Umbrella Policy. Question for the legal types.
- Thread starter kjcba8101
- Start date
Hopefully they don't own the rental properties in their personal names. If so, step one would be to set up an LLC and transfer the ownership.
Umbrella/excess liability policies are cheap. With rental houses/properties I would start at $5M and go from there (up or down) depending on how much you want to spend and how much in terms of limits let's you sleep at night.
So there's much debate over holding them in an LLC vs personal. It comes down to the type of loan you can get in personal name vs LLC (and at what rate). Yes, they are in his name. I guess the theory is If you are holding them in your name, you take a large umbrella policy out. I'm by no means an expert at insurance or law, so for those that are, I'd love to hear your opinions. TIA.
Holding them in an LLC helps to create a buffer between your personal assets and the exposure a commercial operation like home rental creates.
I understand the potential loan benefits in holding them in your personal name, but I don't think that they outweigh the risk. It is also why I would recommend people with vacation homes, boats, etc set up an LLC to own them under. Especially boats if you have teenagers or young adult children that will be operating them.
With rental properties it's not a matter of if the landlord will be sued for something, it's a matter of when - how often and how serious the situation is.
I will say for most serious owners of rental properties (more than one or two) there is very little debate as to whether or not utilize an LLC. If the loan benefits are that great, I would recommend finding a new lender.
They have 4 properties rented. Are most investors with multiple properties holding them in an LLC? Thank you for your opinion on this. We are in this new phase where It's going from a hobby to more of a small business and we aren't quite sure how to do certain things. We would love to have them in an LLC but the loans seems to be a heavy influence on that decision.
I would say the majority of serious investors hold their real estate in an LLC. Just too much to risk by holding them in their personal names. Also the tax benefits of an LLC typically make up for the difference in loan structures.
Very similar to what tc has shared above. Both from an insurance perspective and having in laws and friends in the rental business setting up your LLC is one of the first things suggested.