Do you setup an LLC for each property?

Question

Hello. If I want to get into real estate investing particularly owning single family homes and renting them. Do you recommend that I set up an LLC for each property or one LLC for all of them?

Brian G. · Answer

@George Rodriguez usually ppl who use an LLC will utilize multiple LLCs for asset protection, perhaps 5-10 properties in each LLC, something like that. Too many LLCs can be costly and a challenge to manage as each LLC must have it's own dedicated bank accounts. The exception generally is that larger properties (ie apartments) are usually the only property in a given LLC.

David M. · Answer

@George Rodriguez

You need to talk to a lender who is able to provide a commercial loan to your LLC.  You'll still be personally signing a guarantee, but it will be slightly higher interest.  I hear that there are commercial products out there offering 30yr amortizations.  The usual loans you heard about conforming loans which are residential products that are generally owner-occupied.

George Rodriguez · Answer

when you say you have nothing your name does that include the mortgages you have for your rentals? How would u get a mortgage under a llc?

David M. · Answer

@Matt K.

Oh, I don't really know how to truly defend having Title in LLC and note in personal name.  The best discussion we've had was to have a lawyer help out for the the LLC to assume the mortgage with the personal.  So, it wouldn't be a formal assumption especially since most mortgages can't be assumed.  This gets the payments all lined up legally.

I am guessing after you do a more than one, your LLC looks like an alter-ego and not a separate business entity.

Dan Schwartz · Answer

"Do you set up an LLC for each property?"

Yes.

It costs me $85 to set up with the state.  There are no annual filings.  I think I might need to pay a couple of dollars to the state commission if I change my address, but that's it.  No annual fees.

My business checking accounts are free with a small minimum balance.  I think it was $250, but might be $500 now.

On the non-real estate side, I even choose a new LLC over a DBA under an existing LLC.  I have to renew the DBA every five years, but the LLC is perpetual.

The right answer regarding LLCs depends enormously on what state you are operating in.  I would not have the same set up in California, and I probably wouldn't in any state which required annual filings.

(The calculus also changes if you are filing with a tax status other than disregarded entity.  I would hesitate before forming a different LLC for each property if it meant filing numerous 1165s or 1120Ss, especially if I were paying per filing.)

Matt K. · Answer

All that makes sense, my question was specific to title in LLC and note in personal name. Just curious how one could explain the separation between LLC and person when the note isn't held by LLC (even though paid by LLC)

Side note, you ever thought about primary home in a trust? I've been looking at that once I get a refi done.

Also, I should add I understand there's millions of way to accomplish these things and it's more then likely going to be case by case unique to the person/situation. But, I feel at same time some items can be discussed on a broader sense as best practice etc (like how you've set up/manage the LLCs).

Reggie Rearden · Answer

@Matt K. I'd suggest talking to your attorney about that. I personally have each of my commercial properties in different LLC's and my SFH's in 1 LLC. I have separate accounts for each LLC, per my attorney. Nothing I have is commingling. I have NOTHING in my name other than my primary residence and my vehicles. I just follow the advice of my attorney. By doing that, you should be good to go. I'm an absolute firm believer in setting everything up correctly from the beginning and following the advice of an attorney.

Matt K. · Answer

How would you defend keeping title in LLC and note under personal name...

It seem like that would be interpreted as commingling and thus peirce the veil.

David M. · Answer

@Matt K.

I'm sorry.  What is the question?

Matt K. · Answer

Just out curiosity how would you defend that from claiming it's commingled funds/assets ?  By no means am I saying this wouldn't work, just curious of the defense.

Do you setup an LLC for each property?

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