Individual LLC or LLC per deal?

Question

Working with a group of other investors interested in buying some property(ies).

I would be leading the research, management, etc. but relying on the group (and in some cases myself) for capital.

Is it best to create my own LLC or do 1 per deal depending on who's involved.  Are there other options?

I know it depends but curious what are the things I should be considering when evaluating the options -- thanks!

Luis Alvarez · Answer

@Joe Ciccarelli you've used the magic words that all of us with JDs love...it depends. :)  I'm not sure if these deals that you're referring to are flips or long-term holds, in either case we typically set up individuals/separate LLCs for each.  And here's why:

In the case of flips: opening an LLC and then closing it upon the sale of the rehabbed property closes the loop on you (and your partners) as operators and can isolate any future claims (think foundation, mold, framing, etc) that can come back and bite you.  Yes, just closing it won't absolve liability if you (and your partners) acted negligently, but it can isolate it to the activity of that single entity.

In the case of LT holds: I refer to the term "don't put all your eggs in one basket", but take a more prudent approach, which is to isolate the activity (and liability exposure) of one property to the next.  And yes, I know, a few people may say "well if you only have $10k equity in a $100k property you can put more than one property in a LLC"...the issue there is that: 1) You won't always have reduced equity on properties (think HELOCs/re-appraisals), and 2) depending on the jurisdiction, a judgment can attach to an LLC holding multiple properties and wait you out.  Trust me when I say that good plaintiff (suing) attorneys don't take a case unless they've got a good feeling they'll be able to collect.

Hope that helps!

Eliott Elias · Answer

My rule of thumb is no more than three properties per LLC. Anything more will make things extremely difficult to track.

Joe Villeneuve · Answer

Both.  Also, when you are a member in an LLC partnership, you should be using your own LLC as that member...not your own name.