Separate llc for each investment property?

Question

Hello BP.  Is it a good practice to place each investment property under a separate llc?  I think its a good idea for fix and flips but i dont know how its useful in buy and holds . Any advice is greatly appreciated

Tanvir Sattar · Answer

@Pedro Bartolomei I've always been advised 7 properties per LLC by my accounting and legal team. With that being said I like to keep it in the 5 to 7 range.

Paul Shannon · Answer

I think the amount of houses you put in an LLC depends more on what your risk tolerance is versus the actual number.  If you are willing to risk $500K before setting up another LLC, that could be five $100K houses or one $500K house.

Putting them each in individual LLCs is a banking/accounting/paperwork nightmare.

Pedro Bartolomei · Answer

@Nicholas Aiola do you open an main llc in the state you reside in or in the state you are investing in ?

Chris Seveney · Answer

@David Kuhlke

I agree with a lot of the comments here:

1. More LLC’s are definitely a book keeping nightmare

2. $1-1.5M per LLC is what I do as well. Note also that If you have then leveraged, your net worth is not the property value but your equity.

So if you buy (3) $100k houses with 10% down on each one, you have $30k in equity. Definitely not worth putting them in separate LLC’s

3. What is your net worth? If you are starting out and have little to no personal assets and need financing it is probably better to keep it in your personal name to get the better interest rate l. The savings can definitely pay for a kickass insurance policy.

4. Most people don’t discuss this but are you self managing or hiring a PM. This is why I hire PM and make sure my attorney reads the contract as well, there is certain liability on their part as well.

David Kuhlke · Answer

@Nicholas Aiola

Thanks for the insight! Appreciate it

Nicholas Aiola · Answer

@David Kuhlke There's no right or wrong answer - most often, a refi is done out of the LLC because the terms are more favorable. So, if the property is already in the LLC, it will likely be deeded out and then back into the LLC. Otherwise, you can move it into the LLC after the refi.

Of course, there is the risk of triggering the due on sale clause, which seldom happens. However, in this climate, banks are more cautious as the default rate is increasing due to the current status of the economy; the chances of them calling a loan due may very well be higher right now.

One way to avoid this is to utilize a land trust - it's considered to be an advanced estate planning tool and circumnavigates the due on sale clause when moving a property in and out of an LLC. Make sure to speak to your attorney about this for proper legal advice.

Alan G. · Answer

@Pedro Bartolomei  I wouldn’t look at it as individual properties I would look at it in terms of total assets. If you are buying 100k houses you may want to put 10 into a single llc. However, if you are buying a 1,000,000 building you would probably want to use its own entity. Just personal preference and what your risk tolerance is. I can tell you from personal experience that you will have to weigh the amount of additional work and risk tolerance.

Again personally I put in about 1.5 mil of assets into each LLC. Once it fills to that number I open another.

Brandon Ingegneri · Answer

@Pedro Bartolomei

Bookkeeping nightmare

David Kuhlke · Answer

@Nicholas Aiola

At what point should an investor transfer properties to an LLC? I just purchased my first investment property and will have the refi loan in my personal name.

Nicholas Aiola · Answer

@Pedro Bartolomei It's most common to open the LLC that will own the property in the state that the property is located to avoid possibly having to register as a foreign entity to do business in another state and avoid paying multiple states' annual LLC fees/taxes.

That said, it's not obligatory to do so.

Separate llc for each investment property?

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