Is Setting Up an Entity the Best Move for Scaling Our Family Real Estate Portfolio?

Question

I’m currently planning how to best scale a family real estate portfolio and would really appreciate learning from investors who’ve done this successfully.

Here’s our current situation:

• I personally own two rental properties with mortgages.

• My parent owns two properties that are completely paid off.

• Together, we want to leverage the equity in all four properties (through HELOCs or cash-out refinances) to buy more rentals and build out a larger portfolio.

• Our primary goal is growth — not just holding what we have, but using these assets as a springboard to acquire more doors over time.

• Long-term, I would handle all operations and decision-making, and my parent would receive passive income without having to be involved in day-to-day business.

Where I’d love advice from this community is on structure and timing — especially if entity setup becomes essential for securing financing and scaling efficiently:

• Would you recommend first leveraging equity through personal HELOCs and contributing those funds to an LLC — or is it smarter to set up the entity first and structure financing from there?

• For those of you who’ve built family partnerships, how did you handle ownership splits when one person is the active manager and the other is more passive? Did you use gradual gifting, installment sales, or another strategy to transfer ownership over time?

• What’s been your experience getting HELOCs or investment loans once properties are transferred into an LLC?If banks were hesitant, did you personally guarantee the loan and then document a loan to your LLC with a promissory note?

• At what point in your scaling journey did you find that having a formal entity (LLC, LP, or trust) became non-negotiable for both protection and ease of growing your portfolio?

• Lastly, are there any structures or steps you wish you had set up earlier when scaling family-owned assets into a larger real estate business?

I’d really appreciate hearing lessons learned, strategies that worked (or didn’t), and any advice for those of us looking to grow from small family holdings into a serious, scalable portfolio.

Chris Wade · Answer

Many of my clients acquire new properties in their names first to close the deal, and then transfer into LLCs after the fact. They typically do not have issues with triggering the due on sale clause" when they use disregarded LLCs or the "mothership" partnership LLC @Stephen Nelson mentioned. This is because you are not actually selling the property to a third party for tax purposes, and you remain obligated on the loan. This approach allows you to continue to get loans under your personal name while planning for asset protection. Also, while insurance is a must, I always recommend pairing a good insurance policy with a proper LLC structure for maximum protection- there are too many carveouts with insurance these days to be safely relied on alone. In my opinion, if you have investment properties you want to protect, or isolate from each other's liabilities, the LLC is non-negotiable right then and there. Finally, to ensure your family benefits from your efforts, you'll want a comprehensive estate plan tied into all of this as well

Cliff Benner · Answer

I like comment "2" Stephen talked about, I think this is very appropriate for a lot of Investors that want to partner together with funding from each and then control individual LLCs that is owned by them. That is how I set up my P-Ship with my wife and I, so we can just own other LLCs with ease or partner with others through that "Mothership" LLC as Stephen Said. Then you can add in money to the top LLC, split it how you want, then disburse funds down into individual LLCs that you to purchase more real estate with. You will not be able to get loans under your personal name since you'll be buying the property as an LLC but you can get hard money loans and DSCR loans and still get funding that way.

Andrew Kubik · Answer

It’s unlikely, but transferring your property to an LLC could trigger the "due on sale" clause, especially if you have a low-rate mortgage—so I’d be very cautious about that. If asset protection is your goal, getting good insurance might be a safer option.

As for your parents’ properties, it’s possible to transfer them to an LLC and you can fund your portion of the LLC with cash from a HELOC.

Stephen Nelson · Answer

Two random comments but I'll mention because it seems sort of relevant that I used to teach the Choice of Entity class to CPAs and attorneys in the masters in taxation program at the country's big graduate tax school. That class was basically a semester-long discussion of S corporations, LLCs and trusts.

But back to the two random comments:

1. Simplicity is scalable and complexity really isn't. Thus you really want to not overcomplicate. Or do strutural stuff you don't understand well. You do not for example want to end up with a dozen partnership returns to deal with unless you first know how much work that entails. (Also a related comment: In a business where you need to watch costs--which is basically any business but especially leveraged businesses in a sluggish economy--you want to watch out for the costs of the managing the complexity too.)

2. I personally think a "mothership" LLC that owns single-member LLCs that hold individual properties is pretty scalable. The mothership LLC is a partnership with you and your partners as its owners. At that level, you can do special allocations (so not guaranteed payments) to reflect your extra work.) The single member LLCs are all disregarded entities so don't need their own federal returns though they may need state-level returns.

Jay Hurst · Answer

@Thomas Lin  a LLC has nothing to do with scaling your business. It would be to protect assets (but even then it has to be done correctly, or it is a waste of time).  It will make it slightly harder to scale in fact as loans in LLC's are still personally guaranteed but the loans are more expensive. In fact, it can be hard to find a lender that will lend in second position (like the HELOC you mention above) on a property held in a LLC.

Is Setting Up an Entity the Best Move for Scaling Our Family Real Estate Portfolio?

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