By Joe Dyton, WCI Contributor
When a new business venture is formed, one of the first questions to consider is if the owner should form a Limited Liability Company (LLC). An LLC can help protect a business owner and their assets from personal liability.
It’s that protection an LLC can offer that also makes rental property owners ponder if they should form one and put their properties in it. Unfortunately, the answer isn’t usually a simple “yes” or “no.” Different factors, including asset protection and taxes, must be weighed before entering the LLC arena. For some, it seems easier to sidestep the complexities that come with forming an LLC and just add more insurance coverage. But there are no guarantees with increased insurance either.
That is why when a rental property owner asks if an LLC is their best option, the most honest answer is it depends. While not entirely helpful, it is the truth—at least until you’ve weighed all the options at your disposal. Keep reading to better understand the pros and cons of creating an LLC for your rental properties and how that compares to simply increasing your insurance.
What Is an LLC?
A limited liability company is a business setup that shields its owner’s personal assets from lawsuits. It can also protect the owner’s personal assets from creditors in the event the business incurs unpaid debts. How LLCs are regulated varies by state. They are a combination of a corporation and a partnership or sole proprietorship.
Pros of an LLC
Given the protection an LLC can offer, it can be tempting to want to create an LLC for your rental properties. Here are a few benefits of doing so:
Tax Benefits
LLCs can have several different tax designations, but a “pass-through” entity is the one you’ll likely use for your rental properties. The pass-through tax entity is beneficial because you receive the income and capital gains from the LLC directly and pay taxes as an individual. Meanwhile, you still receive the protections that come with the LLC. It’s the best of both worlds. Be sure to discuss with your CPA to ensure an LLC works to your tax benefit.
Asset Protection
Perhaps the biggest draw of an LLC is minimizing your personal liability. The protection is especially crucial for a rental property owner. If a tenant decides to take legal action against you for whatever reason, your LLC can help keep your personal assets out of any lawsuits.
Privacy
Without an LLC, your name as the rental property owner is on the deed, which is public knowledge. If a bad actor discovered you were a physician (and assume you’re a high earner), they could be tempted to file a lawsuit for financial gain. With an LLC on the deed, however, it makes it more difficult to know who actually owns a given rental property. Some states allow for total anonymity, which would guard your identity even further.
Cons of an LLC
Between the personal asset protection opportunities and tax advantages, it may be hard to imagine a downside to forming an LLC for your rental properties. Rental property LLCs, though, do have their disadvantages as well.
Expenses
There are significant out-of-pocket costs associated with forming an LLC for your rental properties. Lawyers can charge hundreds, even thousands, of dollars to set up an LLC for you. Online sources such as LegalZoom could also help you, but there are no guarantees that will be enough depending on your situation. You may also have to pay an annual fee to maintain that LLC based on the state your rental property is located. Plus, if the property is originally in your name, you might have to pay a title transfer fee when you move it to an LLC.
Lack of Guaranteed Asset Protection
An LLC is designed to protect your personal assets from your business dealings, but unfortunately, it’s not 100% foolproof. There could be situations where you and your personal assets aren’t as protected as you’d like—often in personal misconduct situations or if you’ve made a personal guarantee. Other situations where your assets could be in jeopardy aren’t as clear and unfortunately do not become clearer until an actual lawsuit arises.
Difficulty Getting a Mortgage
You might have trouble getting financing for a rental property under an LLC. Residential lenders typically want someone personally liable—they’re also hesitant to loan to LLCs because of the limited liability protection they provide. Your options in this case are to purchase the rental property in cash or attempt to deed it to your LLC after you buy it in your own name.
That plan could lead to a new set of problems, however. Turning ownership over to an LLC may lead your lender to consider the move as a change of ownership and ask for the loan to be repaid in full. This might not happen, but if a lender forces your hand, you’d either have to pay off the loan in cash, refinance, or sell the property.
More information here:
Top 16 Asset Protection Strategies for Doctors
Obtain More Insurance Instead of Forming an LLC
A liability and umbrella insurance policy could also help protect you when owning a rental property. Tenants could sue you personally without the LLC protection, but with adequate insurance, you should survive any financial fallout. Just like with an LLC, however, there are advantages and disadvantages to going the insurance route.
Pros of Increasing Insurance for Your Rental Property
Simplicity
Your rental property is already insured. There’s not a lot of paperwork to deal with as there is with an LLC. Here, you’re simply increasing your coverage—just make sure your policy covers the proper limits and you add umbrella insurance.
Cost Savings/Benefit
Umbrella insurance is pretty inexpensive, considering it goes beyond the limits and coverages of any of your other insurance policies. It costs a portion of your primary insurance premium, but it will save you from having to pay any excess out of pocket that your main policy won’t cover, safeguarding your personal assets.
Cons of Increasing Insurance for Your Rental Property
Potential Personal Asset Loss
An LLC’s main benefit is to shield your personal assets from a lawsuit that’s filed because of your rental property. You lose that shield if you opt to get more insurance rather than form an LLC. That means if the lawsuit costs more than your policy will cover, you could be on the hook to make up the difference. Your personal losses could wind up being more than that rental property.
Policy Exclusions
Be sure to read your insurance policies carefully. They tend to have exclusions (things the policy won’t cover) for which you’re responsible. What doesn’t your liability insurance policy cover? Are you willing to be responsible for making up the difference for those exclusions?
More information here:
Final Verdict: Should You Put Your Rental Property in an LLC?
Whether you decide to put your rental properties in an LLC comes down to your level of risk tolerance. You could save money on the setup costs associated with an LLC, but your personal assets could be left vulnerable to a tenant lawsuit. Are you willing to risk everything you’ve worked so hard for personally when a decent shield is at your disposal? The money spent on forming an LLC will likely be a lot less than what you’d spend out of pocket if you were ever found liable in a lawsuit involving your rental properties.
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Hi- I recently attended a medical conference where the company LegallyMine did a sales pitch on setting up a similar structure that they claimed to offer “ironclad” asset protection and result in significant tax savings. They offered a price point close to what you paid for your unlimited access. They do physician only work… do you have any experience with or recommendations regarding this company. The sales pitch sounded very enticing, but I am ever a skeptic when somebody is asking for my money ;)… Talking to them felt very much like asking a barber if I needed a haircut… or even asking a surgeon if I needed surgery 😉
Thanks!
“Ironclad” is a marketing term with zero legal basis. 😉
Some setups tend to work better than others. That’s the best you’re going to get. Follow PIMD’s advice and put it out of mind afterwards.
Everything else depends on the attorneys, plaintiffs, judge, jury, cash, stubbornness, etc. – long list of things entirely out of your control.
I am not sure this is true with every state, but in my state you also get hit with a franchise tax when you form an LLC which can add a decent expense as well.
My advice on the umbrella insurance is to get as much as you can early on (smart to plan on insuring for what you think your goal net worth will be even if you are nowhere near that now). The reason I say that is I took an umbrella plan early on just a little over my net worth at the time. Since then my net worth has grown even more and I wanted to up the rate.
No problem, right? Wrong. In the meantime I had an encounter with road debris and had to file a claim (a downside of owning a Tesla is that repairs don’t come cheap, this one clocked in at almost $6k). Because of that claim, my insurance company denied me to up my umbrella policy when 6 months later I wanted to. I believe they said I have to wait until I have 2 years of no claims before I could reapply.
Umbrella insurance is very inexpensive so being over insured doesn’t really kill your finances. I know I will be fine with the amount I currently have, but it would have been nice to have even larger coverage now since my net worth has eclipsed the coverage.
That’s unfortunate. In my state, it’s $70 to form it and $15 a year to maintain.
I disagree that there is any relationship between your net worth and your umbrella insurance. You need to match your insurance amount to your liability not your net worth. Do the math and you’ll see I’m right. Imagine you have a net worth of $2M, an umbrella of $2M, and a judgement of $5M. You’re going to be cleaned out.
There are different schools of thought on this. I haven’t seen universally accepted guidance. The net worth value isn’t a bad guide though in general.
Maybe it should be more like your umbrella should be at least as much as your net worth? If your net worth is $3M and you have a $1M policy and are successfully sued for $3M (probably as rare as a lightning strike in my state at least), then the insurance would cover $1M but you would lose $2M of your net worth. If you had a $3M policy, you would be covered.
I’m sure WCI will disagree but having a formula like Umbrella = N.W. + $1-2M would likely get you in the right ballpark.
The premiums tend to be trivial in comparison of the coverage so err on the side of too much. Just don’t go around telling everybody how much insurance coverage you have though. There is some thinking among attorneys and insurance people that you can increase your risk by pointing out the coverage. The injured worker in your home knows it won’t hurt you financially, just the big bad insurance company so they are more likely to sue or may increase the amount. I’m not sure if that is true, but something to consider.
The other schools are wrong. There is no relationship between net worth and size of umbrella policy other than it is easier to afford a bigger one when you’re wealthier. The point of an umbrella policy is have an insurance company on the hook for a 7 figure amount so they’ll provide you a robust defense and cover most common liabilities. $1-5M should do that.
The level of protection from LLCs depends on state law. In some states it is substantial, in other, like mine, not so much. For the properties that are truly businesses, say owning an apartment building, at least my state would recognize the principle of the LLC as a separate entity. If one were to put their personal residence in an LLC it would accomplish nothing from an asset protection standpoint.
For WCI’s situation the owner of the individual properties will be listed as the individual LLCs. If one were to look at the individual LLCs the owner of those would be the holding company. So, to that extent, WCIs name would not show up.
Of course, in case of a lawsuit, someone would have to appear to defend it. That could be all lawyers, still with WCI not identified. I don’t know how hard it would be to figure out who owned the holding company.
In my state having an LLC requires an initial fee to the state and annual fees to the state to maintain it, on top of any lawyer fees to create the structure. It also requires running each individual LLC as an independent business. Its own employees, business formalities, books, bank accounts, board meetings and minutes thereof.. To the extent that the business is really running as a business this might not be too onerous. But it would give up the simplicity and flexibility one might have operating as a sole proprietorship.
Working through it with our lawyer it did not seem worth it. For a larger business, with more liability and more formalities in place anyway, IN A DIFFERENT STATE, it might be a good idea.
I don’t see any chance of figuring this out without consulting an attorney expert in this area.
I have my SFHs in LLCs. It is likely okay to buy shares in other investments directly (such as syndicates, REITS, and funds).
Syndicates and private funds are usually LLCs. Mutual funds and REITs have their own liability protection.
Yes, I agree.
I guess the point I was trying to make is when you invest with a group to buy real estate you are at most a minority owner of a limited liability company. Legally it isn’t that much different from buying a share of common stock (like a REIT). If a tenant of a SFH you own is upset they can sue you directly if not in an LLC, but the apartment dweller in your apartment complex would go after the managers or the LLC. That liability would not extend to the individual LLC investors.
If you are the entire owner of a building with tenants that should be considered a “toxic asset” and having an LLC or another layer of legal protection is then more important.
I didn’t understand that distinction when starting out and I had a rental house in my name and bought shares of an apartment complex LLC with my own LLC when I didn’t need that extra layer of protection.
This was a great post, especially admitting that it “depends” and that prior to doing it you need professional (if you can find decent) advice. It was quite clear and direct in explaining what the author had learned. Now I don’t invest in real estate, my investments create the income I need or desire without it. I have thought about it to secure a future home in a place I desired, but could not make it happen financially. If others have similar experience that was a success I would be interested in hearing about them.
I hold my investment properties in an LLC. Not each one in a separate LLC but one LLC to rule them all. That LLC is owned by my wife’s revocable living trust. When we got a commercial bank loan for one of the apartments to buy out the owner who financed it originally, it was not an issue. When we got a bank loan for the four plex, which is a home loan and not commercial, they made me take the loan in my name and would not deal with the LLC and I bought that place outside of the LLC. (It was also the only place I purchased using a bank) They said I could just transfer the title after the purchase and that is what the title company was supposed to do. But I found out later that never happened. I paid off the loan early and then transferred the apartment into the LLC. Since we are the sole owners of the LLC, the tax information just shows up on our schedule E, no special extra forms. We have been happy with the arrangement.
Dr. Cory S. Fawcett
Prescription for Financial Success
The only issue is as I recall you own 7-10 properties. If you had a huge liability from one, creditors could seize all of them. Sometimes, if it is a big hassle to maintain one LLC per property, you can put 2-5 in each LLC to find a balance between cost/hassle and liability risk.
Yes, this is my approach too.
2-3 properties in one LLC is my upper limit, but it probably depends on the size of the properties and the costs and laws of LLCs in your state.
I am by no means an expert, but that definition of piercing the corporate veil is incorrect. It has nothing to do with attorneys finding out who you are, rather it refers to making a determination that a corporation is not truly a separate entity from its owners/members, based on their behaviors. In that case, there would be no corporate protection and you would be personally liable for anything in your LLC.
When I first got started in real estate investing, I was pretty interested in all the asset protection information. A lot of it was very similar. Heard a few speakers, bought some courses and books on the subject. Over a decade later, it’s something I really haven’t had to deal with as a real estate investor. Maybe I’ve been lucky. Though, I remember a post awhile back on the BiggerPockets forums asking if any experienced investors had actually been sued in court and lost and no one replied. There were a few threats by unhappy tenants (which I’ve received in the past as well) but no one had actually been sued in court by a tenant and lost. Maybe they got lucky too. Though, I guess it is important to have some kind of asset protection plan just in case!
I suppose it depends on the liability exposure from those properties and the availability and cost of enough insurance to cover the risk.
Good post on an often opaque topic. I would like to call out two points that I have encountered in my own research. First, if your goal is anonymity, consider a revocable living trust instead of an LLC. This is doubly useful for estate planning if you own properties in multiple states. Cory combined this move with owning the properties in an LLC, but while that is fine, it is not required. Second, I have read in some cases the LLC does not protect you as thoroughly as you might suppose. For example, if you do the maintenance, or hire the maintenance done personally, then you can be liable for any issues regardless of the LLC.
FWIW, I elected umbrella insurance as sufficient liability protection on top of my fire insurance policies on the two rentals I own. At my level of investment the legal hassles of LLCs, as PIMD describes in the pros and cons, have never seemed worth it.
Larry, I’m glad you brought up the topic of revocable trusts because this a subject I wanted to question. As mentioned, it’s primarily a tool for estate planning and simplifying the passage of these assets to heirs, which is useful in it’s own right. My question for Larry or any other reader, how much in the way of liability protection might it offer if spouse/children are secondary trustees? How much anonymity is there for a trust? Could it potentially increase liability if you have other assets in the trust (primary home, other properties, personal property, investments)? Is there an overlap in benefits between a trust and LLC? I may consider setting up a trust next year as it is a covered service with the legal insurance plan offered by our employer (cost of legal insurance $189, no deductible for the legal fees). Thank you.
Pretty much none. I mean, maybe the anonymity thing, but that’s it.
I agree any maintenance and other services should be hired out by the LLC not by you personally. That’s just good business practice. But there’s no reason a member of the LLC can’t work on it.
I disagree that a revocable trust does much for asset protection purposes.
I never said a RLT did anything for asset protection. I agree, it doesn’t. It is helpful for estate planning across state lines since in a trust the various properties will not have to go through probate in multiple states.
Yes, good practice for the LLC to hire out maintenance. And of course a member of the LLC can work on the property. My point was that if they do, there is the potential for personal liability and the LLC structure will not protect the individual. The LLC protections are real, but as best I can tell are unlikely to provide more practical protection than a good umbrella policy.
The anonymity issue was merely a response to the notion that an LLC could provide anonymity. Just pointing out that there are other ways to do it. For that matter, it is possible just to set up a “doing business as” DBA fictional corporate identity. We did this for a while, but eventually dropped it and concentrated on good communications with the tenants.
One correction for perspective: A LLC may make sense for serious investors running an “empire” like PIMD. By that I mean multiple multi family units. My responses are really geared to small investors like me…just a few single family units that are self-managed.
I guess the fewer units the less risk, but it only takes one.
I don’t see it as an “either/or” thing. You should get an umbrella policy AND use an LLC. If I had to choose just one, I’d get the insurance though.
I agree, It isn’t either or, but I take issue with “should” do both. There is a lot of hassle with LLCs for little return in many cases. If you ever want another objective read (I know, you are partial to John Reed’s books), I recommend Every Landlord’s Tax Deduction Guide by Stephen Fishman. I use a Kindle, so page numbers may not help. Go to the “Why Form a Business Entity” section of Chapter 1 (location position 632) to address if one needs an LLC.
I find the hassle pretty minimal, but I understand it’s a state specific thing and Utah is pretty business friendly. That said, it was enough of a hassle that I never got around to putting my accidental rental into one, so I get it. But if I were serious about landlording, I’d have every one of them in an LLC. Maybe with 2 or 3 others, but certainly separate from my personal assets.
I’m a bit confused. I can understand creating an LLC for several SFHs or duplexes you may own directly, but if you are acting as an investor in a property you are using an LLC as well? So when you are investing through a crowdfunding site like realtymogul, realtyshares, equitymultiple etc, you are investing through your own LLC for each investment?
No. You’re a member of the LLC created by the crowdfunding company.
I’m confused- on one hand it says it is tough to get financing if you purchase the property under the LLC. Then it says if you buy it under your own name, it can be difficult to transfer ownership to the LLC. Which avenue do you recommend to get a property under an LLC?
LLCs are vert state specific. Most states offer poor protection for single member LLCs, and married couples often count as a single member. A judge can often order a judicial foreclosure or dissolution of the LLC. It is important to have additional members as minority owners, i.e. children, others. This allows a more robust legal defense in that it can be argued innocent parties may be hurt if the LLC’s property is seized, or the LLC dissolved. A robust Operating Agreement must be drafted. Just filing the Articles of Organization with the Secretary of State may not be enough. Without an Operating Agreement, the protections default to state statute.
I’m not saying not to have an LLC. PIMD’s strategy is brilliant, having LLCs in different states with a holding entity in yet another state. A conflict of laws issue will arise in the event of a claim, but the additional hoops a potential creditor will be forced to jump through is substantial.
I would advocate adequate insurance any day over a poorly drafted LLC or being sited in a state with minimal LLC protection. It is vitally important whether the insurance is being taken out individually or in the name of the LLC. Generally, the “owner” of an asset is the one taking out the insurance. Individual persons and LLCs are completely different legal entities.
Some states have what’s called “series LLC” statutes, whereby a master LLC owns several daughter LLCs, which own the individual rental properties. This is an inexpensive way to have multiple LLCs.
Keep in mind that LLCs are creatures of state law. There are no federal laws regarding LLCs. A previous blog comment was made about various ways an LLC can be taxed. They are taxed by default as sole proprietors (one owner) or partnerships (more than one owner), as S-corps, or C-corps. DONT EVER place real estate in an LLC taxed as an S-corp or C-corp, or for that matter into an S-corp or a C-corp. The reason is because real estate can be moved into and out of LLCs or partnerships in a tax neutral way but trying to move real estate out of a corporation (either S- or C-) involves payment of capital gains.
Umbrella insurance should be more than one’s maximum net worth that may be attached by creditors, because a court can order garnishment of wages that may continue well into the future. In other words, you can lose more than you are worth.
Live well below your means, don’t advertise how much insurance you have. The first thing a plaintiff’s attorney will do is drive by and look at your home and do a wallet biopsy.
Many good points are brought up on this blog, but the answer always is “it depends.”
I’m an anesthesiologists who’s owned/owns both SFHs and apartments (as a passive investor and by forming my own syndicates). In my opinion, creating LLCs for SFHs is a waste of time and money. I’ll go further and say that doctors shouldn’t be investing in homes because its a very slow way to wealth. I had 12-13 homes rented and I considered getting LLCs but then I figured I’d sell the homes and buy a 20 unit instead and just get one LLC. Even if you have a great location like San Francisco, I’d sell the home and buy an apartment since the value of the apartment can be forced to increase (through rent increases) while the value of the home will increase with the comps of the neighborhood (which again can be a very slow process). As an example, I’m a partner in a 140 unit we bought in 2013 for 4 million and today, its worth over 12 million, and we’ve gotten all our initial investment back a couple of times. Try doing that with homes.
# 1 You can only increase rent if the market will bear it.
# 2 I thought San Francisco was a rent control city.
But your point is valid that the value of an apartment building completely depends on the rent you can charge for it/income/investment prospects while the value of a SFH can be swayed by what people are willing to pay to own their dwelling.
LLC law varies by state, and in your state, they are particularly expensive AND particularly ineffective, so I’m not surprised you don’t like them.
I like LLCs just fine… for apartments. My point is doctors should be investing in big syndications, not SFHs. Doctors are too busy to be self-managing homes and big apartment deals make monster returns, passively.
Can’t say I disagree with that too much since that’s also what I do.
I am an anesthesiologist who have several houses and condos. Very minuscule return. Fortunately I bought them at a good time.
Not directly related to this post, but how do I find trustworthy investors to invest in large apartments.
I dabble in Realtyshares crowd funding but I don’t really know how to vet these investments.
Perhaps WCI can have a post dedicated to this.
You mean like this one?
https://passiveincomemd.com/the-guide-to-real-estate-syndications-part-i/
I’m sure parts 2 or 3 may cover what you’re looking for.
In the meantime, try this one by millionairedoc:
https://millionairedoc.com/2018/10/09/real-estate-crowdfunding-due-diligence-evaluating-the-sponsor-part-2/
A couple years back we purchased a double and had intentions of using one side as a short-term rental while we lived in the other. We had many questions about how to own the house (direct ownership or indirect ownership through an LLC, S Corporation, or other advantageous corporate structure) in order to shield us from unnecessary liability. Not sure of how to proceed or whether to commit to short-term rentals long-term, we opted to purchase the home outright and not have an LLC own the property.
Flash forward two years, we grew weary of having one side be entirely dedicated to short-term rentals after considerable work involved preparing the house between guests. We considered hiring a cleaning service to handle preparing the property between guests but couldn’t make the margins work out well enough to justify the arrangement. We opted instead to rent to long-term tenants and use a lock-off unit behind our side as a short-term rental. Between the monthly rent and the average earnings from our short-term rental, we manage to cover the entire property note each month.
To shield ourselves form liability, we upped our umbrella insurance coverage in excess of my family’s net worth because the incremental coverage was dirt cheap. This is especially true when you consider the peace of mind which comes with the coverage.
I wonder if anyone on here has special insurance coverage for a short-term rental they own and would care to share their experience?
I had a firm offer to set up unlimited entity creation (LLCs, family limited partnerships, holding companies) in addition to tax saving strategies for $7000. Then if i wanted continued help with creating meeting “minutes” and paperwork it was $150 a month. My question is, When creating LLCs In different states, tied to a holding company in a completely different state, Utah and Alaska respectively , once the LLC is created, will I need to continually hire the firm each year to file all my annual paperwork In Utah and Alaska? I’m in Florida. Or can I file the paperwork myself? If I can do it myself, why doesn’t every business owner set up holding companies and LLCs for their companies in states they dont actually live on or conduct business in?
This company also advised renting your house out to you business monthly for a business meeting and paying yourself rent from the company. I would think that would be a red flag to the IRS….
Why are you doing all this? Seems pretty expensive/complex for asset protection given the very low likelihood of a lawsuit above policy limits.
Of course you CAN do it yourself, but the more complex the situation, the less likely you are to want to.
Your business can rent space from you as an individual. Just make sure you follow the rules. The problem with that approach is what you take as a business expense, becomes personal income so often no real gain there tax-wise.
You can rent your personal residence for up to 14 days a year without personal tax implications. So you really do get the business expense without personal income changes. I’ve done this for years, renting out my house for corp annual meetings and office staff meetings.
What are the business expenses? 14/365 of your housing costs?
Excellent summary.
In the end, you’re really deciding between being insured against lawsuits (and subsequent personal liability) by the courts or by the insurance company. Either an attorney, judge or jury makes a decision, the insurance company or the insurance company followed by the former.
I’d disagree with your definition of piercing the veil though. It refers to establishing personal liability due to improper maintenance of the LLC. Anyone dragged into court already knows the judge can unilaterally order the defendant to disclose all the people behind the entity. Feel free to disagree and be held in contempt followed by jail time depending on how angry it makes the judge.
Good luck arguing otherwise to the person who can easily make your life miserable and happens to be in a bad mood.
A family member picked up a vacation house on the lake and we would like to buy it from him in the next year or so. My goal would be to use it as vacation home with some VRBO/AirBNB as restrictions in the city were just lifted. Originally I wanted to have LLC but likely would need to secure financing conventionally through bank rather than LLC as from research, it seems rather hard to have LLC purchase the home directly since I would not be using cash. Are there other ways I can run expenses for the house (ie furniture, improvements etc) through a LLC and be tax deductible? Some have suggested owning home personally but have LLC as property management company? Thanks for your help as resources seem scattered on this subject
You can (and should) have the LLC purchase the home and run all the expenses and income through it, but you
maywill almost surely need to sign the note personally.Hi there, my spouse and I bought our first multi-family property a couple of months ago in MA (both names on the mortgage).
Is there any tax advantage or disadvantage to forming an LLC with both of us on the LLC vs. just one of us?
Additionally, as both of our names are on the mortgage, if we do a quit claim deed transfer to the LLC (and have just one person on the LLC), would that protect the personal assets of the spouse on the LLC and those of the other who is not?
Thanks!
Depends on the state. It’s a good question for a MA attorney who specializes in asset protection. In general, having more than one member in the LLC helps a little, but not nearly as much if that other person is your spouse. The advantage of having only one spouse own it is that if the other spouse is sued it isn’t at risk.
Thank you–that is helpful to know! I am relieved that only the person on the LLC would be at risk (if sued) even though we are both on the mortgage.