Is a RE Attorney Necessary

7 Replies

A partner and I are just starting out in TurnKey RE Investing and my CPA has suggested that we talk to a RE Attorney and that we have a separate LLC for each property. We plan to buy 4 or so homes this year. This all seems a bit overt the top to me, but I'm also wary of cutting these kind of corners as they can be pricey to deal with later (ie the cost of a lawyer is way lower than the cost of cleaning up a legal mess.)

Any ideas on this from the forum?  

Thanks!!

Angela

Originally posted by @Angela Ceresnie :

A partner and I are just starting out in TurnKey RE Investing and my CPA has suggested that we talk to a RE Attorney and that we have a separate LLC for each property. We plan to buy 4 or so homes this year. This all seems a bit overt the top to me, but I'm also wary of cutting these kind of corners as they can be pricey to deal with later (ie the cost of a lawyer is way lower than the cost of cleaning up a legal mess.)

Any ideas on this from the forum?  

Thanks!!

Angela

The properties that I own are in one LLC. But I would still consult a lawyer about your personal situation and understand the risks / costs with different strategies

@Angela Ceresnie

Creating an LLC for each property is more costly than having one LLC for all your properties.
Creating an LLC for each property includes cost such as

  1. formation costs to the Secretary of state
  2. possibly annual/upkeep fees to the secretary of state
  3. additional accounting fees to your accountant if a partnership return is required to be filed
  4. fees paid to registered agents 

With that said - you should definitely consult an attorney if you should set up an LLC for each property.

The following are factors if you should create an LLC for each property

  1. Your risk tolerance
  2. Your risk exposure
  3. Your net worth
  4. Cost to form additional LLC's

I am also located in Brooklyn(but I decided not to go the turnkey route). What area are your turnkey properties?

Hey Angela! I've always bought turnkeys myself and when I first started buying them, I started asking the same question about whether or not to do an LLC.

I'm a little leery about your CPA and that recommendation. Does you CPA specialize in real estate? If not, I'd get a second opinion from someone who does. You won't probably need an RE attorney if you don't go the LLC route, so before you spend too much on that front, I'd do a little more research.

I wrote an article a while back about why I decided not to go the LLC route for my properties and what I did instead-

https://www.biggerpockets.com/renewsblog/2013/08/1...

In addition to my article, read the comments too as there is more information there than you probably even want to hear. But read through all that, see what resonates for you, and at a minimum I'd get another opinion from another CPA before going too far.

More than anything, what I've learned is to be careful putting the cart before the horse. If you haven't bought the turnkeys yet, I wouldn't be worrying about the LLC yet (you can't finance them through an LLC anyway). Focus just on the buying, as you'll need to learn due diligence and all that jazz and then practice being owners, then if it looks like an LLC may be beneficial for some reason, then switch the properties over. Don't overwhelm the process with things that aren't necessary right now.

(I may or may not have learned that last piece of advice the hard way... ;0 )

@Angela Ceresnie I am an RE investor (turnkey and otherwise), not an attorney or tax advisor, so take this for what it is worth. If you are talking about turnkey SFR rentals, putting each under a separate LLC strikes me as a burdensome, costly, and frankly patently absurd way to go. Now, if you were talking about commercial size MF that would be a different story. Assuming you are planning to finance these buys of turnkey SFR, I agree with Ali that you don't need to even worry about answering "to LLC or not LLC" question until after your purchase.

This is not advice, just for your info.... If you get sued by anyone for anything related to real property that you own, they will sue the LLC that owns that property. If 5 rental properties are in the LLC's name, all those properties can be reached by a single lawsuit. That is why many investors choose to form separate LLCs for each property they own, to limit their potential legal liability in the event a tenant, contractor, handyman, etc sues. The cost and effort required to form and maintain a simple LLC for each property you own is not astronomical, although exact costs range by state.

Some people also choose form only one LLC and hold multiple properties in that LLC. If you own a lot of personal assets that you want to protect with an LLC, and have multiple inexpensive rental properties, forming only one LLC is a reasonable option. Just understand the risks of holding multiple properties in one LLC.

Thanks to everyone who responded here!  Super helpful all around.

@Ali Boone   and @Larry F. I think your advice makes sense to just buy it and figure out the LLC later, why get all worked up about that stuff before I even get started.

Originally posted by @Angela Ceresnie :

Thanks to everyone who responded here!  Super helpful all around.

@Ali Boone  and @Larry F. I think your advice makes sense to just buy it and figure out the LLC later, why get all worked up about that stuff before I even get started.

Yep. Things are hard enough in this field without unnecessarily putting the cart before the horse! :) 

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