Should you put your rental property into an LLC?

Tom: Hey, guys, good morning to you. Just a simple ask here, we've got a couple of rental properties, a couple of single-family homes, and I just wanted to know, would it be an advantage or should I put those in some type of LLC instead of in my wife and I's name, keeping them in my wife and I's personal name?

Attorney Tom Olsen: Tom, you're going to get some different answers on this, and I go back and forth on it, but my general rule is I like to keep it simple, and therefore not put your rental properties into an LLC with the exception of when you're doing VRBO, or Airbnb, when you have so many people coming and going from a piece of property, Airbnb, VRBO, absolutely positively you want to put it in an LLC.

Now, why would you put a rental property in an LLC? Because if somebody trips and falls on that piece of property, and it's in your individual name, Tom, they could sue you as the owner of that piece of rental property, so that if you put your rental property into an LLC, they would be limited to suing the LLC, and not suing you personally. You say, "Tom, that sounds like a huge difference," but remember that if your rental property is free and clear, there's no mortgage on it, and it's owned by an LLC, and somebody trips and fall, they're still going to take your very valuable piece of rental property, so your LLC has not done you a whole lot of good there.

Then, number two, Tom, when we talk about keeping it simple, my suggestion is for people that are worried about being sued, and we get these questions all the time, Chrissy-

Attorney Chris Merrill: We do.

Attorney Tom: -and that is people are worried about people tripping and falling on their property or automobile accidents or our advice to them is your best defense about being sued is to be well insured, including having an umbrella policy, Tom. I'm going to say, "Our motto is keep it simple, Tom."

Our opinion, and there are different opinions out there, Tom, is do not put your rental properties into LLC. Just get lots of insurance, including having an umbrella policy on that, all your properties and your automobiles, and Tom, if you said, "Hey, Tom, I might still go forward and put these properties into an LLC," check with your insurance company because a lot of insurance companies will not insure your rental property if it's owned by an LLC. Tom, I know that's a lot to absorb. Hopefully we've given you some ideas and suggestions on this.

Tom: Not really. It's not too much to absorb. I appreciate the advice. It's just the money's better spent in looking in the end on the insurance side than the actual LLC side, but what I'm hearing from you is the simple answer there. If I can beef up the insurance, that's the better pathway because there is no difference to me by what you're saying in having it in my wife and I's name or an LLC. I don't Airbnb. We do long-term lease. Oh, yes, and they're a single-family home. You generally get a pretty stable folks that do long term.

Attorney Chris: Exactly.

Attorney Tom: Great, Tom.

Attorney Chris: Exactly. Tom, I think you boiled it down correctly. Ultimately, when we give the information, it's about that you exactly like you just said, then you're able to make your own decisions. Sometimes we find that landlords say, "Oh, I just want that peace of mind to be able to know that it is in an LLC, and there is a protection. Like Tom said, they could still go after that one particular home. However, they couldn't go beyond that, but you're correct.

We feel that the insurance, and this is where it really is that partnership with you and your insurance agent, if you have the proper insurance, and then you do the umbrella policy on stable long term rentals, most of the time that's going to be the way to go for most landlords.

Attorney Tom: Tom, thank you for calling today. Great question. Let's go on.

[00:04:14] [END OF AUDIO]