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Miguel Angel…, Real Estate Pro in Outside U.S.

sole proprietorship or LLCs to cover liability problems?

Asked by Miguel Angel Martin, Outside U.S. Sat Oct 22, 2011

I bought 5 houses in Miami (USD 70K each) and I was thinking create LLC to cover liability problems with tenants. I asked to 3 CPA about the accounting cost of every LLC and I realize it is very high to maintain the investment. My question is.
1. Is too dangerous to have my investment like sole proprietorship?
2. can I cover the risks with a liability policy?
Many people told me that liability insurance not cover all problems do I have with my tenants and for that reason the advise to create LLC. There is any web page with policy models to see what the policy covers?

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Miguel:
Placing your properties into an LLC, Corporation, Trust or whatever will not solve your tenant problems. You should first concentrate on getting good tenants! The pool of good tenants out there is enormous. There are many prospective tenants with only one problem and that's because they have defaulted on their mortgage. Their credit is now practically ruined because of the past mistakes in buying too much house with bank financing. I see it everyday. You need these kind of tenants. They may or may not be able to pay the rent on time but that is probably the biggest issue that should arise. The legal ownership structure will not change this issue. If your properties are in an LLC, that will not impact your tenants ability to pay the rent. However, if you are worried about your tenant shooting someone on your property putting you personally at risk, then as a real estate advisor and CPA, I would suggest that you change tenants. If you are worried that your tenants could burn your house down, you need to make sure that you have a good insurance policy. Good tenant quality and good insurance coverage is what you should focus on. Also, if can have your properties owned directly by a foreign entity in your home country, that may be a better structure than using a LLC or Trust in this country.
David
1 vote Thank Flag Link Sun Oct 23, 2011
Miguel Angel,

You can create an LLC and put your 3 (or more properties) under it - Consult your lawyer. As regards Policy coverage. consult with a professional. Remember : always.consult with professionals to be safe.

Yolande Citro
305 705 9105
Web Reference: http://www.yolandecitro.com
0 votes Thank Flag Link Mon Oct 24, 2011
Layers of protection...LLC and Insurance.

Make sure your insurance policy has the highest liability available and covered from "Wrongful Eviction Coverage" Ask your agent this if he fumbles around...fire him fast.
0 votes Thank Flag Link Mon Oct 24, 2011
Hello Miguel, I work with investors from U.S, South America, And China. I do the administration for them, too. But the first thing I tell them it's to open an LLC, This is the name you use to purchase the properties. You only have to do one and use it for every single purchase. After that my clients have a lawyer to proctect them when purchasing because it's is cash. We buy an insurance (liability) that does not cost much; this insurance it's use in case the tenant create problems. A cash property it's ease to loose. The insurance protec you. Never let the tenant know you have ins.
I have two clients who purchase with their names and all they do it's (liability ins.) and pay the taxes every year.
0 votes Thank Flag Link Sun Oct 23, 2011
In order to best protect yourself, consult with your tax professional and attorney.....
0 votes Thank Flag Link Sun Oct 23, 2011
Miguel,

You may want to consider an "umbrella" insurance policy that will cover all of your properties. I have found the cost for this policy is reasonable considering what it covers. You will want to talk to your insurance representative for more information.

Thanks,
Carol Perdew
Prudential California Realty
(209) 239-7979
Carol@PerdewHomes.com
DRE 985176
0 votes Thank Flag Link Sun Oct 23, 2011
Get an LLC, pay it and sleep well ! It is not worth the aggravation you might have should your Tenants get in trouble inside YOUR property.
0 votes Thank Flag Link Sun Oct 23, 2011
As someone who owns investment property, I can tell you an LLC gives you better liability protection. You should also look into Trusts as well. Seek guidance from a tax professional and an attorney versed in real estate and estate matters (trusts) concerning your options.
0 votes Thank Flag Link Sun Oct 23, 2011
The LLC company will protect you and your investmets. You could lost your investments as a sole propiertorship. Is not that expensive to create a LLC in USA, but it would be good to consult a lawyer so you can get full protection.
0 votes Thank Flag Link Sun Oct 23, 2011
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