LLC - Must have or nice to have?

97 Replies

Hello BP Community!

I am considering investing in both residential multifamily properties as well as some 5-15 unit complexes. Do I need an LLC when moving forward with a commercial property in that unit range, or is it just a "nice to have"?

Disclaimer: this will be my 2nd investment property, the first is a SFR. Look forward to the feedback!

@Kyle Neff , set the llc, I use separate llcs for each property that I own.

You don't ever need an LLC, but it would be very wise to form an LLC for each property for a protection stand point. Make sure that you run it like a business. Set up a bank account, and run all expenses and income through the business

@Ron Hall :

Can you elaborate more on why you use an LLC for each property? I don't know much about it I have 2 Properties that equate to 3 rental units and I have never been approached with anyone saying I should LLC my properties..... I hope this isn't something else slipping through the cracks!

@Kyle Neff   not mandatory but certainly something you should do. Your essentially buying a business. Hopefully this helps. 

Has anyone complied a list of reasons why to LLC? I just like seeing the list of whys and or why-not


I did a quick search:

This might be helpful!

LLC for residential with a mortgage - slow you down

LLC for commercial asset - necessity

An LLC is a must. Here's your pros and cons list:

All of my investor clients have multiple LLCs. Some group like properties in the same LLC others have a separate LLC for each. NONE put investment property in their shouldn't either.

@Kyle Neff for me it’s a must-to-have, primarily as a layer of protection between the property and my other assets. Also makes it easier to transfer ownership percentage should you want to do that in the future. Owning individual properties via LLCs is a structure investors are used to and is fairly easy and inexpensive to set up.

@Kyle Neff I should have added that the cost and ease of setup depends on which state you’re in. It’s easy and cheap in Texas. $300 state filing fee and a pretty simple franchise tax report each year. Some states, such as Wyoming, can offer some anonymity with different requirements on reporting of owners/managers.

@Brie Schmidt

Thanks for the reply, Brie! Will use a loan and probably do 25% down. 

@Kyle Neff not required but hardly recomended to have LLC for each commercial property. If you have, for example, ten properties under your name (not under LLC) and one of your tenants got hurt and takes you to court for $10MM dollars. The court will go after everything you own (including all the properties) that belong to you in order to pay the tenant if you lose the case.

If you have the property under LLC the only can go after the LLC and other properties/LLC would be not be touched.

Can new LLC be created by me on state website , right ? Can I open bank account , right away with ein ?

Originally posted by @Kyle Neff :

@Brie Schmidt

Thanks for the reply, Brie! Will use a loan and probably do 25% down. 

Your lender will require a LLC. Commercial loans can only be made to a business vs residential loans can only be made to a individual

LLCs are highly recommended on all investment properties. You can group clusters of single family houses and smaller multifamilies together under the same LLC. If you start to buy 100+ unit complexes at a time then it's probably time to have an individual LLC for each of those acquisitions in order to mitigate your risk and protect yourself. When you get to that point you will need to have a serious conversation with an asset protection attorney and CPA as you will be needing more than just an LLC.

@Ethan Smith , yes in most states you can form it online, but will NEED an EIN for the LLC to open a bank account.

@Kyle Neff , I would strongly reccomend an LLC for doing a multifamily especially if you are doing larger than a 4 plex. I am not familiar with a requirement to have a corporate entity for commercial loans, but if you do a list of why you should not use a LLC to buy rental property they pretty much all go away when you buy commercial property. The negatives to an LLC are that you only get commercial loans, which usually have higher interest rates and shorter term loans than personal loans. Since personal loans are often resold to Fannie May or Freddie Mac etc. they are easier to get as most banks offer them. You might need a portfolio lender to get commercial loans as I have heard they are not as easy to resale. You should be keeping all the money separate from personal anyway just to make book keeping easier. I don't think it affects insurance rates too much either way. You will most likely have to co-sign the loan as well.

LLC's are not required but they do help limit your legal exposure. I would recommend an individual LLC per property. This will allow you to prevent a legal setback from resulting in liens on any other property. Just be extra cautious to keep your financials and structure intact or a court judge could theoretically 'pierce the corporate veil' (a decision against honoring the legal and financial autonomy of a corporate entity) and hold you personally liable for whatever legal issue is being raised which could put other (or all) other properties at risk.

@Kyle Neff personally, I have multiple properties under each LLC I have - I think it's overkill to get a new LLC for each home. You can get yourself a business umbrella policy that is 1) easy to manage and 2) cheaper than forming new LLCs. Not to mention the insurance you have on each home will protect you from liability as well. Instead I'd make it a set dollar amount for each LLC - for example you may not want to own more than $1 MM in assets under each entity.

I have one LLC for my six SFRs. Pretty easy to do and keeps my personal assets safe. If something happens and they see you have an LLC, they most likely will back off from suing you. I've never heard of someone with an LLC getting sued. If so, I'm sure it's very rare.

Has anyone had any issues with transferring ownership to the LLC. I'm assuming the loans are in your name?

Does anyone have any experience with series LLCs in DE? How do u add the 2nd, 3rd, etc to the originally formed LLC? Would you say your experience has been positive or negative?

@Mike Freske

I have a similar question. I close on my first property (condo weekly beach rental) that I will also use for myself.

My financing is a personal mortgage. I have tried my best to do my research as I go into this new endeavor. One item was reading The Book on Rental Property Investment by Brandon Turner; which is how I learned about the BP forum.

In this book, Brandon mentioned that given the rising rate environment that he had heard of situations where changing the ownership from my name to an LLC could cause the mortgage company to call the entire mortgage due. I gathered that this may be more for a mortgages that have rock bottom rates and it is an opportunity to have the mortgage refinanced at current rates.

My question for the group is, if I buy this property as an individual in my own name and soon thereafter transfer ownership to an LLC am I likely to invoke the mortgage company calling the mortgage due in full?

Any help on this would be greatly appreciated.

Long-term it's a must have. Short term.... you can probably get by.

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