Investor · East Syracuse, NY · Member since 2011 · 15 posts · 1 vote
I currently own 3 single family properties which I rent out. I am in the process of trying to secure more. I have a simple DBA. I am thinking about forming an LLC to provide myself some protections. At the same time, I am considering starting a property maintenance business with my son. This "division" of the business will provide maintenance for the rental properties but will also provide the same services for other customers. Does it make sense to have both the ownership of the properties I purchase and the "handyman/maintenance" business under the same LLC?
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
The general philosophy around multiple entities is not so much how many properties you have in one entity, but how much *equity* you have in one entity, as this is what you are ultimately risking.
For example, it's less risky to have 100 properties in one LLC if each property has $1000 in equity than it would be to have two properties in an entity if each of those properties had $75,000 in equity.
Real Estate Investor · Cold Spring Harbor, NY · Member since 2011 · 104 posts · 16 votes
15y
The theory for separate LLC's is that if you are holding them in an LLC to begin with for "limited liability", then the more mutually exclusive the properties are - the more 'limited' the liability.
However, i'm not sure if you've tried, but there are many hoops to jump through if you are financing properties via an LLC. A topic covered heavily on here if you need to research it.
Select a State · Member since 2011 · 90 posts · 3 votes
15y
Hi Tom,
From my research as far as protection goes you likely will want to have the properties under separate LLC's otherwise, should a lawsuit arise against you, you are at risk of exposing all three properties to loss under that LLC.
Remember though, an LLC alone isn't enough to protect you, you should consider liability insurance and opening separate bank accounts for your LLC's and keeping personal separate from company.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
The general philosophy around multiple entities is not so much how many properties you have in one entity, but how much *equity* you have in one entity, as this is what you are ultimately risking.
For example, it's less risky to have 100 properties in one LLC if each property has $1000 in equity than it would be to have two properties in an entity if each of those properties had $75,000 in equity.
Investor · Lawrence, MA · Member since 2011 · 41 posts · 22 votes
15y
Strongly suggest separate LLCs for each property owned. This comes from my seasoned attorney who specializes in real estate. The reason being is that if a lawsuit were to ever come against you, they would have a harder time going after your other property. Works best when combined with liability insurance as well.
Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
15y
Originally posted by Tom Wallace:
Mike, why a separate LLC for each property? Wouldn't that be a logistical nightmare if/when I accumulate more properties?
When saying "Mike" i assume your referring to me as i'm the only one who posted before you. No it's not a logistical nightmare. What is a nightmare is your entire life's assets going down the drain to a lawsuit. Thats a nightmare.
Auto download into quickbooks, use a VA to make sure everything is on it's up and up, and have a good CPA to get it all filed correctly. So you spend a little extra each year, so what.
Boston, MA · Member since 2011 · 23 posts · 0 votes
15y
i had the same question about properties and LLCs. is this the same as having the property in one's name but have an LLC for the operation/maintenance? im just about to purchase my very first investment property and i didnt know if i could put the deed under an LLC or just put it in my name, it seems easier that way.
Investor · East Syracuse, NY · Member since 2011 · 15 posts · 1 vote
15y
Thanks guys...(sorry Joe). My head is spinning a bit now. There is a lot of equity in each home I own because I don't have any mortgages on them. I totally rehabbed each one of them and plan to put mortgages on them as i continue to acquire other properties...What do you guys think about LegalZoom.com to set up the LLC's?
Real Estate Investor · Cold Spring Harbor, NY · Member since 2011 · 104 posts · 16 votes
15y
As I stated earlier - before you spend money on creating an LLC, check with your banks.. Banks will simply not hold mortgages under an LLC currently - there are ways around this which you can research on this site.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
i am sure there are sites that will help you file the paperwork, but for a fee. just call your state and it's just a simple form, along with a $25 check. and there you go. simple and just as effective.
the loans are under my name, not the LLC. wonder if that could be changed after the fact....
Accountant · Member since 2008 · 119 posts · 52 votes
15y
I would seek an attorney's advice for how much equity to keep in each entity. You say you own the properties free and clear, so you have plenty to lose.
I will say that you should not operate the property maintenance/handyman services under the same entity.
Real Estate Investor · Cold Spring Harbor, NY · Member since 2011 · 104 posts · 16 votes
15y
Originally posted by J Scott:
Originally posted by anthony c:
Banks will simply not hold mortgages under an LLC currently...
That's going to depend on the bank and the type of loan...the bank I work with *REQUIRES* title to be held under a business entity...
I think if you have a personal relationship and a business plan with a bank such as you do J, yes it's possible. As an average investor, i've called a dozen well known national banks, including those i've done numerous mortgages with... and the simple answer is LLC? Nope, and if you transfer title to an LLC, a Due Bill will be issued.
Yes there are ways around it but call a few banks and that will be the answer. The current consensus is let them issue the due bill, they will never act on it - but that is a risk.
Tom, i'd be interested to hear your feedback after you make a few calls.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
Originally posted by anthony c:
I think if you have a personal relationship and a business plan with a bank such as you do J, yes it's possible.
It has more to do with the bank and the type of loan and less to do with the relationship. Like I said above, the bank I work with *REQUIRES* title to be held by a business entity, regardless of whether the borrower is someone who has a long-term relationship with the bank or the borrower just walked in the door the day before.
As an average investor, i've called a dozen well known national banks...
That true...and that's also the problem. If you go the route of large banks and conventional loans, you'll be most likely be required to hold in your personal name. But, in general, these are the types of loans that most investors seek out.
Most investors are looking for portfolio loans that can be tailored to their personal investing needs and goals; these are most often offered by regional and local banks -- especially commercial banks -- and are very often issued to a business entity, not someone holding title in their own name (though a personal guarantee will likely be required these days).
Real Estate Investor · Cold Spring Harbor, NY · Member since 2011 · 104 posts · 16 votes
15y
Originally posted by J Scott:
Most investors are looking for portfolio loans that can be tailored to their personal investing needs and goals; these are most often offered by regional and local banks -- especially commercial banks -- and are very often issued to a business entity, not someone holding title in their own name (though a personal guarantee will likely be required these days).
Hmmmm, I will try a couple of small area banks and discuss a portfolio business loan vs an outright mortgage.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
15y
Originally posted by anthony c:
Hmmmm, I will try a couple of small area banks and discuss a portfolio business loan vs an outright mortgage.
Will post my results
A portfolio loan is still a mortgage (or deed of trust) in many cases...the "portfolio" part only means that the loan is funded and retained in-house as opposed to being sold on the secondary market.
Because the bank is lending their own money and is not concerned with resale of the note, they can make the underwriting rules -- which generally means they will allow (and oftentimes REQUIRE) the borrower to be a business entity.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
15y
Originally posted by Tom Wallace:
Does it make sense to have both the ownership of the properties I purchase and the "handyman/maintenance" business under the same LLC?
Tom, it doesn't make sense to have both businesses under the same LLC, especially if the properties belong to you, and the other business will be owned by you and your son. More importantly, the two generate different types of income. The rental properties generate passive income, while the management company will generate earned (active) income. For tax purposes, it is usually best not to mix the two.
You do NOT need a separate LLC for each property. Ridiculous. J Scott is spot on. Be more concerned with the amount of equity AT RISK. Note that is equity in the properties, not the value of the properties. A good blanket liability policy will keep you covered.
A good real estate attorney and/or tax professional can best help you make the right decision for your personal circumstances.
Investor · East Syracuse, NY · Member since 2011 · 15 posts · 1 vote
15y
Thanks all. Bill, when you mention a "blanket liability policy" are you referring to something additional to a landlords property insurance policy? I do have property insurance (specifically for landlords) on each property. There is some liability protection in the policies. Are you referring to something in addition to that?
Real Estate Investor · Chicago, IL · Member since 2009 · 178 posts · 62 votes
15y
It can be useful holding different properties in different LLCs because sometimes instead of selling the actual property, you can sell the company that owns it instead. The transfer is no longer a real estate transaction then, but a standard business transaction, no different than if you sold one company to another. All assets transfer and best of all no property duties or stamps!
-v
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
All of you recommending separate LLC's for each property must live in cheap states. For those holding property in California, Massachusetts, New York, and Tennessee (maybe missed one or two), the annual fees and taxes will drain your cash-flow in no time.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
mitch, i remember you mentioning it's $800 each year... that's crazy. we pay $25 for the transfer. that's it. i dont even know if it's each year or just once.
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
Originally posted by George P.:
mitch, i remember you mentioning it's $800 each year... that's crazy. we pay $25 for the transfer. that's it. i dont even know if it's each year or just once.
Are your properties in Michigan? It's like $5 for annual filing and no tax due until you make over $45,000/year or something like that.
California has low fees for set up, but then they stick it up your backside with the franchise tax. No other state I've found costs more, but the others that I mentioned, NY, TN, MA, et. al., can still run in the hundreds of dollars for annual filings and such.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
15y
Originally posted by Tom Wallace:
Thanks all. Bill, when you mention a "blanket liability policy" are you referring to something additional to a landlords property insurance policy? I do have property insurance (specifically for landlords) on each property. There is some liability protection in the policies. Are you referring to something in addition to that?
Sure do Tom. It's also called an "umbrella" policy and protects the policyholder above and beyond the standard limits on their primary policies. They typically are sold in increments of a million dollars.