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 · Bellingham, WA · Member since 2008 · 407 posts · 90 votes
15y
The umbrella policy would be written to cover all aspects of the business including the member of the LLC and liability involving the assets.
In Washington State the Initial setup fee for an LLC is $99 and a single member can act as the Registered Agent if you reside in the state. The renewal is $69. Everything is done online with detailed instructions. I set them up easily for myself. If you pay the $20 expedited fee you get your LLC in 3 weeks otherwise it's 3 months.
Investor · New Orleans, LA · Member since 2011 · 22 posts · 4 votes
15y
I operate as a dba, own outright several apt. buildings, and have a $1m umbrella liability policy. Unless you have a partner, I find this LCC stuff nonsense. As does my very conservative attorney. Maybe we're just old school, but we've both done very well by keeping it as simple as possible.
Real Estate Investor · Chicago, IL · Member since 2008 · 122 posts · 46 votes
15y
Originally posted by ken george:
I operate as a dba, own outright several apt. buildings, and have a $1m umbrella liability policy. Unless you have a partner, I find this LCC stuff nonsense. As does my very conservative attorney. Maybe we're just old school, but we've both done very well by keeping it as simple as possible.
Hey Ken,
Do you operate each property you own under a different DBA?
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
Originally posted by ken george:
I operate as a dba, own outright several apt. buildings, and have a $1m umbrella liability policy. Unless you have a partner, I find this LCC stuff nonsense.
Let's just hope if you ever have a claim, your insurance company doesn't find an excuse to deny it. :idea:
Investor · New Orleans, LA · Member since 2011 · 22 posts · 4 votes
15y
All properties are owned in my name with the dba only used so I sound like a professional real estate entity. All properties are high end and very well maintained. With my 22 years prior experience in the London and NYC commercial insurance markets, I am also certain that Lloyd's will not deny defense of, or payment for, any successful claim. With adequate coverage provided by a AAA rated carrier, you have nothing to worry about.
Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
15y
Roughly how much more does a blanket insurance policy and commercial loan cost than doing it the typical quitclaim/due on sale clause/dwelling fire policy way? Is it still cost effective for a small investor with single family houses to go the commercial route?
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
14y
Originally posted by Tom Wallace:
Ok, so if I form a single LLC, do I need to transfer title of the properties to the LLC?
Yeah, you do :) Even though you are forming a SM-LLC you are NOT your business - at least not legally anyway. An LLC is a separate, legal entity formed and governed under and by the laws of your state. The SM-LLC is disregarded only for tax purposes. As such, if you want to transfer the properties to the LLC you will need to deed them over. An alternative you might consider is to transfer the properties to a land trust and then transfer the beneficial interests of the trusts to you SM-LLC. You should consult your real estate attorney and/or tax pro to discuss your options and the best strategy for your specific situation.
Chicago, IL · Member since 2012 · 12 posts · 2 votes
14y
I have set up LLCs for all my properties thinking I was somewhat protected and have some privacy from sue happy lawyers. I have some investors tell me now it very easy to find out what you own with a few searches. Is this true?
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
14y
Originally posted by Tom Juhn:
I have set up LLCs for all my properties thinking I was somewhat protected and have some privacy from sue happy lawyers. I have some investors tell me now it very easy to find out what you own with a few searches. Is this true?
Depends on how your LLC is set up and how you transferred the properties over to it.
In California, I set up a manager-managed LLC, so the only names on file with the Secretary of State's office are the names of my manager and resident agent. However, unless you take title of the property DIRECTLY into your LLC or land trust, then there will be a paper-trail. It won't take a genius to figure out the grantor probably has beneficial interest in the transferred property.
Investor · Los Angeles, CA · Member since 2011 · 242 posts · 61 votes
14y
I remember when I was on the county website and printed out the one page form to open an LLC. I read the $800 a year tax and threw the paper away. In my case that would be 10% of the cash flow and I don't have much equity.
Real Estate Investor · TX · Member since 2012 · 9 posts · 0 votes
14y
Question: when you transfer properties into LLCs do you stlll do your income tax the same way - Schedule E with $25,000 in deductions max against earned income? Thanks..
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
14y
Originally posted by Woodrow Wildcat:
Question: when you transfer properties into LLCs do you stlll do your income tax the same way - Schedule E with $25,000 in deductions max against earned income? Thanks..
It would depend on whether you accept the default tax status or elect corporate status for your LLC.
SM-LLC (default): pass through to Form 1040, Schedule E
MM-LLC (default): Partnership Return
SM and MM-LLC (corporate status): Corporate return (Form 1120 or 1120-S)
Real Estate Investor · TX · Member since 2012 · 9 posts · 0 votes
14y
Thanks for the quick answer - I am inquiring as a single person with no partnerships. I know some of the benefits of a corporation but do you think there are any in particular which would benefit a small time landlord (a dozen properties) going from the Schedule E to a corporate return? Seems to me that's complicating things too much and perhaps losing the $25,000 deduction which really helps the little guy.
Real Estate Investor · Northeast TN, TN · Member since 2008 · 516 posts · 361 votes
14y
Originally posted by Woodrow Wildcat:
Thanks for the quick answer - I am inquiring as a single person with no partnerships. I know some of the benefits of a corporation but do you think there are any in particular which would benefit a small time landlord (a dozen properties) going from the Schedule E to a corporate return? Seems to me that's complicating things too much and perhaps losing the $25,000 deduction which really helps the little guy.
Got it...you are absolutely right..there is no advantage. That's why, all things being equal, for rental property, I (and most others) recommend the default status for your LLC. I rarely, if ever, recommend a corporate election for an LLC holding rental properties. With a dozen properties you may want to have either an LLC with a corporate election or a S-Corporation act as the manager (not the owner) of your properties. This will give you a corporate entity to give you some of those benefits you mention. You may want to discuss this with your tax pro who is in a better position to address your specific tax situation.
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
14y
These gentlemen are spot on with their answers.
If you are a single member LLC, you will not want to elect any kind of entity. This will cause you to file Schedule E on your tax return.
If you are a Multi-member LLC, you will want to file the return as a partnership(Form 1065).
If you flip/wholesale properties, you will want to elect S-corp status and pay yourself a reasonable salary.
Some people if they are in a high tax bracket, will use a C-corp to hold their properties in order to acquire financing separate from their name and to shelter some of the income from tax if they are not taking any dividends for an extended period of time. However, you have to be substantially higher in tax brackets to find this useful. The main reason being that you can also pay yourself and any employees from that C-corp and offer yourself benefits to your wages for management. At that point you will consider some substantially different planning with your accountant.