Posts Tagged ‘LLC vs insurance’

LLCs vs insurance for protecting rental properties, redeux

Sunday, October 10th, 2010

I’m opening up the old mailbag and sharing a message that I recently received about operating a rental house business, and my response.

Hi Terry,

Thanks for writing those books – really enjoyed – and found your, ‘Never Sell Your House Book’, especially interesting and helpful.
We’re on our way to buying a new home (got a great deal on a home in a good area w/ a great interest rate ~4.4% w/ no points…), and we hope to rent our existing house out, as you suggest.
Rental comps in the area are ~$1,300/month, which would cover the new PITI…although, in my humble opinion, $1,300/month seems high – I can’t imagine people would spend that to rent…. but I guess they do. I think I would take less for low-maintenance renters.
I like your lease agreement forms in the Appendices.
Q: Would you suggest setting up the rental property as an LLC in order to CYA?
Jay Carson
Phoenix
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Dear Jay,

Congratulations on the purchase of the new house. It’s good to hear that you were able to follow my advice and turn your old house into a rental instead of selling it.

In answer to your question on LLCs. Generally, LLCs do not provide an impenetrable  protective shield against lawsuits, contrary to those who  sell and over promote the benefits of these products.

It’s  like hiring Gary Coleman to be your bodyguard. You might have some protection from an assault, but probably not enough.

The best protection against lawsuits is a good insurance policy. If you have a good insurance policy and you are sued, your insurance company should defend you and pay for the damages if you lose the case.

(For a more comlete discussion of this topic see the earlier blog  article, Protecting Rental Properties: LLC vs. Insurance by lawyer  John Gravina.)

If you have any other questions, feel free to contact me again!

Best regards,
Terry
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