Real Estate Law | Is establishing an LLC a good way to go?
Mr. Feichthaler:
My wife and I have inherited a rental property in Cape Coral from my parents, and we are considering whether to sell it or keep renting it out. The property was held by my parents as husband and wife, and not in an LLC. Although they seemed to have no issues, I have heard an LLC is a good idea. Thoughts?
– Tracy S.
Dear Tracy:
Many of my clients own investment properties and have asked the same question. Just like your other major assets, you want to protect your major investments to the greatest extent possible, at a reasonable cost.
The first line of defense for potential liability is full insurance coverage for the rental. Be sure to coordinate with your insurance agent to confirm they know it is a rental, and that the policy will cover anything that may happen with a tenant. Injuries are the first risk that comes to mind, but everything from discrimination claims to mold complaints could arise. The next line of defense is an umbrella policy, or excess limits policy. The cost of these policies is generally low, as the need to pay for claims that exceed the maximum on your homeowners policy is rare. Amounts between $1 million and $2 million in coverage are common.
For those clients that are highly risk averse, or for those that own a property with others, an LLC is another way to limit liability. Although the value of the LLC still could be at risk, the value of your personal assets will not be, if the LLC is set up and managed properly. In the case of multiple owners, the LLC also provides a basis to manage the ownership interests and responsibilities of the owners.
There is a cost of setting up the LLC, as well as annual filing fees with the state and IRS compliance. Although the majority of my clients opt to have excellent insurance only, many like the separation into an LLC both from a financial reporting perspective, and the extra asset protection benefits.
I wish you all the best with the rental, or with your sale if you opt to list and sell the property.
Eric P. Feichthaler has lived in Cape Coral for over 35 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Cape Coral to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, and Cape Coral Kiwanis. He has been married to his wife, Mary, for 22 years, and they have four children. He earned his board certification in Real Estate Law from the Florida Bar, and primarily practices in real estate law and wills and trusts. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.