Rental Properties - in LLC or Living Trust or both

[stephenson]

While I have done some reading on the topic, I would like to get an idea or how others have set up their business structure for rental properties.

We now have three small houses (total value about $500K) in the Florida panhandle ...location chosen because we travel to visit my sister there ...and she also has a couple of rentals ...can use the same repair folks, the ratio is pretty good, and she keeps an eye on them ...we still use a rental agency.

We are getting ready to set up a trust for the usual reasons, and while loading the properties into the trust is an option, are there better options and structures in our circumstance?

Thoughts?


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[Senator]

All my properties are in an LLC. Seven properties, seven LLCs. I do this more for liability protection.

I believe that still have to go through probate.

 

[Fishingmn]

I have my rentals in my own name and from an estate standpoint there is a TODD (Transfer on Death Deed) on each to move them to my wife or kids without probate and to step up the cost basis.

In my opinion the LLC has more fees and reporting requirements to actually maintain the "corporate veil" of liability avoidance. Instead I have a $1M landlord liability policy on each property through State Farm. My properties are in pretty decent areas that attract good tenants and I manage them myself so I am attentive to addressing issues so that's probably helpful as well in avoiding liability claims.

Hope that helps.

 

[rodi]

Since our one rental is on the same property as our home, it is impossible to have it in an LLC. Our home (including the casita) is in our living trust.

We looked at getting additional rental properties several years back - but in our expensive real estate market it never penciled out as cash flow positive. We were looking at using an LLC to hold the properties. (It's very hard to buy cash-flow positive rentals in San Diego - most landlords hope to make their fortune on increased equity due to market gains.)

 

[calmloki]

We self manage and have too much active presence with the rentals to think an LLC wouldn't be "pierced" in case of lawsuit. All properties are in our names, like Fishingmn we just carry stout insurance.

 

[twestern]

This topic is debated thoroughly on http://www.biggerpockets.com

I have $1M+ liability policies on the rental houses, instead of an LLC. It's too easy for a competent lawyer to break through the artificial veil of an LLC, especially if you're a hands-on landlord. In MA you're required to use an LLC-paid attorney to represent you in housing court, and that soured me on the LLC route. Your-Mileage-May-Vary in FL.

 

[ExFlyBoy5]

This topic is debated thoroughly on http://www.biggerpockets.com

I have $1M+ liability policies on the rental houses, instead of an LLC. It's too easy for a competent lawyer to break through the artificial veil of an LLC, especially if you're a hands-on landlord. In MA you're required to use an LLC-paid attorney to represent you in housing court, and that soured me on the LLC route. Your-Mileage-May-Vary in FL.

It's not even that hard. People who think that a LLC will protect them is almost delusional. I don't mean to come across as an azz, but when it comes to your assets, GET THE LIABILITY INSURANCE. It behooves you to let an insurance company fight for you as opposed to finding competent counsel if and when your LLC is "pierced."

 

[calmloki]

...... GET THE LIABILITY INSURANCE. It behooves you to let an insurance company fight for you as opposed to finding competent counsel if and when your LLC is "pierced."

What you said. Highlighted.

 

[Souschef]

I agree about the trust. I had a rental that was managed, and had "stout" insurance.

 

[Senator]

People who think that a LLC will protect them is almost delusional. I don't mean to come across as an azz, but when it comes to your assets, GET THE LIABILITY INSURANCE. It behooves you to let an insurance company fight for you as opposed to finding competent counsel if and when your LLC is "pierced."

In my case, each property is a separate LLC. I have a management company, my own S-Corp that manages all the properties. The S-Corp has no assets. Each LLC is multi-member, and has only the specific building as an asset. Worse case, I let the building go. It is independent from the rest.

I have business liability insurance policy, and a $2M business umbrella. I also have a personal umbrella policy.

I hope my firewall is enough...

 

[Ronstar]

I've been a member of an LLC since the mid 1990's, starting with an office building that we later 1031'd into 3 residential condos, keeping all 3 in the same LLC. My partners are also members of several other LLC's, each generally one property each. The LLC allows for easy pass through of profits/losses and is easy to manage.

We had an attorney set everything up- I'm not sure of the advantages/disadvantages of the various legal entities.



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[rodi]

I've been a member of an LLC since the mid 1990's, starting with an office building that we later 1031'd into 3 residential condos, keeping all 3 in the same LLC. My partners are also members of several other LLC's, each generally one property each. The LLC allows for easy pass through of profits/losses and is easy to manage.

We had an attorney set everything up- I'm not sure of the advantages/disadvantages of the various legal entities.



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This reminds me of something I heard about specific to CA. Prop 13 bases the property taxes on the value at time of titling/purchase. - limits on how much it can go up each year are tied to this amount. I've heard of commercial property owners having the title in an LLC - then when they want to sell it - they sell the LLC, and the new owner of the LLC gets to keep the lower property tax. So a property can change ownership multiple times, but have prop tax values that are significantly lower than if it hadn't been held in an LLC for this time.

 

[Ronstar]

This reminds me of something I heard about specific to CA. Prop 13 bases the property taxes on the value at time of titling/purchase. - limits on how much it can go up each year are tied to this amount. I've heard of commercial property owners having the title in an LLC - then when they want to sell it - they sell the LLC, and the new owner of the LLC gets to keep the lower property tax. So a property can change ownership multiple times, but have prop tax values that are significantly lower than if it hadn't been held in an LLC for this time.

Nice work around. I never thought of selling shares of an LLC to avoid county detection and tax bump.

 

[harley]

I've got three rentals, and have toyed often with the idea of putting them in (3 separate) LLCs. But the research I've done indicates it doesn't really buy you much as far as protection. I too have gone the liability and umbrella policy route.


I haven't done anything regarding special estate handling for the properties. I'm hoping I get rid of them before I die, but you never know. Is the TTOD process a simple transfer, like a POD name on an account? The title just moves to the new person and they can manage everything from that point on? I understand the property would still be considered part of the estate, but it would be nice to not have DD have to deal with transferring titles and such.

 

[harley]

This topic is debated thoroughly on http://www.biggerpockets.com

I have $1M+ liability policies on the rental houses, instead of an LLC. It's too easy for a competent lawyer to break through the artificial veil of an LLC, especially if you're a hands-on landlord. In MA you're required to use an LLC-paid attorney to represent you in housing court, and that soured me on the LLC route. Your-Mileage-May-Vary in FL.

If you have a more direct link to a discussion of this topic, I would appreciate it. I looked around some, but there was too much content to be able to easily find information on LLCs. TIA.

 

[Ronstar]

I've got three rentals, and have toyed often with the idea of putting them in (3 separate) LLCs. But the research I've done indicates it doesn't really buy you much as far as protection. I too have gone the liability and umbrella policy route.


I haven't done anything regarding special estate handling for the properties. I'm hoping I get rid of them before I die, but you never know. Is the TTOD process a simple transfer, like a POD name on an account? The title just moves to the new person and they can manage everything from that point on? I understand the property would still be considered part of the estate, but it would be nice to not have DD have to deal with transferring titles and such.

Our LLC is set up that if one of the members dies, the remaining members have to buy their pro rata share of the deceased members shares in the LLC. There would be no deed transfer, just payment to the deceased member's heirs. And whatever paperwork needs to be executed or change the ownership names/pct's in the LLC.


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[Rdub]

I have my 2 rentals in my Family Trust, no LLC. I cover my risk via an umbrella policy.

 

[nun]

My rental property is the ground floor apartment in my house. I am covered by a rental agreement and an umbrella policy.

 

[intl]

I have each property in it's own LLC as a disregarded entity. Each LLC is owned by my main LLC, which is a C-corp. The main LLC is owned by my trust. Each property has it's own insurance policy. It's pretty secure nonetheless.