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I feel like you must know the answer to this, form an LLC
No I understand that part of it but do I need to like sell my house to my LLC. That’s the part I don’t get
Rising Star
Everyone will tell you get an LLC but these people don’t own rentals. Practically this isn’t the best option. It’s near impossible to buy your first rental under an llc bc banks won’t lend a new corporation money for a mortgage.
Then people will tell you to buy it under your own name then transfer to an llc, but again, not always an option. Most mortgages have a “due on sale” clause that will be triggered by transfer of the property to an LLC. Lastly, unless you do everything through a good lawyer, it’s really easy for a court to “pierce the corporate veil” and the llc won’t offer you protection anyways.
The only way to protect yourself is a good umbrella insurance policy.
Pro
It varies dramatically. Deeding the house is easy - I did that myself. It’s handling the bank that varies
Easiest way is to purchase properties under a limited liability entity (often LLC). Then, also carry appropriate insurance, including liability insurance. Best bet is to chat with a lawyer and figure out options.
Lol cart before the horse
I don’t get
Umbrella, property and renters insurance
Rising Star
Have the renter buy renters insurance. If property is under LLC, depending on the carrier get dwelling fire policy. If it’s short term rental property like Airbnb then get commercial property policy
Hi I just went through this process when I bought my rental. Congrats by the way, it’s super exciting and terrifying!
Umbrella and property insurance are the way to go. Additionally another thing is use a rental company to rent it directly so that they can root out the bad eggs as well as hold liability in addressing work requests or complaints.
Thank you! I’m only 25 and scared as hell. I’ve been eating and living dirt poor since birth so I’m excited to adult and stuff haha
Chief
Open LLC or include clauses in your lease agreement
My parents have a few rentals and they have an LLC, house insurance, and umbrella insurance
I believe you should start a business and put the property under that umbrella. So the business (not you specifically) owns the property and the business would get sued. Not you.
I would talk to a financial advisor or someone in real estate for specifics but I believe that’s the gist of it.
Pay down the mortgage and then transfer asset, simple!
Chief
1. I require my tenants to have and maintain their own renters insurance as part of the lease
2. I have a good umbrella policy that is just as effective and actually a bit cheaper than playing with LLCs.
3. I vet my tenants with a credit score and background check to make sure they are stable and not in financial trouble. This reduces the chance I'd have a serial litigant.
I have a landlord policy and require tenants to have renters insurance. Considering umbrella policy. Am I missing anything?
Rising Star
What exactly is an umbrella policy? Is that just the home insurance policy you have on the house or the renters insurance policy you ask tenants to get?
Umbrella policies cover things in excess of your coverage amounts on your homeowners, auto, etc.
I plan to go through a rental co.
Thank you all so much!!