Ever wonder what an LLC is or why you would ever need one?? LLC is short for Limited Liability Company, and it does exactly what it's name says: It limits the liabilities you will have by putting your investments in the company's name. It gives the investor personal liability protection and tax benefits.
Let's get into an example on how LLC's protect personal liability. Pretend you are the proud owner of your first or second investment property. You put some tenants in there to create some cash flow while the market is still slow. For whatever reason, the tenant trips over a floorboard near the stairs and falls down them, causing the person to be paralyzed from the waist down. Guess who's getting sued... Yep, you guessed it! The owner of the building.
Depending on your insurance, these damages will possibly exceed your policy's limit because it is so severe, and there is also pain and suffering, along with future medical care.
Lets pretend you have a $1 million policy. All the medical costs exceeding $1 mill would be made up with any assets that are in your name. Such as: other properties, cars, bank accounts, stocks, mutual funds, etc. Sound like fun? Didn't think so.
Using an LLC will allow you to put properties in the LLC's name instead of your own. Restricting the recovery of the lawsuit with assets of solely the company.
I've heard of some investors using a different LLC per property to protect all of their investments, and keeping the liability of each property self-contained. But that is up to you, I suggest at least one though.
Now you are probably wondering how to set one up... It depends on each state, but usually you can download a PDF form to fill out from your county's website. It will probably cost around $100 to apply for one, but thats a small price to pay to protect all of your personal assets. It is also recommended that you go to an experienced attorney to do it for you, but those are also some extra fees that might be worth it in the long run.
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