LLC - Should I form one or not?

Post by Attorney Deidra Hubenak
(The attorney in me needs to take over for a second.) I don't believe in LLC's for the average single family investor. There I said it. Why you ask?

• If you just have one or two houses, it is not cost effective. It costs about $300 just to form an LLC in Texas. This is the fee payable to the Secretary of State. Attorneys fees will run several hundred to a few thousand on top of this depending on the complexity of the documents.
• You can achieve liability protection through an umbrella policy much cheaper. (You should have this coverage regardless of whether you have a LLC).
• It is difficult for a LLC to get financing before it has established credit. (If you are going to utilize a LLC you should oftentimes finance the property first and drop it into the LLC after closing.)

So when would you want to use a LLC?

• If you have a partner other than your spouse.
• If you are investing in larger multifamily properties.
• If you own 100 single family houses, it may make sense to drop a few into one or more LLC's to protect the equity in each LLC from a lawsuit from a property in a different LLC.

Moral of the story - Don't knock on my door (or any other attorney's door) to form a LLC for you unless you really need it.