The Pros & Cons of Using a New LLC for Every Property Purchase

The Pros & Cons of Using a New LLC for Every Property Purchase

2 min read
Matt Faircloth

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, N.J., is a developer and owner of commercial and residential property with a mission to “transform lives through real estate.” DeRosa creates partnerships to finance select real estate investments and has a proven track record of providing safe, profitable investment opportunities to their clients.

Experience
Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to hundreds of units in residential and commercial assets throughout the East Coast. Under Matt’s leadership, DeRosa has completed tens of millions in real estate transactions involving private capital, including fix and flips, single family home rentals, mixed-use buildings, apartment buildings, and office buildings.

Matt is an active contributor to the BiggerPockets Blog and has been featured on the BiggerPockets Podcast three times (show #88, #203, and #289). He also regularly contributes to BiggerPockets’ Facebook Live sessions and teaches free educational webinars for the BiggerPockets Community.

Matt authored the Amazon Best Seller Raising Private Capital: Building Your Real Estate Empire Using Other People’s Money. The book is a comprehensive roadmap for investors looking to inject more private capital into their real estate investing business and is a must-read for anyone looking to grow their business by using private lenders and equity investors. Kirkus, the No. 1 trade review publication for books, had this to say about Raising Private Capital: “In this impressively accessible introduction to a complex subject, Faircloth covers every aspect of private funding, presuming little knowledge on the part of the reader.”

Matt and his wife Liz live in New Hope, Penn., with their two children.

Education
Matt earned a B.S. in Industrial and Systems Engineering with a minor in Business from Virginia Tech. (Go, Hokies!)

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There is so much conversation on LLCs—from the basic stuff, such as what are they and why we should use them, to more complex topics like which state we should register in and the difference between a manager-managed LLC and a member-managed LLC.

Here I am going to take a stab at one of the questions that I hear a lot: Should you get a new LLC every time you buy a property?

There are pros and cons for doing this, and below, I go over them in detail.

Related: 5 Reasons I Do NOT Invest in Real Estate Using An LLC

Pros of Using a New LLC Every Deal

  1. Ownership structure: Perhaps you are working with several different owners on a new deal. It makes sense to have a new LLC, as it will define the ownership percentages and the roles of each owner.
  2. Working in a new state: This could be argued either way, but to me, it makes sense to incorporate in the state where your investment property is.
  3. Doing a flip: Many investors do a new LLC every flip. This makes sense, as it separates that flip from other properties with respect to taxes and liability. More on this in the video above.
  4. Asset protection: Holding each purchase in its own LLC will compartmentalize each property from the other. If there is a liability claim with one property, it won’t affect any others held by you. Some would say that this is the main reason to hold each deal individually. Watch the video for a deeper conversation on how valid this is.

Related: Stop! DON’T Put Your Investment Property in an LLC If…

Cons of Using a New LLC Every Deal

  1. Higher costs: You will pay a fee to set up each LLC and, in most states, another fee to file a return every year and a fee to your CPA.
  2. Growing portfolio: Depending on the size of your portfolio, it might be easier to get a loan if you lump several properties into one LLC. Holding each property individually could make it harder to get financing, especially if the values are less than $100K.
  3. Insurance: You can obtain a reasonably sized general liability policy on your properties and arguably have the same level of asset protection as you would if you held each address individually.

I go into way more detail on everything in the video above, so be sure to check it out.

I know there are schools of thought on both sides of this conversation, and I would like to hear from both.

If you are a strong advocate for either, please leave a comment below!