How does placing a rental property in an LLC affect liability protection and financing options?
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Explanation
A properly structured and maintained LLC provides a legal barrier between the rental property's liabilities and the investor's personal assets. If a tenant sues over an injury, a properly maintained LLC should limit the lawsuit to the LLC's assets. However, Fannie Mae and Freddie Mac conventional loan guidelines prohibit lending to LLCs, so investors typically cannot get conventional 30-year mortgage rates in an LLC. Common workarounds include closing in personal name and quit-claiming to an LLC (which can technically trigger the mortgage's due-on-sale clause), using commercial loans, or using DSCR portfolio loans that allow LLC title. Many attorneys recommend a Series LLC or separate LLCs per property in states where that structure is available.
Closing costs typically range from 2-5% of the home purchase price and include fees for the mortgage lender, title company, appraisal, and various other services.