Using an LLC for rental property with personal mortgage, am I covered?

[AppalachianMDs]

Hello all,

My wife and I (both physicians) are looking to test the waters of rental property and being landlords. The timing was somewhat dropped in our lap(a parent purchased it 3 months ago and needs out), which mean we only want to put down 15%. The property is low risk, we could pay the mortgage without significant impact if it doesn't get rented.
We are planning to rent it using an LLC (ie the contract/payments etc through the LLC) but the mortgage would have to be in our name, so the question is: does this actually mitigate our risk?

Thank you!

[White.Beard.Doc]

It will be challenging to get a "personal mortgage" on an investment property if by personal mortgage you mean "owner occupied". However, if the property is owned through an LLC and you will be renting it out, you will have to get an investment property mortgage. That typically will require a higher interest rate and a significantly larger downpayment than you are planning.

You could own investment real estate without an LLC, and simply protect yourself with a larger umbrella liability policy. You could also use it as owner occupied and get an initial residential mortgage, and then convert to rental property without violating the mortgage terms if you do not rent right away, typically for a minimum of 6 months after purchase.

[Tim]

Insurance on owner occupied is different than a rental property as well.

[Larry Ragman]

You do not need an LLC to own an investment SFH. An umbrella policy as a supplement to your rental property insurance will provide adequate coverage. The advantages of an LLC for asset protection in the case of a rental property are over stated anyway. (Generally they are able to be pierced if there is a serious claim.) And, as stated White.Beard.Doc said, having the LLC complicates the mortgage situation.

[Steven Podnos MD CFP]

I'd disagree with not using an LLC to own rental property. Asset protection is a series of "fences" isolating assets both from creditors and from each other. If an LLC provides some asset protection in your state (and it does in most), why not use it? If you own the property jointly with a large umbrella-you have still exposed all of your otherwise unprotected (IRAs, retirement plans are inherently protected) solely held and jointly held properties to the same lawsuit.