One company v.s. a bunch of companies
What was the first you did when you started investing in real estate? Mine was to start an LLC. My training and experience as an attorney told me that protection against liabilities is a very high priority. Seven years ago, I set out to build a real estate micro-empire, I started with one LLC. When I acquired the first rental property, I created another one. When we decided to enter another aspect of the real estate business, I created another one. When I acquired a rehab property, I created one. Before I know it, I now have 5 different LLCs, each complete with a bank account (or two), Quickbook, insurance policy, certificate of organization, operating agreement...
From a strictly liability standpoint, to properly protect your assets, an attorney would advice putting each "at risk" or rental property that you acquire in a separate LLC. Each LLC becomes a single-asset-entity and creates a protection that limits liabilities to the extent of your investments in the entity. Additionally, there are other reasons to create multiple companies, the nature of the business of each may be different leading to different tax treatments, or if you do 1031 Exchange through an entity, that entity can't be the one that you flip houses in (I learned this from Bill Horan of the Realty Exchange Corporation).
From an accounting standpoint, this is a bookkeeping nightmare. My accountant tell me that my books are the most complicated of all of her clients. She uses multiple computers due to all the inter-company activities between my LLCs and needs to spend more time reconciling the books between the various companies. When I keep my own books, it is a complete paperwork overload. This leads to procrastination and the reason why I am still not completely finished with my 2013 taxes.
This really worries me, especially because I am really still in the beginning of my career. I am worry that I will one day decide to retire simply due to paperwork overload. That would be a terrible way to suck passion out of something I love so much.
I think it is time to consolidate. Although my investment properties are not all units of the same building, I am beginning to see northern VA as one location and my homes are just units within that location. I mean multifamily owners own the entire building in one entity, right? I understand this may cause "spill-over" of liability from one property to another. However, each one is well-maintained, well-managed and adequately insured. So, I don't see a big problem there. This may also allow me to access more equity if I am able to find a lending willing to cross-collateralize.
I don't think there is a right or wrong answer to this but I know the status quo is not workable over time. Any thoughts?