Creating an LLC on a Rental?

I'm shamelessly looking for free legal advice.

I live in Colorado and own a condo that I rent out. I am interested in creating an LLC in order to insulate myself and my wife from an financial liability if a tenant was to injure themselves at the property and try to sue me.

Question: If my condo is made into an LLC, do I need to set up a federal tax id # (ein #)? in order to be legally compliant with the feds?

By just having it as an LLC and not going through all the federal hoops and tax bs, can I just rent the thing and still be protected under the fact that it is an LLC?

Please enlighten and thanks for any beta on this.

Down the road when you refinance/get a new loan, you will have to come out of the LLC and then put it back in after closing. I don't have any A paper investors doing a loan vested in a LLC.

Quote:

---

Originally Posted by bovine

I'm shamelessly looking for free legal advice.

I live in Colorado and own a condo that I rent out. I am interested in creating an LLC in order to insulate myself and my wife from an financial liability if a tenant was to injure themselves at the property and try to sue me.

Question: If my condo is made into an LLC, do I need to set up a federal tax id # (ein #)? in order to be legally compliant with the feds?

By just having it as an LLC and not going through all the federal hoops and tax bs, can I just rent the thing and still be protected under the fact that it is an LLC?

Please enlighten and thanks for any beta on this.

---

Since the LLC will be a single member, most likely you being the sole member, it will be disregarded for tax purposes and you don’t necessarily need to get a separate EIN for it. That said, for purposes of establishing the LLCs separateness, and if you ever want to get its own bank account in its name, you will need an EIN for it as well as a very simple operating agreement and the articles of organization.

Quote:

---

Originally Posted by liv2ski

Down the road when you refinance/get a new loan, you will have to come out of the LLC and then put it back in after closing. I don't have any A paper investors doing a loan vested in a LLC.

---

Not necessarily true. Commercial property loans are made to single-member SPE LLC’s every single day (in many cases required by the lender) with the warm body or member guaranteeing the loan, while the loan is still secured by the property.

If this is his only property that may not be the case but as he gets more sophisticated the lender won’t want their collateral in anything but a SPE.

Might be able to lease it to an LLC, then have the LLC be the lessor. Probably worth hiring a knowledgable real estate lawyer to set this stuff up for you. What's the point of doing it yourself if it ultimately does not create the liability shield you are seeking? And whatever you do, you must maintain completely separate accounts for the LLC, which will require obtaining a federal tax ID number for the entity. A bank will require one for the LLC's account.

Quote:

---

Originally Posted by liv2ski

Down the road when you refinance/get a new loan, you will have to come out of the LLC and then put it back in after closing. I don't have any A paper investors doing a loan vested in a LLC.

---

I’m the opposite. 100% of the A paper investment r/e loans I do have an LLC. We do the loan in the name of the LLC, with the individual as a guarantors.

I just went through this, but in Oregon, which might be quite different.

In Oregon, I needed an EIN as ours was not a single member LLC, but had two members, my wife and I. If it was just me, and I could get by without an EIN, I likely would have gotten an EIN anyway to avoid using my social security number.

We formed the LLC the day before we bought the property, so we did not need to worry about transferring the property to an LLC. In Oregon, that transfer from an individual to an LLC violates the due on sale clause of the mortgage and requires the consent of the mortgagor. Because we were getting a mortgage for an investment property, owned by an LLC, with no financial history or rental history, we paid a higher interest rate, but it was still only 3% for a fixed 15. Homeowners insurance and the like all have to have the LLC as an additional insured, but there was no additional premium or charge for that.

Do the LLC, get an EIN, open up a bank account in the LLC's name. The other thing I would do is get $1million dollar umbrella policy on you and your wife (relatively cheap but very good protection).

Quote:

---

Originally Posted by BmillsSkier

Since the LLC will be a single member, most likely you being the sole member, it will be disregarded for tax purposes and you don’t necessarily need to get a separate EIN for it. That said, for purposes of establishing the LLCs separateness, and if you ever want to get its own bank account in its name, you will need an EIN for it as well as a very simple operating agreement and the articles of organization.



Not necessarily true. Commercial property loans are made to single-member SPE LLC’s every single day (in many cases required by the lender) with the warm body or member guaranteeing the loan, while the loan is still secured by the property.

If this is his only property that may not be the case but as he gets more sophisticated the lender won’t want their collateral in anything but a SPE.

---

Agreed.

But I can’t see paying the annual fee for an LLC for a condo. Wtf is the liability? It’s a condo.
It’s not like you have a pool or other hazards.
Single family with hazards? Maybe. If there’s a fire or CO poisoning, they could argue you didn’t maintain your house. But the condo association holds most of the liability.

Just make sure your policy allows rentals.
And spend the LLC money on an umbrella.

Edit. To say it’s only $50 to file and $10 a year in Colorado. Wow. That’s a deal. It’s $500 in my state.

Ditto on the Umbrella Insurance.

Yes, on the EIN. It is free and EZ.

Just do it right from the beginning. The business however formed should have it's own accounts and run it like a business. A tax person should be able to tell you if you will gain any advantage of an LLC. I would suggest looking at the cost of an Umbrella vs LLC filing and extra $ to file taxes as a good place to start.

We have rentals and just did the $1m umbrella policy. Keep the properties in good repair and the chances of an issue are slim and a good attorney will likely find a way to pierce the LLC if you were negligent. But whatever works for you.

Another vote for Insurance. We have 2 Properties (both we paid cash for - so no mortgages) and we asked our RE lawyer about the LLC - He said as long as you are properly insured its not worth it. Sit down and talk to an agent tho.

Disclaimer: I work in insurance, but mostly tech side, so much of this is anecdotal
Check into state limits of liability around common accidents etc. - many states have a max limit for damages/awards. Insure up to that amount and you're done. On something like this, higher limits will be pretty cheap as they basically never happen on small properties.

Quote:

---

Originally Posted by schuss

Disclaimer: I work in insurance, but mostly tech side, so much of this is anecdotal
Check into state limits of liability around common accidents etc. - many states have a max limit for damages/awards. Insure up to that amount and you're done. On something like this, higher limits will be pretty cheap as they basically never happen on small properties.

---

THat's what I was going to suggest too. Just get insurance. We added it to our homeowner's policy on our rental condo. Never lost sleep over it. We didn't have an LLC.

Quote:

---

Originally Posted by liv2ski

We have rentals and just did the $1m umbrella policy. Keep the properties in good repair and the chances of an issue are slim and a good attorney will likely find a way to pierce the LLC if you were negligent. But whatever works for you.

---

what he said
any good lawyer will find a way to come at you bro
the idea that an llc will protect you is silly llc is great for tax reasons as long as your not the sole member and employee
but hey I'm not a lawyer a tax guy or much of anything I just know how to hire those people to make my life easy

I have yet to hear of any law suits filed around breckenridge because some drunk dumb ass fell down the stairs but yes it happens the main issues seem to be why doesn't this lamp work?

Since you are the actor for 95% of the issues and maintenance on the condo, it will be hard for you to escape liability with an LLC. Only exception is if you have a rental/maintenance agreement with someone, and in my opinion, you are still at risk.

My example to clients.
You get into the trucking business. Set up an LLC. Interview and carefully hire drivers with 20 years experience and a spotless record. Your driver is hauling a load from North Carolina to California. Goes to sleep in Kansas and hits a van full of nuns. Driver and the LLC get sued. Since you were not the actor/driver, you probably don't get sued personally.

Your driver is sick. Same load to California. You go to sleep and hit the van full of nuns. You are now the driver/actor and as such, the LLC affords you no protection. You and the LLC get sued.

Best advice I can give you is to have a good policy of insurance and a good umbrella. Forget the LLC as it is nothing but a headache to maintain, file taxes and manage.