October 27, 2008
Should I form an LLC for my soon to be first investment property?
J Rizzle asked:
I have a home that is going to be converted from my primary residence to an investment property that I will rent out. I would like to know if putting this home in an LLC is the best course of action to limit my liablity. Also I will be residing in a state other than the one the soon to be investment proerty is located. Should I form the LLC in the state the property is in or the state I will be residing in? Only helpful answers please.
I have a home that is going to be converted from my primary residence to an investment property that I will rent out. I would like to know if putting this home in an LLC is the best course of action to limit my liablity. Also I will be residing in a state other than the one the soon to be investment proerty is located. Should I form the LLC in the state the property is in or the state I will be residing in? Only helpful answers please.
Filed under Renting & Real Estate by Administrator
Comments on Should I form an LLC for my soon to be first investment property?
Form the LLC. It helps protect your investment and your home prpperty from legal issues invovling the other. Unless you like the idea of some moron with a good lawyer taking your residence away..a bit blunt but simple
Well lets see… I would first ask what state the investment property will be in as well as what state will you reside in. There are different laws for LLCs depending on certain states. Also how many units are in the investment property? is it just a single family home that you are putting a tenant in? If so a well written and thorough lease agreement should protect you from most liability that should arise. Now if you have an investment partner or more than one unit in the property or if you want to record the income generated from rents though the LLC for tax purposes than you can do that to. I personally would create the LLC.
#1 You can never stop anyone from trying to sue you personally no matter what you do. People can sue you even if the home is titled in the name of the LLC, it does not mean that the case might get thrown out but they can def. cause you some greif personally. Because you are moving out and plan to rent it, that is a pretty good reason to form an LLC just to keep track of the investment seperately from your other finances not necessarily for saftey though. As far as liability goes, if you want to you can see if a local title company can switch title to the LLC’s name but I think that you will find them reluctant to do this because I am assuming that you have a current mortgage on the property in your personal name and they could not without refinancing, legally switch title without Lender approval which they wont get ….or you could just refinace it completly out of your name and into the name of the LLC.
I have an LLC for each of the properties I own, and wouldn’t change a thing about it. As for which state to form it in, I’m not sure.
One suggestion might be to sell it and take the capital gains as non-taxed income now, while you still can.
Best of luck!
Forming an LLC is only one way to protect yourself. It’s usually a low cost, easy as applying on-line activity. The larger questions here are how exposed are you? What do you have to lose in a court case? What would the lawyers be going after in a liability case? Do you have adequate insurance coverage? Limiting your liability is a conversation to have with everyone on your real estate team. Ask your attorney, your CPA, your independent insurance agent and your Realtor. All will have good ideas. Because you will be conducting business (I assume) from afar, you need to be better protected than those who drive by their property on the way to work each morning. Do you have a SCORE office near you? Good luck.