INVESTMENT PROPERTIES

Investors have a number of options to facilitate purchases. Some of the more common include Conventional, DSCR, All-In-One, Bank Statement, and 1099 loans. There is also the Fix & Flip loan which is for properties you plan to purchase and sell quickly. Each have their qualification, benefits, and potential drawbacks. We will review details to determine the best for your needs.

NOTE: With new legislation, homebuyer, including investment benefits which oinclude:

  1. Mortgage Interest Deduction Reinstated and Extended.

  2. SALT Deduction Limit Significantly Increased.

  3. PMI is now Permanently Tax Deductible

  4. 20% Business Income Deduction is Permanent

  5. Full Bonus Depreciation for Real Estate.

7 Ways to Protect Yourself as an Investor

1. Form an LLC or Other Business Entity

  • Why: Limits your personal liability if someone is injured or sues you.

  • Common Entities:

    • LLC (Limited Liability Company) – Most popular for single-family and small investors.

    • S Corporation – Better if you're also earning "active income" from flips or commissions.

    • Series LLC (in some states) – One entity with sub-entities for each property.

  • Best For: Anyone holding rental properties long-term or owning multiple units.

2. Get the Right Insurance Coverage

  • Landlord Insurance (Rental Property Insurance):

    • Covers structure, liability, and loss of rental income.

  • Umbrella Insurance:

    • Extra liability coverage (typically $1–5 million) that sits on top of other policies.

    • Highly recommended for higher-net-worth investors.

  • Specialty Coverages:

    • Flood insurance (not included in most standard policies)

    • Short-term rental insurance (if using Airbnb/VRBO)

3. Use Strong Lease Agreements

  • Why: A clear, lawyer-vetted lease helps avoid misunderstandings and reduces legal exposure.

  • Include:

    • Indemnification clauses

    • Tenant insurance requirements

    • Limitations on guests, pets, and modifications

    • Maintenance responsibilities

  • Consider adding arbitration or mediation clauses to reduce the chance of court disputes.

4. Asset Segregation

  • Keep each property in a separate LLC (or trust) to isolate risk.

  • This means if something happens on Property A, creditors can’t go after Properties B or C.

  • Advanced Tip: You can also hold all LLCs under a parent holding company for simplified control.

5. Use Land Trusts (for Privacy)

  • Why: Keeps your name off public property records.

  • You hold the property in a land trust, and your LLC is the beneficiary.

  • Used mainly for privacy, litigation avoidance, or whistleblower protection — not for liability protection alone.

6. Maintain Legal and Financial Separation

  • Never commingle personal and property funds.

  • Have a separate bank account and credit card for each property or LLC.

  • Keeps your liability protection intact and helps at tax time.

  • Track all income/expenses separately for clean books and IRS compliance.

7. Perform Proper Tenant Screening

  • Run credit checks, background checks, verify employment/income, and check rental history.

  • Avoid problem tenants that could result in evictions, property damage, or legal issues.

  • Use a written rental application and follow fair housing laws to avoid lawsuits.

Bonus Protections

Hold Adequate Reserves

  • Always keep 3–6 months of expenses in reserves per property.

  • Protects you from vacancy, emergency repairs, or legal costs.

Use Licensed & Insured Contractors

  • If you hire unlicensed or uninsured workers and they get injured, you could be liable.

  • Always collect proof of insurance (COI) and verify licensing.

Hire a Property Manager

  • They can help ensure compliance with local laws, handle tenant disputes, and enforce lease terms.

  • A good manager can prevent problems before they escalate.

Monitor Legal Compliance

  • Stay up to date with:

    • Local landlord-tenant laws

    • Eviction procedures

    • Short-term rental rules (if applicable)

  • Consider joining local landlord associations or forums to stay informed

Benefits of Investment Property in an LLC

Placing an investment home into an LLC can be valuable for liability protection and asset separation, but it comes with added costs and complexity. It’s most worthwhile if you’re scaling up, seeking protection, or operating a rental business professionally.

1. Liability Protection

  • Primary Benefit: Limits your personal liability in case of lawsuits, injuries on the property, or tenant claims.

  • If someone sues over something related to the property, only the LLC’s assets are at risk, not your personal ones (like your home, car, or personal savings).

2. Asset Separation

  • Helps you separate personal and business finances, making it easier to manage bookkeeping and protect assets.

  • You can also own multiple properties in separate LLCs, isolating the liability of each one (so one lawsuit doesn’t risk all your properties).

3. Tax Flexibility

  • By default, a single-member LLC is a "pass-through entity", so income/loss passes through to your personal taxes — no double taxation.

  • Multi-member LLCs are taxed as partnerships unless you elect a different status (e.g., S-Corp).

4. Estate Planning & Ownership Transfer

  • Easier to transfer ownership (to family members or partners) via LLC membership interests rather than a traditional real estate transaction.

5. Professional Image

  • Owning and renting property under an LLC name can give a more legitimate, professional appearance to tenants and business partners.

Potential Downsides / Considerations

1. Financing Challenges

  • Transferring a property into an LLC can trigger a "due-on-sale" clause in your mortgage — meaning your lender could demand full repayment.

  • LLCs often face higher interest rates and stricter lending standards than individuals.

2. Cost & Complexity

  • Formation and maintenance of an LLC include:

    • Filing fees (varies by state, e.g., $50–$500+)

    • Annual reports or franchise taxes

    • Possibly higher accounting/legal costs

3. No Tax Benefit by Default

  • You don’t get tax savings just by having an LLC — tax treatment is typically the same unless you elect a different structure (like S-Corp) or are running it as a business.

4. Insurance Considerations

  • You still need landlord insurance — LLC protection doesn’t replace the need for solid insurance coverage.

  • Some insurers may charge more or have different underwriting requirements for LLC-owned properties.

When It Makes Sense

  • You own multiple investment properties or high-risk properties (e.g., short-term rentals, multi-family units).

  • You're concerned about personal liability and want formal asset protection.

  • You are partnering with others and want to clearly define ownership shares and responsibilities.

  • You’re building a long-term real estate business.

Pros & Cons in Each State in Practice

Georgia

  • Pros: Easier and lower cost to form, moderate recurring fees. Good liability protection. If you own multiple properties, keeping each in its own LLC can localize risk. Clean accounting and separation.

  • Cons: You still pay state income tax on rental income; transferring property into an LLC may have fees, transfer taxes, or affect title insurance. Also, some lenders may resist; you might need to notify mortgage provider or requalify.

Alabama

  • Pros: Similar liability protection; pass‑through taxation; for smaller levels of income, state tax rate may be relatively favorable depending on bracket. Benefit of separating your business exposure.

  • Cons: More expensive to set up than Georgia; recurring taxes/privilege tax. More paperwork to maintain. Mortgage/financing can be more awkward, especially for investment properties. If property is already owned, transferring it to an LLC involves deed change, potential recording fees and taxes, maybe triggering due‑on‑sale with mortgage, etc.

Florida

  • Pros: Big advantage in no state personal income tax, which can make net returns higher. Good privacy, liability protection. Clear LLC filing costs and annual fees. For investors, this can be a very favorable state.

  • Cons: Annual fees aren’t trivial; penalties for late filings are steep. Also, if you transfer property into LLC after purchase, there may be documentary stamp taxes or transfer/recording fees in some counties. Homestead and personal exemptions generally do not apply if held in LLC. Lenders may have stricter terms.

What to Watch Out For…“Gotchas”

  • Mortgage Due‑on‑Sale / Loan Terms: If you already have a mortgage in your name and then transfer the deed to an LLC, many mortgages have a “due‑on‑sale” clause that allows the lender to demand full repayment. You may need lender permission or refinance under the LLC, which often carries higher rates or require guarantees.

  • Insurance: You will still need proper liability insurance; an LLC doesn’t replace insurance. Ensure your insurance is in the name of the LLC and properly structured.

  • Maintaining Formalities: To keep the liability protection, you must keep finances separate (bank accounts, accounting), maintain operating agreement, avoid commingling funds, file required reports, keep registered agent, etc.

  • Taxation and Discounts / Exemptions: Many personal exemptions (homestead, etc.) and tax benefits tied to individual ownership are lost if owned by LLC. Each state may treat property tax differently depending on ownership structure.

  • Costs vs. Benefit on Smaller Value Properties: If a property is small (low incomes, modest value), the cost, complexity, and administrative burdens might outweigh the liability protection benefit.

  • Transfer Costs: Changing title into LLC can incur recording fees, possibly transfer taxes, depending on county and state. Also potential that title/insurance costs increase, or triggers by mortgage.

  • Foreign LLC registration: If you have an LLC in state A owning property in state B, you often need to register as a “foreign LLC” in state B, which adds cost and paperwork.

What Might Be Best for You

  • If you're investing in Florida, forming an LLC is especially attractive because you avoid state income tax on pass‑through income. That can make a big difference in cash flow.

  • If you're in Georgia or Alabama, the liability protection and organization benefits are very real, but you’ll still pay state taxes on the income. So it’s more about protection and risk management than lowering tax burden dramatically (but clarity in bookkeeping and deductibility still help).

  • If you have multiple properties, high liability risk (e.g. short‑term rentals, pools, higher visitor traffic), or want strong privacy / estate planning, LLCs tend to be worth the cost.

  • If it's a single small rental, low risk, modest income, the costs & complications might not be worth it — but often people still do it for liability protection and to structure things cleanly.