Setting up an LLC is surprisingly easy and can add a layer of protection to your real estate assets. It is not, however, a necessity, nor is it a cure-all. Here are some things to consider when deciding whether or not you need one. I also highly recommend consulting with a business attorney in your local area, as LLC logistics and protections can vary from state to state.

An LLC is, in general terms, a “Limited Liability Company,” meaning that someone who sues the company has limited access to what they can get in a judgment. The goal of holding real estate in an LLC is that you separate your personal assets from the company’s assets so that if someone sues you (like a tenant who gets hurt at one of your properties), they can’t come after your personal assets. BUT, proceed with caution. In order for an LLC to offer any protection at all, you have to run it as a business so that a potential plaintiff can’t “pierce the corporate veil” and get to your personal assets. That means that the more it looks like a business, the more protection it can generally offer you: a business bank account, business receipts, business email address, business checks. It’s a question of degrees rather than a black-and-white assessment of whether it is or isn’t truly a business. Not comingling personal and business bank accounts and money is one of the most important things you can do. Again, it’s wise to seek advice from a business attorney in your state to make sure that you are running your LLC correctly to give you the protections it can offer.

In addition to having an LLC, you should consider having an umbrella insurance policy. Talk with an insurance broker about what the options are and what level of protection you can get. An umbrella policy will often kick in to assist you in defending lawsuits against you, depending on what your policy covers, and can pay out a judgment if you are sued without you having to dig into your personal assets. So whether or not the “corporate veil is pierced” by the plaintiff in a lawsuit, an umbrella policy can potentially have you covered.

Many lenders will not lend to an LLC, so you’d still need to get the mortgage in your personal name. If you do this, and if you intend to transfer ownership to the property at or shortly after closing, this is something you should talk with both your title company and your lender about before you close. You don’t want to trigger any “due on transfer” clause by your lender if your property comes under new ownership. Making sure the title company and the lender are on board with transferring the property to your LLC will help ensure you have your bases covered.

And, many investors own investment property in their own name, without an LLC. It is not required to setup an LLC or any other type of corporate structure. So, if you want to start simple, you certainly can. However, if this is your situation then it would definitely be an even better idea to look into an umbrella insurance policy. You can get a surprisingly large amount of coverage fairly cheaply, so contact your insurance agency to discuss the options.