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Rental Property: Do I need landlord insurance? Do I need a LLC?

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  • Rental Property: Do I need landlord insurance? Do I need a LLC?

    My husband owns a rental property in NYC. It's a 2 family residence with his parents living on one floor and a tenant living on the 2nd floor.

    Recently, we've had a lot of complaints from the tenant about heating issues to the point where the landlord / tenant relationship has deteriorated significantly.

    I just found out that they've been running this rental property without landlord insurance. I (perhaps overly so) flipped out and felt he was putting our personal assets at risk (my name is not on the property but my husband's is)

    My husband said that because his parents live there and maintain a homeowner's policy that a separate landlord policy is not necessary. I asked about potentially placing this business within an LLC and he seemed content to sit on his hands and not rope in a lawyer and the associated legal fees.

    My retort was that if he wants to be involved in rental property, he needs to put in the appropriate time, research, and investments to make it a legitimate protected business that doesn't threaten our unrelated (and sizable) personal assets.

    Am I wrong? What would everyone recommend?

  • #2
    Is your husband the only deeded owner? And what's the heat issue? Is there really a problem? An LLC offers no protection if there's negligence.

    In any case, an LLC may not be an option-

    1) In the somewhat unlikely scenario, the bank could call the entirety of the mortgage due immediately upon deeding to the LLC (due on sale clause). That could put his parents out of a house. If doing this, make sure you talk to someone experienced in NYC real estate and with the bank holding the mortgage.

    2) An LLC takes maintenance, takes extra steps when out of state and requires knowledge and work to do it properly. So much as signing a letter incorrectly can lose you protection.

    3) I could be wrong, but with an LLC, your husband will need to start treating his parents as tenants, with a contract and so on. I suspect anything different would be grounds to pierce the veil as well.

    I'd want to see that homeowner's policy, but it's unlikely it covers you and your husband. You can get landlord insurance, and probably should.

    Comment


    • #3




      Is your husband the only deeded owner? And what’s the heat issue? Is there really a problem? An LLC offers no protection if there’s negligence.

      In any case, an LLC may not be an option-

      1) In the somewhat unlikely scenario, the bank could call the entirety of the mortgage due immediately upon deeding to the LLC (due on sale clause). That could put his parents out of a house. If doing this, make sure you talk to someone experienced in NYC real estate and with the bank holding the mortgage.

      2) An LLC takes maintenance, takes extra steps when out of state and requires knowledge and work to do it properly. So much as signing a letter incorrectly can lose you protection.

      3) I could be wrong, but with an LLC, your husband will need to start treating his parents as tenants, with a contract and so on. I suspect anything different would be grounds to pierce the veil as well.

      I’d want to see that homeowner’s policy, but it’s unlikely it covers you and your husband. You can get landlord insurance, and probably should.
      Click to expand...


      Thanks for the reply

      Yes, my husband is the only deeded owner

      The tenant wants the temperature at 75, the legal obligation in NY is 68 so my husband has instructed his parents to keep the temperature at 68. (It was a lot of fun juggling New Years with 1 toddler, 1 baby, and many heated phone calls over 7 degrees in temperature)

      My husband owns the home with no mortgage if that makes any difference.

      I think that is our next step, to review the homeowner's policy and to speak with the insurance agent about at least adding on landlord insurance. I guess I'll start there and maybe table the LLC discussion for another time (or hope he comes to his senses and sells the property sooner rather than later)

      Comment


      • #4







        Is your husband the only deeded owner? And what’s the heat issue? Is there really a problem? An LLC offers no protection if there’s negligence.

        In any case, an LLC may not be an option-

        1) In the somewhat unlikely scenario, the bank could call the entirety of the mortgage due immediately upon deeding to the LLC (due on sale clause). That could put his parents out of a house. If doing this, make sure you talk to someone experienced in NYC real estate and with the bank holding the mortgage.

        2) An LLC takes maintenance, takes extra steps when out of state and requires knowledge and work to do it properly. So much as signing a letter incorrectly can lose you protection.

        3) I could be wrong, but with an LLC, your husband will need to start treating his parents as tenants, with a contract and so on. I suspect anything different would be grounds to pierce the veil as well.

        I’d want to see that homeowner’s policy, but it’s unlikely it covers you and your husband. You can get landlord insurance, and probably should.
        Click to expand…


        Thanks for the reply

        Yes, my husband is the only deeded owner

        The tenant wants the temperature at 75, the legal obligation in NY is 68 so my husband has instructed his parents to keep the temperature at 68. (It was a lot of fun juggling New Years with 1 toddler, 1 baby, and many heated phone calls over 7 degrees in temperature)

        My husband owns the home with no mortgage if that makes any difference.

        I think that is our next step, to review the homeowner’s policy and to speak with the insurance agent about at least adding on landlord insurance. I guess I’ll start there and maybe table the LLC discussion for another time (or hope he comes to his senses and sells the property sooner rather than later)
        Click to expand...


        Are utilities included? If they want it at 75 can you ask them to pay the difference in the bill. Seems like a strange thing to worry about so I assume its an NYC thing and you must be legally on the hook for heating/utility.

        I have no idea what my tenants keep my rental at, but they pay those bills so I also dont care. I've never heard of land lord insurance but am guessing its the same as dwelling/fire, which I had to change into when I converted it to a rental. If you're renting out your place and the insurance is still owner occupied than you may be at risk of not having things covered and them saying that coverage wasnt proper/doesnt count.

        Having an LLC wont change how well its protected, but the right policy is super important. I also have 5 million in umbrella insurance (its less than 600/yr), but still only 1 property.

        Comment


        • #5










          Is your husband the only deeded owner? And what’s the heat issue? Is there really a problem? An LLC offers no protection if there’s negligence.

          In any case, an LLC may not be an option-

          1) In the somewhat unlikely scenario, the bank could call the entirety of the mortgage due immediately upon deeding to the LLC (due on sale clause). That could put his parents out of a house. If doing this, make sure you talk to someone experienced in NYC real estate and with the bank holding the mortgage.

          2) An LLC takes maintenance, takes extra steps when out of state and requires knowledge and work to do it properly. So much as signing a letter incorrectly can lose you protection.

          3) I could be wrong, but with an LLC, your husband will need to start treating his parents as tenants, with a contract and so on. I suspect anything different would be grounds to pierce the veil as well.

          I’d want to see that homeowner’s policy, but it’s unlikely it covers you and your husband. You can get landlord insurance, and probably should.
          Click to expand…


          Thanks for the reply

          Yes, my husband is the only deeded owner

          The tenant wants the temperature at 75, the legal obligation in NY is 68 so my husband has instructed his parents to keep the temperature at 68. (It was a lot of fun juggling New Years with 1 toddler, 1 baby, and many heated phone calls over 7 degrees in temperature)

          My husband owns the home with no mortgage if that makes any difference.

          I think that is our next step, to review the homeowner’s policy and to speak with the insurance agent about at least adding on landlord insurance. I guess I’ll start there and maybe table the LLC discussion for another time (or hope he comes to his senses and sells the property sooner rather than later)
          Click to expand…


          Are utilities included? If they want it at 75 can you ask them to pay the difference in the bill. Seems like a strange thing to worry about so I assume its an NYC thing and you must be legally on the hook for heating/utility.

          I have no idea what my tenants keep my rental at, but they pay those bills so I also dont care. I’ve never heard of land lord insurance but am guessing its the same as dwelling/fire, which I had to change into when I converted it to a rental. If you’re renting out your place and the insurance is still owner occupied than you may be at risk of not having things covered and them saying that coverage wasnt proper/doesnt count.

          Having an LLC wont change how well its protected, but the right policy is super important. I also have 5 million in umbrella insurance (its less than 600/yr), but still only 1 property.
          Click to expand...


          All utilities except electricity are included. I did float that suggestion to my husband about the tenant covering the difference but he declined as it seems like they both enjoy antagonizing each other. (The heat is gas driven and my husband feels 75 is outrageous. He's suggested to the tenant using a portable heater which would add to the electricity bill)

          We have umbrella insurance as well so I do think reviewing the homeowners policy and figuring out if/where landlord insurance comes into play and how the umbrella fits in seems like a good start.

          Comment


          • #6













            Is your husband the only deeded owner? And what’s the heat issue? Is there really a problem? An LLC offers no protection if there’s negligence.

            In any case, an LLC may not be an option-

            1) In the somewhat unlikely scenario, the bank could call the entirety of the mortgage due immediately upon deeding to the LLC (due on sale clause). That could put his parents out of a house. If doing this, make sure you talk to someone experienced in NYC real estate and with the bank holding the mortgage.

            2) An LLC takes maintenance, takes extra steps when out of state and requires knowledge and work to do it properly. So much as signing a letter incorrectly can lose you protection.

            3) I could be wrong, but with an LLC, your husband will need to start treating his parents as tenants, with a contract and so on. I suspect anything different would be grounds to pierce the veil as well.

            I’d want to see that homeowner’s policy, but it’s unlikely it covers you and your husband. You can get landlord insurance, and probably should.
            Click to expand…


            Thanks for the reply

            Yes, my husband is the only deeded owner

            The tenant wants the temperature at 75, the legal obligation in NY is 68 so my husband has instructed his parents to keep the temperature at 68. (It was a lot of fun juggling New Years with 1 toddler, 1 baby, and many heated phone calls over 7 degrees in temperature)

            My husband owns the home with no mortgage if that makes any difference.

            I think that is our next step, to review the homeowner’s policy and to speak with the insurance agent about at least adding on landlord insurance. I guess I’ll start there and maybe table the LLC discussion for another time (or hope he comes to his senses and sells the property sooner rather than later)
            Click to expand…


            Are utilities included? If they want it at 75 can you ask them to pay the difference in the bill. Seems like a strange thing to worry about so I assume its an NYC thing and you must be legally on the hook for heating/utility.

            I have no idea what my tenants keep my rental at, but they pay those bills so I also dont care. I’ve never heard of land lord insurance but am guessing its the same as dwelling/fire, which I had to change into when I converted it to a rental. If you’re renting out your place and the insurance is still owner occupied than you may be at risk of not having things covered and them saying that coverage wasnt proper/doesnt count.

            Having an LLC wont change how well its protected, but the right policy is super important. I also have 5 million in umbrella insurance (its less than 600/yr), but still only 1 property.
            Click to expand…


            All utilities except electricity are included. I did float that suggestion to my husband about the tenant covering the difference but he declined as it seems like they both enjoy antagonizing each other. (The heat is gas driven and my husband feels 75 is outrageous. He’s suggested to the tenant using a portable heater which would add to the electricity bill)

            We have umbrella insurance as well so I do think reviewing the homeowners policy and figuring out if/where landlord insurance comes into play and how the umbrella fits in seems like a good start.
            Click to expand...


            My house is currently at 72.5 and Im sitting here with my hoodie and sweat like jammie pants on, hoodie not needed but man its comfy. 68 would seem pretty chilly to me. I would say a space heater as well if they want, they are much safer now. Isnt it freezing cold in NYC right now, keep seeing screen shots from people?

            There is zero upside to antagonizing your tenants, its just a bunch of pain for you in the long run. I would try to find a mutually agreeable compromise. They can make your life very complicated and in the end your a business providing a service. I always think about what would I think of the situation as the renter? People love to try to get stuff for free of course and that will be the first move for them, but some sort of compromise can usually be achieved.

            Comment


            • #7
              I handle liability protection on all of my rental properties with a primary insurance policy for each property.  I also have an attached 4 million umbrella policy that covers me above and beyond the liability limit of each property insurance policy.

              If your husband is the owner and his parents have the insurance policy, that doesn't quite make sense to me unless your husband somehow has liability insurance to protect him as the owner through his parents' policy.  Typically his parents policy would cover the house and their liability, but not your husband's.  It would make more sense for him to have the homeowners policy.  He could then either form an LLC for protection, or simply get the umbrella policy which is good to have in any case, whether you are a landlord or not.  Fortunately umbrella liability coverage is quite inexpensive compared to other types of insurance.

              Comment


              • #8
                Real Estate Lawyer time.

                Rental without LLC and in physician name is a lawyer's dream.  At the very least a healthy umbrella policy.

                In the meantime, track costs between 68 and 75; and when lease comes up; increase rent to cover costs citing those differences in preference over requirements.  Meet then tenant's needs; let them self attrition via rental if they wish.    Courts are expensive.

                Comment


                • #9
                  Thanks for everyone's input, I think we've come up with a suitable game plan:

                  - We are going to hold off on the LLC for now.

                  - We are checking with our insurance agent as we speak but for NYC, it looks like for 2 family residences or duplexes, most insurance companies will write a single home policy for both sides. The alternative is we get a home insurance policy on the owner occupied side and a landlord policy on the tenant occupied side.

                  - We are including the rental property under our umbrella policy and increasing the coverage amount to $5M.

                  - We are re-titling our joint taxable account as tenants by the entirety.

                  Comment


                  • #10




                     

                    I’m going to defer the fun tenant issues (tenant texted my husband a 25 point list this morning of conditions that must be met in order for the tenant to agree to leave. He closed with the ultimatum that if no response was offered in 24 hours, it would be a sign of my husband’s agreement to fulfill all 25 wishes. I wish I could tell you that was a joke.) to my husband in the hopes that this experience will convince him to cash in on the value appreciation, eliminate the tenant headaches, and just sell the property.
                    Click to expand...


                    The tenant wants him to sell? Festivus is over, I think they missed the airing of grievances window, . I dont understand what the tenants angle is here. Are any of the list items a liability issue, if so, I'd fix that asap, otherwise thats borderline harassment and extortion. Assuming NY renter laws are painfully on the side of the renter as they are in Cali and they are leveraging this.

                    Sounds like a no fun tenant in all regards, maybe best to dispatch with them and get new ones, demand in NYC has to be pretty good.

                    Comment


                    • #11







                       

                      I’m going to defer the fun tenant issues (tenant texted my husband a 25 point list this morning of conditions that must be met in order for the tenant to agree to leave. He closed with the ultimatum that if no response was offered in 24 hours, it would be a sign of my husband’s agreement to fulfill all 25 wishes. I wish I could tell you that was a joke.) to my husband in the hopes that this experience will convince him to cash in on the value appreciation, eliminate the tenant headaches, and just sell the property.
                      Click to expand…


                      The tenant wants him to sell? Festivus is over, I think they missed the airing of grievances window, . I dont understand what the tenants angle is here. Are any of the list items a liability issue, if so, I’d fix that asap, otherwise thats borderline harassment and extortion. Assuming NY renter laws are painfully on the side of the renter as they are in Cali and they are leveraging this.

                      Sounds like a no fun tenant in all regards, maybe best to dispatch with them and get new ones, demand in NYC has to be pretty good.
                      Click to expand...


                      Sorry, that wasn't clear. I want my husband to sell

                      Regarding the tenant, I think he's just being vindictive/crazy over the recent debate over heat. I did not ask to see the list but from what my husband was describing, none of the list items were liability issues. Stupid demands like "I want internet speed to be faster" and "I don't want to pay rent during my new residence search period"

                      I also believe NYC renter laws greatly favor the renter so it should be a fun experience for my husband if the renter really digs his heels in about not leaving.

                      Demand is good so I don't think finding a new renter will be an issue. Although again, I'm hoping this experience scares my husband into selling and moving on from this property. The property value has doubled over the last 5 years (yay NYC) so I also would not be opposed to just having his parents live in it and keeping the 2nd floor vacant. Either way, it is not worth this level of aggravation for annual rental income that barely matches a resident's salary.

                      Comment


                      • #12










                         

                        I’m going to defer the fun tenant issues (tenant texted my husband a 25 point list this morning of conditions that must be met in order for the tenant to agree to leave. He closed with the ultimatum that if no response was offered in 24 hours, it would be a sign of my husband’s agreement to fulfill all 25 wishes. I wish I could tell you that was a joke.) to my husband in the hopes that this experience will convince him to cash in on the value appreciation, eliminate the tenant headaches, and just sell the property.
                        Click to expand…


                        The tenant wants him to sell? Festivus is over, I think they missed the airing of grievances window, . I dont understand what the tenants angle is here. Are any of the list items a liability issue, if so, I’d fix that asap, otherwise thats borderline harassment and extortion. Assuming NY renter laws are painfully on the side of the renter as they are in Cali and they are leveraging this.

                        Sounds like a no fun tenant in all regards, maybe best to dispatch with them and get new ones, demand in NYC has to be pretty good.
                        Click to expand…


                        Sorry, that wasn’t clear. I want my husband to sell ?

                        Regarding the tenant, I think he’s just being vindictive/crazy over the recent debate over heat. I did not ask to see the list but from what my husband was describing, none of the list items were liability issues. Stupid demands like “I want internet speed to be faster” and “I don’t want to pay rent during my new residence search period”

                        I also believe NYC renter laws greatly favor the renter so it should be a fun experience for my husband if the renter really digs his heels in about not leaving.

                        Demand is good so I don’t think finding a new renter will be an issue. Although again, I’m hoping this experience scares my husband into selling and moving on from this property. The property value has doubled over the last 5 years (yay NYC) so I also would not be opposed to just having his parents live in it and keeping the 2nd floor vacant. Either way, it is not worth this level of aggravation for annual rental income that barely matches a resident’s salary.
                        Click to expand...


                        Yeah, they just sound a bit wild. I'd weigh the pros/cons to keeping it, it may go up another 5 times in the next 20 years, but totally understand wanting to be rid of it. I'd look at your position and see how easy getting rid of them can be, most wouldnt fight hard when pressed with false issues and crazy demands. Either they chill out or just leave.

                        If you keep it, do the things you're planning which sound good, and for goodness sake get a property manager. Its well worth it.

                        Comment

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