LLC
We own two rental properties and are looking to protect ourselves from the liabilities. I formed an LLC a year ago but didn't do anything beyond that. Do I need to do a quit claim deed in order to place the LLC as the "owner"? What is the process?
Am I going about this in the right fashion? Does the LLC ad a level of protection for us? What about an umbrella insurance policy?
Thanks in advance for your help. I really want to take all the prudent steps with the investments that we have made!
Attorney answers (3)
Lawrence Neil Rogak
Reputation Level 13
Answered about 4 years ago.
Insurance Law Lawyer in Rockville Centre, NY.
If you're an investor, the first thing you should do is to associate yourself with a lawyer and a CPA whom you consult BEFORE you buy properties, form LLCs, and the like. But the short answer is, if you want the LLC to own the property, yes, you have to make out a deed conveying the ownership of the property from yourself to the LLC. But for heaven's sake, do this with a real estate lawyer so it's done correctly, or else you may not get the liability protection that you need. Also make sure you buy the property insurance in the name of the LLC, not yourself, after you transfer the title.
The protection you get as an LLC is that your liability in the event of a lawsuit is limited to the property owned by the LLC. Your personally-owned assets are protected.
Now, the "prudent" thing to do is to get a Washington real estate lawyer and keep him/her on your speed dial.
LLC’s are a very commonly used vehicle for rental properties. I fully agree with Mr. Rogak that you should quickly associate with a CPA and consult them regarding the tax liabilities of owning rental property, and based on your income what is the best organizational structure in their opinion.
It is likely that you were on the right track by starting your LLC. In addition you will likely need to obtain a Master Business License from the State of Washington and you should check with your local government to make sure there are no local licenses required. In addition you will be required to annually renew your LLC with the Secretary of State’s Office.
LLC’s can and do offer the extra layer of protection that you referenced, but you must follow the formalities in order to protect yourself. When property is purchased, sold or otherwise transferred it should be done in the name of the LLC. In addition rent that is coming in should be made payable to the LLC.
If you are considering a significant number of rental properties you can also consider having multiple LLC’s. Several of my clients have felt the need to have no more than 3-5 rental properties per LLC. At the end of the day like any investment it comes down to your comfort level when assessing your risk and exposure.
Knute Arthur Rife
Reputation Level 11
Answered about 3 years ago.
Real Estate Attorney in Salt Lake City, UT.
First, as Mr. Rogak and Mr. Sprouffske have noted, get your attorney and CPA lined up first. Noah built the ark before it rained, not after.
Second, make sure the conveyance doesn't trigger a due on sale clause in your mortgage. Talk to your mortgage holder and make arrangements. The mortgage holder is likely to require a personal guarantee. Make sure the guarantee is strictly limited to the mortgage and doesn't expose you to general liability.
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