Limited Liability Corp (LLC) info

[wetwilly]

As an owner that rents out my property, it was suggested that I do a quit claim deed and set up an LLC for my property?!

Any info pro/con? Also, anyone have a good lawyer or source to set this up? I thought other owners might have info on this and others might find this info helpful. PM me if needed.

TIA for any info and/or help. :clap_1:

 

[Beach Runner]

We set up a F.L.P. (Family Limited Partnership or "flip") in the State of Georgia that owns our rental property. Our C.P.A. is also a lawyer, and he set it up for us to protect our assets, especially our primary residence. We also have a multi-million dollar umbrella insurance policy on the house to protect us in case of a lawsuit.

 

[TooFarTampa]

We did this. It was explained to us by our Tampa-area attorney (who in hindsight we would NOT recommend, so take it for what it's worth) that it eliminates our personal liability should someone sue us for being injured on our rental property. We own our rental house with other people and we all wanted to be personally protected (ie -- no one can go after our primary homes or other assets not in the name of the LLC) since the house is on the rental program and there are people in and out all the time.

It is a mini-business. We are registered with the state, and have to file every year. We do a tax return just for the LLC and have a bank account that we use for our rental income and all our expenses for the house. Your attorney can set up the articles of corporation or whatever they're called, and make sure you call your accountant so you know you aren't missing anything obvious from a tax standpoint.

It does complicate things if you want to sell and do a 1031 exchange, since I believe the property you are exchanging it for would also have to be in the name of the LLC. Don't quote me on that, but it is complex.

Also, if you have a mortgage, your loan would still be under your names. We could not find anyone to lend to us as an LLC, so we had to personally guarantee the loan before we could get one.

My husband and I own a lot in Seagrove just by ourselves, and we did not form an LLC for this purpose. Our homeowners' insurance gives us about $300K in liablility coverage should someone hurt themselves while trespassing on our lot, though I keep meaning to get a $1m umbrella policy, just in case.

 

[wetwilly]

We did this. It was explained to us by our Tampa-area attorney (who in hindsight we would NOT recommend, so take it for what it's worth) that it eliminates our personal liability should someone sue us for being injured on our rental property. We own our rental house with other people and we all wanted to be personally protected (ie -- no one can go after our primary homes or other assets not in the name of the LLC) since the house is on the rental program and there are people in and out all the time.

It is a mini-business. We are registered with the state, and have to file every year. We do a tax return just for the LLC and have a bank account that we use for our rental income and all our expenses for the house. Your attorney can set up the articles of corporation or whatever they're called, and make sure you call your accountant so you know you aren't missing anything obvious from a tax standpoint.

It does complicate things if you want to sell and do a 1031 exchange, since I believe the property you are exchanging it for would also have to be in the name of the LLC. Don't quote me on that, but it is complex.

Also, if you have a mortgage, your loan would still be under your names. We could not find anyone to lend to us as an LLC, so we had to personally guarantee the loan before we could get one.

My husband and I own a lot in Seagrove just by ourselves, and we did not form an LLC for this purpose. Our homeowners' insurance gives us about $300K in liablility coverage should someone hurt themselves while trespassing on our lot, though I keep meaning to get a $1m umbrella policy, just in case.

Thanks for the info.

 

[GVM]

If I'm not mistaken...LLC's really no longer limit liability...if they ever did. I'm sure a lawyer out there can fill us in.

 

[Smiling JOe]

If I'm not mistaken...LLC's really no longer limit liability...if they ever did. I'm sure a lawyer out there can fill us in.

I AM NOT A LAWYER!!

My understanding is that by creating a LLC to own the property, your personal liability is greatly reduced. However, any other properties owned under that LLC would be vulnerable to finacial attack in a lawsuit against the LLC, although your personal assets would not necessarily be at risk.

An time when an LLC does not limit your personal liability is when the business is owned by a LLC, yet you, the owner of the LLC, are directly responsible for injury to another person or damages. eg- Your LLC owns a boutique baby food business and you are the sole operator of the business, ie- You put the baby food in the jar. In your negligence, your tie clip accidentally drops into the batch of baby food, which later becomes lodged in an infants throat, thereby killing the infant. Your LLC will not offer any protection for you personally. You are liable.You would be suid and your LLC would be suid, and both would probably lose. I can think of real estate example, but they are not as vivid as this one.

 

[RiverOtter]

In your negligence, your tie clip accidentally drops into the batch of baby food

Tie Clip :laughing1 You're dating yourself with that one SJ

 

[DBOldford]

We explored this in detail and with three attorneys and two CPAs. Decided against doing it for several reasons. First, the LLC does not protect your assets from an aggressive litigation. This is a myth. The attorneys make a lot of money on setting up these LLCs, work that is typically turned over to a paralegal. The LLC has no assets, therefore, litigators will go after the officers of the LLC. That would be you and any other partners in your real estate interest. The LLC is little more than a speedbump, if that, we were told by an attorney that had no personal gain in the advice he gave us. Another attorney told us, "There's not reason not to do it." (????)

The separate tax return is a pain. However, if you want to finance your house as a second home rather than as an investment property, having the separate tax filing can come in handy. Some people take advantage of a financing mechanism that approves the mortgage strictly on the basis of a very high credit rating, in order to avoid presenting an income statement on the property. You don't have to file any income statements whatsoever.

When you finance or refinance, lending institutions will not finance to an LLC, only to individuals. You have to flip the property in and out of title every time there is some form of financing mechanism invoked. Expensive, time consuming, and mistakes can be made every time the disposition of the property changes (see below).

Many of us have all real property held in a family trust. If you finance (or refinance), the property has to be removed from the trust and then returned to the trust after your closing. This requires work from our CA attorney and requires the efforts of a FL attorney, where the property is located, as well. It gets expensive and tiresome. Once, our CA attorney failed to return the property to the trust and that was really complicated to rectify, because several months passed with us assuming the law firm had taken care of this. Not so bad if everything is being handled in the same state and with the same attorney.

The only thing worse than needing an attorney is needing two of them on the same matter and at the same time.

 

[Beach Runner]

Donna, thanks for the info. Time for a heart-to-heart with our CPA/attorney, just to make sure we've POA.

 

[TooFarTampa]

I'm sure Donna is 100 percent right, especially her statement that it is just a way to generate fees, and the paperwork is shuffled away to paralegals. Our LLC docs were handled by a paralegal who was terrible. In hindsight I can't believe we ever closed on time. It is definitely something to explore in detail before you decide if it is right for you. Whether it was right for us, who knows -- the entire process of owning a rental home has been a learning experience!

The other thing I was wondering, since we had a claim under Ivan: It seems like since the insurance agent doesn't even know the names of those of us in the LLC, any claims would not impact our individual CLUE reports. (Meaning it probably would not impact our personal homeowners' rates.) In hurricane country, that might be a nice advantage. Though I guess if the CLUE people wanted to, they could find us in the LLC documents we filed with the state, since we are members of record.