16 Condos: How Many LLCs?

Question

We own 16 condos in the same complex in New Mexico. We have divided them into two NM LLCs. Would you create more LLCs to further segregate the liability? Would you create Wyoming LLCs instead of NM LLCs? Would you use a series LLC?

Thanks.

Andy Mirza · Answer

Sounds like a lot of extra work. The first line of defense against liability issues is an adequate insurance policy. If you want more liability protection, buy more insurance coverage. My business partner and I have 21 condos in the same LLC and have individual policies for all of them. Maybe we could do better with an umbrella policy but that's what we have.

If a motivated, suing attorney gets past your insurance company and their lawyers, he'll try to pierce the corporate veil of whatever entity you're using. IMO, I don't think it would matter if you had 1 or 16 different LLC's. I think the time, money, and effort to set up more than one LLC would be better spent on other investing activities. Just my opinion. No legal advice given. Hope this helps....

David Krulac · Answer

@Aaron  Thivierge

Your realtor is wrong, and obviously doesn't own rental properties.  If you have a separate LLC for each property, then you have separate tax returns, separate bank accounts, (many banks require $1,000 minimum deposit) and in some states there are annual fees per entity.  In CA, the fee is $800 a year per LLC, just an extra added cost.

A more practical approach would be to have a large umbrella insurance policy at very low costs, and base the number of LLCs on the equity of each and the potential liability.

One other caution of having a bunch of LLC is that they are under capitalized, funds are co-mingles and can be easily pierced in the courts, negating the original purpose of having an LLC to begin with!

Steve Vaughan · Answer

Yeah, I'm sure he uses a Wyoming LLC.  You're welcome, by the way.

Kerry Baird · Answer

a Texas series LLC

Britt Griscom · Answer

Did you use a Wyoming LLC? Or just use the LLC from your own state?

Kerry Baird · Answer

We use a series LLC, one property per series, and a corporate entity to manage the LLC.

Wade Sikkink · Answer

One LLC for everything.  Odds are that you won't be able to maintain 16 of them correctly and if you don't, then they are worthless.  One correctly maintained LLC is all you need (and the correct amount of insurance, of course).

Steve Vaughan · Answer

I try not to have more than about $2MM in assets in each LLC.  I may make an exception for the exact same real estate and just do 1 for all 16.  I normally only place apts of 5 units+ into an LLC, never every single little house @Aaron  Thivierge .  Too many barriers to financing and insuring single-family homes inside an LLC. Not to mention all the tax prep work and bank acct mgt.  I agree with @Andreas Mirza .  One LLC is sufficient.  He is also practicing and backing up what he is saying, having done it himself. Realtors can be like attorneys sometimes.  All CYA protection, but no thought to the work and redundancy of their advice. Is this what he has done?  Does he even own his own home?  A lot of realtors don't. Good question @Britt Griscom !

Aaron Thivierge · Answer

Interesting post,  and I am also curious about others opinion.  A realtor I was speaking with last night told me I should have 1 LLC for EACH rental property.  He said it was via Clark Howards recommendation.  What do you all think? Sorry, not adding much to the answers to your question as I am wondering the same.

16 Condos: How Many LLCs?

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