Hi,

We have a rental property in Florida. It was our old home and once we moved away we began renting it. We live in Georgia now. We've been renting it out since 2017, and have it under contract until at least 2022.

The house and mortgage are under both me and my husbands name. We were able to get a 0% down mortgage without mortgage insurance because we were able to utilize a physician loan. We have heard about putting each rental property under an LLC, and there is so much information on this I don't know where to start!

I understand if the property is in FL, the best is to register the LLC in FL. Does the mortgage also have to change names? If the LLC is owned by two people, it needs to be filed separately, but if owned by one person, it is filed with the person's taxes. Is this true even if the person does a joint filing? I think my understanding of the LLC is not very much right now, but if you've done one after you bought the house, please tell me how was the process, if it was worth it, and what you wish you had known beforehand

If there's an active mortgage on it, you might be careful about transferring ownership, in case it triggers something.

I have a handful of single-member LLC's. We don't do it to protect the houses from disgruntled tenants, but to protect the houses from DH's disgruntled clients, because he has a litigious profession. So by making the houses "mine", it distances them from him. Likewise, having things separated makes it harder for people to accurately gauge how many houses we have, without knowing all of the LLC boxes that we put them into. If you have a website that advertises LLC A, B, C, D, E, and F all in one place, it kind of defeats the purpose... but oh well.

In TX, if I want a single-member LLC, all I need to do is pay $325 or $350 or something in filing fees. Then to keep it active and in good standing, I need to file two pieces of paper every May-- one public information updating who my officers are (me) and how long my term limit is (imaginary date which gets infinitely renewed), and another that explains why I'm not paying franchise tax. (Because that LLC had annual income less than $250k.) Then I compile all my Schedule E information for my accountant for our usual annual married-filing-jointly taxes, and he takes care of getting it formatted so that the IRS will be able to read/understand/approve how the various biz'es are doing and what sort of expenditures we're claiming, etc.

Hello Sara -

You can create your own llc on Florida Dept of State website (www.sunbiz.org).

There are attached articles that will help you decide if you want it to be a single member (which would pass directly onto your 1040 Federal Tax Return) or multi member (talk to your CPA about that).

After you 'create' your llc, wait a couple of days for Florida to email the confirmation of your Registration number. Then ... go to www.irs.gov and apply for the EIN (Employee Identification Number). You should receive than within 15 minutes or so.

The LLC in Florida is 138.75 per year (pay by May 1st). The IRS EIN is assigned at no cost.

As always, the answer is "it depends."

What is your goal with creating an LLC: asset protection, anonymity, etc?

What are the costs to set up and maintain it?

Any negative down sides?

I'll answer them for me/my state.

My goal was both asset protection and anonymity. For houses I already I owed in my and my wife's name, we had to transfer them property. This causes 2 concerns: #1- would it trigger the Due on Transfer clause in our mortgage? I checked with the lender and got written approval as long as we signed a personal liability guarantee, so no worries there. #2- would is invalidate our title insurance policy? I checked with our agent and attorney and the law is a little murky, but as long as you use a Warranty Deed then there is no problem. A Quit Claim Deed might not work as well. Dig into this area yourself so you're familiar with the ins and outs.

The Pros are any new property we have bought inside the LLC keeps our names out of the public record, although a competent attorney could easily find out who we are. It also gives us a little extra air of credibility with tenants not being just any old Ma and Pa LL shop, but you have to be careful about how you sign documents. Always have to sign (LLC name, my name, my title).

The Cons. I have to hire a lawyer to represent us in court, since the LLC is it's own legal entity. I cannot represent it because that would be practicing law without a license. Not a big deal since I would hire an attorney anyway. A little extra work on tax filings, but nothing significant. Some extra paperwork for making resolutions. "It is resolved ABC LLC will purchase the property at 123 Anywhere Ave." Type, print, sign, stick it in a binder in case we ever get dragged into court and have to prove we are operating as a company.

The Costs. One time fee of $80 to register in Missouri. No yearly maintenance fee. No other costs associated with it.

Just remember that LLCs, contrary to what their name implies, where never intended to limit the liability of Managing Members. They were design to limit the liability of non-managing members -- which most of us do not have.

Now, over the years, in some states, this has changed a bit as Single-Member LLCs got more popular. But, in general, they were never designed to protect people like single or spousal landlords from liability.

- John...

Perhaps you should place these places into a land trust instead of a LLC since they are mortgaged. That way you are able to combine asset protection with hiding ownership/beneficial interest. Since you are in the medical field I don't need to tell you about Mal-practice insurance cost

Sid is right, your first thought needs to be what are you trying to accomplish. Are you thinking of an LLC because some [con man] "guru" sold you on the idea? If so, what does he claim is the reason for an LLC?

If a tenant or visitor were to be injured on one of my properties, I would be sued as owner and as being personally responsible for the alleged "dangerous condition." Because I personally manage my units. So an LLC (or a limited partnership) will not protect me. If I were an investor only, without management responsibility, it would be a different story.

For me, a landlord insurance policy with a high liability limit is what I need. Not some games with fictional entities. And a high limit "E and O" Professional Liability policy for the doctor.

And see if your mortgage has a "due on sale" clause and whether that gets triggered by a transfer to an LLC. And check with a FL atty to see if that clause is valid as to a personally owned "due on sale." The lender WILL learn of the transfer from the insurance company and the property tax statements -- you cannot hide the transfer.