I own my home outright. I tried to sell it and after 18 months of failure, I ended the listing. I would like to relocate. Renting out the house would seem the only solution. I have no mortgage. I have other assets beyond the house to protect. Is moving the house into an LLC the wisest maneuver, and what is the best and least expensive method?
If you move the house to an LLC you will still want to purchase insurance for both property and liability coverage and you may need to buy a separate policy for the LLC. Unless there is some great risk of liability with the house I would not recommend the LLC. I think you would be better off with a good homeowner's insurance policy and an umbrella liability coverage. Then, in the rental contract I would require the renter to provide liability insurance showing you as an additional named insured and including a hold harmless and indemnity clause.
This is really not an environmental/natural resource topic, but I'll venture an answer anyway. An LLC is inexpensive and easy to set up. I think moving the real estate into one would be fairly strait forward too. However, I don't see the need for a corporate structure as long as you carry adequate insurance on the property, including liability coverage.
Shell Bleiweiss
The two other attorneys who have already addressed your question both mention the imporance of insurance if you go ahead with your rental plan. This is excellent advice. An article in the April 20 New York Times discussing rental arrangements made repeated mention of the need for proper and adequate insurance. I'll give you a link below.
Its obvious you are considering the LLC from a viewpoint of protection from liability arising out of your ownership of the home. Please understand that if you form an LLC and then do something negligently, whether its negligent remodeling of the home, or failure to warn of the presence of lead paint in the house, or any other act which you, yourself, do or fail to do subjects you, personally, to liability. Sure the LLC will be liable for your negligence if you did something in pursuit of the business, but you will also have personal liability.
So if there's inherent liability on account of Radon gas or lead paint, and you do your part to warn the tenant as required by local law, you will have liability protection, but if you fail to properly do your part you will still have personal liability.
If you decide to rent, you cannot have homeowner's coverage. The property will have to be insured as a rental property. You should require any tenant to have renter's insurance with liability coverage of at least $1,000,000.00 with you, your LLC if you decide to go that route, and all officers, members, directors named as additional insured. YOu should require that you be provided with a certificate of insurance in advance and provide in the lease that the cancellation of the insurance or the failure to renew/provide a certificate of insurance is a default under the lease. Keep in mind, that depreciation while renting will reduce your tax basis in the property and that if you haven't occupied the property in, I think it's) 3 of the last 5 years, you will have to pay capital gains from your cost basis. Also, being a long distance landlord is not easy. You might want to have a local property manager handle the property for you.
LLC's are vastly overated and over used these days. They are expensive and take time to set up. You appear to own home outright and have no mortgage. You can lease it out and require tenant to maintain policy of liability insurance. Likewise you can and should carry your own homeowners policy along with liability coverage. You could simply incorporate if that makes you more comfortable, file for sub chapter S tax status and then once you have tax ID number and verified sub chapter S tax status do quit claim deed to corporation.
