Crestwood, KY · Member since 2014 · 5 posts · 1 vote
My CPA suggested forming seperate LLCs for each rental property I purchase. He states that this limits my liability if there is an issue with one property. I have just one property currently, but I plan to purchase another soon. The idea of multiple LLCs seems cumbersome and confusing. I'll have a hard enough time keeping the paperwork straight operating one LLC. I understand his reasoning, but I thought I'd get the experts' opinions here. I do have healthy liability insurance ($1,000,000).
Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
12y
Chris brings up the most important point of having to pay fees & taxes for each LLC. For the best asset and privacy protections, you should consider putting them in a Land Trust, with a Personal Property Trust as the beneficiary. Also using a Roth IRA will give you tax free profits for retirement...
Investor · Baltimore, MD · Member since 2012 · 1k+ posts · 655 votes
12y
Is that same CPA also going to be the one you pay to set up each of those LLC's?? Is that same CPA going to charge you more to do your taxes cause it's more cumbersome and confusing?? ;)
I personally would stay away from an LLC per property because of the cost and confusion. I'd be more concerned with a good liability policy which you have taken care of.
Specialist · Dallas, TX · Member since 2014 · 900 posts · 392 votes
12y
Chris brings up the most important point of having to pay fees & taxes for each LLC. For the best asset and privacy protections, you should consider putting them in a Land Trust, with a Personal Property Trust as the beneficiary. Also using a Roth IRA will give you tax free profits for retirement...
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
@Mike McGuire compare the supposed liability protection of multiple LLCs to that of insurance. Then compare the costs. Did that CPA tell you how easy it is to screw up and have those LLCs disregarded if you are the sole owner? Liability insurance, and an umbrella policy will serve you well until you have a significant amount of assets, from what several legal and financial professionals have told me. That includes my own lawyer.
Crestwood, KY · Member since 2014 · 5 posts · 1 vote
12y
Thanks for the replies. BiggerPockets for the CPA isn't something I considered. :) I think I'll consult with a good real estate attorney. Any suggestions near Louisville KY ?
The information and advice available on BP is really appreciated by this noob.
Real Estate Investor · Phoenix, AZ · Member since 2013 · 58 posts · 32 votes
12y
Be careful acting on LLC advice here. LLC laws vary by State. LLC's are also expensive to form and maintain in some States, but here in Arizona they are cheap. Here generally they are not used as an end all form of protection, but another layer of protection, in addition to insurance and other strategies. I would spend a couple hundred bucks to speak with a local attorney.
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
12y
LLCs require additional expense, and afford additional protection. In order to make this trade off, some more details are required.
If you are renting million dollar houses with giant pools and a zip line in the backyard to rockstars, I'd definitely go separate LLCs.
If you are doing $30k SFRs with nothing weird going on, I probably would opt not to.
Residential Real Estate Broker · Belleville, NJ · Member since 2013 · 21 posts · 11 votes
12y
Hi, In my opinion, I agree with your CPA because each property is its own business. If you put multiple properties in one LLC and go under litigation for one of those properties, it can jeopardize the other properties in that LLC. However, if you use separate LLC's for each property and go under litigation then only that one property is involved and the others are fine. I would definitely get advice from a real estate attorney who deals with investors as well.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
12y
Very negative advice here. Your CPA is correct. Limits your liability big time. We have 13 with our house and ALL are under a separate llc. Cost ls $50 to set up and $25 per year. What's the big deal? Listen to your cpa!!
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
12y
LLCs require additional expense, and afford additional protection. In order to make this trade off, some more details are required.
If you are renting million dollar houses with giant pools and a zip line in the backyard to rockstars, I'd definitely go separate LLCs.
If you are doing $30k SFRs with nothing weird going on, I probably would opt not to.
--
I invest in CA, $800 per llc upfront and annually
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
@James Leake ask your real estate attorney how difficult it is to pierce the corporate veil of the average single proprietor LLC. Most investors will use their LLC in a way that will allow the opposing attorney to get the LLC disregarded. If you have partners, other than a spouse, and follow the guidance of your lawyer you have a fair chance. But insurance is still the best line of defense. Oh yeah, and doing things right matters too.
BTW, the above was based on what my lawyer advised me. You should ask an attorney, but it helps to know WHAT to ask.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
The OP is in Kentucky. Kentucky has low costs for LLC Articles of Organization ($40.00) and Annual Report filing ($15). So at 1/20 the cost of a CA equivlaent, KY makes an 'LLC per property' economically viable. Now, if you can handle all the administration (bank accounts, expense segregation, tax filing, etc.) that's a different story... left as an exercise for each KY REI to decide.
Rehabber · North Haven, CT · Member since 2014 · 58 posts · 26 votes
12y
The first two houses I flipped were owned under separate LLCs. After I sold those, my attorney, CPA, and insurance broker told me to just increase my insurance limits and run everything through a single LLC. Makes tax time much easier for me
SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes
12y
Are you going to manage these properties? Are you involved in any way with the rehab (including hiring contractors),,,will you have ANYTHING to do with the day to day operation of these rental units?
LLC's if your just an investor and have no personal involvement can provide good protection (also assuming you have commercial loans in the LLC's name),,,,but as others have stated, piercing a LLC if your at all involved in making decisions about it, is pretty elementary.
Guru's tend to push LLC's,,some people like to say they own "x LLCs", etc,,,but talk to your lawyer before you do ANYTHING to manage liability, they are the experts in that field, not your CPA
Residential Real Estate Broker · Belleville, NJ · Member since 2013 · 21 posts · 11 votes
12y
@Walt Payne I understand what your saying but I'm only going based on experience in working with investors on the brokerage side of things and me now working for the largest urban commercial landlord in NJ which they own over 300 buildings equaling close to 10,000 units and they purchase every building in a separate LLC. It may cost a little upfront to do but in my opinion its worth it. But at the end of the day everyone has their own philosophy and that is why real estate is so dynamic and people can do well either way its done.
Real Estate Investor · Austin, TX · Member since 2013 · 37 posts · 10 votes
12y
We have 32 units and do not put them in LLC's. We just purchase an additional 2MM umbrella policy on top of our insurance. That in addition to E&O insurance should be all you need. The hassle and expense to put each property in a LLC is not worth it to us however, you should put each apartment complex in a separate LLC. Also watch out for a due in sale clause if you transfer deeds to a LLC when having personal financing on a property.
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
@James Leake the buildings, and exposure to liability, that you are talking about are a totally different situation than SFR and small multi-unit apartments. But you are also talking totally different amounts of money, different management structures, different levels of involvement for the investors. For SFR and small multi-units it is most efficient and effective to cluster them in groups and use insurance to cover the liability. That does not mean you might not want multiple LLCs, depending on equity and risk, but not one per property.
Real Estate Agent · Phoenix, AZ · Member since 2012 · 640 posts · 457 votes
12y
I've read multiple posts and articles advocating using a separate LLC for each property, and If done properly I think it certainly may afford extra liability protection. However, I couldn't justify the extra headache of juggling so many LLCs with their own nuances. Imagine having all those different check books, debit cards, account numbers for deposits, etc. I'd gladly pay a few hundred extra dollars a year for umbrella insurance and keep the rest of my operation simple with one LLC.
Investor · Boise, ID · Member since 2011 · 1k+ posts · 736 votes
12y
This is one area where everyone is going to have a differing opinion and risk tolerance. Another variance once you have a handful of properties: you can have multiple LLC's set up to hold property in (with very little check writing and activity), but then have a management LLC set up that that you run most expenses through. This cuts down dramatically on bookkeeping upkeep. Idaho is simple an inexpensive for setting up and maintaining LLCs though. ($100 filing fee and no annual fees after that).
Flipper/Rehabber · Greeley, CO · Member since 2013 · 2k+ posts · 1k+ votes
12y
I have a separate LLC for my ten rental properties with separate checking accounts. Then I use an S corp to run my flipping business through and another S corp for my real estate team (listings houses and representing buyers). I let my accountants and lawyers figure out the best route to go. Colorado LLCs are cheap and since I use singled member LLCs for my rentals they go on my personal taxes and do not need a separate return.
I also have an umbrella policy and liability insurance. It may be a pain to manage all of, but that is why I let someone on my team handle the accounting. This is not legal or tax advice.
Real Estate Investor · Fenton, MI · Member since 2008 · 946 posts · 153 votes
12y
I have never understood the LLC craze. If you have an umbrella policy and are covered for $1 million that should be sufficient. Lawsuits rarely exceed that amount, and in my state the research shows it has never exceeded that amount. Realistically you are the manager of your rental property, so I see no reason a lawyer cannot pierce the corporate veil if he is so inclined.
The OP is in Kentucky. Kentucky has low costs for LLC Articles of Organization ($40.00) and Annual Report filing ($15). So at 1/20 the cost of a CA equivlaent, KY makes an 'LLC per property' economically viable. Now, if you can handle all the administration (bank accounts, expense segregation, tax filing, etc.) that's a different story... left as an exercise for each KY REI to decide.
I was looking into creating LLC in Kentucky. From the outset, it seems really inexpensive to set up -
($40.00) and Annual Report filing ($15). But then I got to looking, and found that there is an equity tax (LLET) due each year with a minimum of $175.00. Can somebody that has LLC in Kentucky clarify?
Real Estate Investor · Marina Del Rey, CA · Member since 2014 · 10 posts · 2 votes
12y
Sorry to be redundant in case someone before me has stated the same.
I own 5 different properties which are all out of state ( I live in CA). Each of my first four homes are held under their own LLCs. Texas, Tennessee and Georiga all have relatively cheap set up/annual fees for LLCs so it isn't a big hit to yearly cash flow. However, i also have a holding company and a management company as LLC - both set up out of state - but are now being hit with state fees since the primary owner (me) lives in CA. SO if you live in CA it might get costly unless you enlist a holding company to own all the individual LLCs (which becomes an added layer of protection).
Im not a CPA or lawyer so def ask a pro about all of this but Ill tell you my attorney suggest I open a new LLC for every property I own. My CPA tells me the opposite as she's more interested in saving me money. Got pick your poison but I think having an LLC own all the properties is a good start to protect your personal stuff but splitting up each home under it's own LLC is a personal math question you need to figure out.
Good luck and congrats on having this problem - cause it's a good one! It means you own property which is the best.