get taxed like a LLC.

    A corp is good for liability protection if you are NOT personally involved in the tort. In a small business, chances are you will be involved and will be pesonally sued anyway. Neither a corp or LLC will help in that situation.

    The other consideration is you have to appear with an attorney in court, you can't represent your corp or llc except in small claims. Not to say you want to or are capable.

    Yes, I would just pay for extra insurance and make sure it covers the things that might happen in your business.

    The other approach is to incorporate everything. Here in FL I know of cab companies and each and every cab is incorporated as its own corporation.

    Here in FL, your home with a homestead exemption can't be attached by any judgment, whether it is worth 50k or 50 million.

  4. #4

    Default Re: Should I Start an LLC for a Single Rental Home to Protect Personal Assets

    Interesting, one of these days I'm going to study up on piercing the corporate veil. I've been told by attorneys that is very difficult to do.

    I would mention to the OP to relax a bit. You've heard the expression that possession is 9/10th of the law. You have granted a leasehold estate to the tenants. They have possession, not you, which severely limits your liability.

    Even so, make sure that you're not aware of any unsafe conditions so no one can prove negligence on your part such as rotten porch steps before you entered into the lease. Let's say the tenants dig a big hole for their annual pig roast and someone falls in and gets hurt but you were unaware of the hole. Why would you be liable?

  5. #5
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Should I Start an LLC for a Single Rental Home to Protect Personal Assets

    The issue isn't "piercing the corporate veil" - it's that a member of a LLC remains personally liable for his own actions. The LLC can shield you from liability for the actions of other members and for certain actions by employees (particularly if they're not acting under your supervision) but if you do something wrong you can be sued individually along with the LLC.

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