To Create or Not Create an LLC

The question comes up a lot on if you should use an LLC to buy a real estate property. The reasoning behind it is an LLC protects the buyer from a liability standpoint.

Well, you might not have a choice actually. If you are getting a traditional mortgage on a single family home then the lender won’t let you buy it with an LLC because they want to go after the borrower if there’s a default. And, an LLC protects the borrower (you) from being held accountable.

As a result, the mortgage lender will require you to purchase the property under your name. Not an LLC.

I’ve been told by other investors and accountants that you can transfer the property into an LLC after the purchase. But, the attorneys I’ve spoken to said that would technically be a transfer of deed and the lender could require you to pay them all the money that’s left on the mortgage. I mention that to the accountants and investors and they say “everyone is doing it.” I mentioned that “everyone is doing it” to my attorney and he said “yeah but you probably don’t want to be a case study, do you?”

Nope.

So, no, you don’t need an LLC to buy a single family home. How I’m able to sleep at night from a liability standpoint is I have a separate insurance policy on my homes that covers them in case something bad happens.

That gives me a piece of mind and keeps me away from case-study material.

Do you have any other ways of limiting your liability with your properties?

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