I’ve been doing what 4plexowner was doing. Purchasing the property under my name, and then deeding the property to an LLC later.
What LLC’s allow you to do is to limit your liability. If a tenant/individual/whoever decides to sue you because of something about your rental, then their damages would be limited to whatever is inside the LLC. If you have three properties in your LLC, then they could go after all three properties. If you have one property in your LLC, they can go after one. With the LLC, they would not be able to pursue your other assets, such as your personal residence, your 401k’s, etc.
The general rule of thumb is to have one LLC for each property.
However, do realize that the LLC will not protect you when somebody decides to sue you personally. For example, if you run over a person and they decide to hold you liable for damages, then any asset you have (including LLC’s) would be fair game.
My wife and I are both “managers” in our professional life. As a result, managers by that quirky thing called California law, can be personally sued if an employee gets fired or gets sexually harassed. The damages will not be necessarily limited to the corporation. If the employee is able to win their suit, then they can go after the assets of the manager. Such a situation will not protect you, even if you have an LLC.
SUPPOSEDLY to protect yourself from that scenario, you’re supposed to put your assets into a trust (which is different from an LLC). In a trust, you are supposedly not in direct ownership of the trust, you are just a trustee. (This part about the trust is about the limits of my research, and it is VERY confusing).
Of course, have fun trying to explain to the bank that your property is owned by an LLC but is in a trust where you are not the owner per se. It’s hard enough to get funding nowadays.
A lot of these issues come up when you are refinancing. Perhaps it’s easier when you have only one or two rental properties, but when you have more than that it gets to be really annoying.
Some other notes:
Transferring ownership in a property from your name to an LLC controlled by you does not trigger a re-assessment in property taxes.
If your properties are in a trust, and you change the trustees in that trust, it does not trigger a re-assessment in property taxes (because technically the trust still owns the property).
I have not found the perfect “setup” balance between an LLC and a trust. It’s been one of my many many research projects.
As always, please consult a lawyer if you decide to get into this crazy crazy RE world.
