Should I form an LLC Yet?

Question

I am about to have one SFR should I get an LLC or wait to have more?

Lien Vuong · Answer

No, just put it under one LLC for you .. typically named the address of the home, i.e. 123 Main St LLC. Once you start acquiring more properties you can have a larger LLC that owns all the smaller properties under that but you have some time before that is necessary.

Scott Smith · Answer

Ideally you want it to be a 1:1 ratio. As you grow there are entities that help enable you to operate this way without being overwhelmed by 10, 20, 30+ LLCs, such as the Series LLC. But some people are fine place several properties into a single LLC. I would just encourage you to chat with an experienced real estate attorney so you can see the risks you face - once you see that you can decide for yourself how much protection you would like to invest in.

The only real problem with asset protection is that you don't know you need it until it is already too late. Once you are served, or even if someone tells you they will sue you, then you can get in trouble by trying to restructure your assets. Once a law suit is initiated you cannot restructure anything until after it is over. Better to do your research and commit to a solution before you run into the problem, and best case scenario is that you never have to utilize that protection.

Vernon Trice III · Answer

Do you recommend one I have the property to have more than one LLC?

Vernon Trice III · Answer

Hey Scott, appreciate the comment. If you have more than one home do you have more than 1 LLC? Is there a 1:1 ratio or does one LLC suffice?

Scott Smith · Answer

Hey @Vernon Trice III,

I would recommend placing the property in an LLC once you have it. If there is ever a law suit against a property operated LLC you wont lose personal assets - and if there is a law suit against you it will not impact the LLC (as long as you are not committing crimes, since that changes the rules.) Some investors go forward without one, but there is a chance that you could lose it all in a long and drawn-out legal battle. Each person needs to decide for themselves what risks they are willing to take, but I always have my investments protected within LLCs or other liability protection entities.

This article goes explaoins asset protection more generally, I wrote it after answering similar questions in the forums over the last few years.

Just my two cents!

Lien Vuong · Answer

Wait to have one. Have your offer be stated as Your Name and/or LLC to be named. No need to spend money drawing up docs before you have it all set in stone.

Should I form an LLC Yet?

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