LLC - Must have or nice to have?

Multi-Family and Apartment Investing
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LLC - Must have or nice to have?

Kyle NeffPro Member
Rental Property Investor · Cincinnati, OH · Member since 2015 · 127 posts · 59 votes

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!

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Todd Dexheimer
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
7y

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

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    7y

    @Kyle Neff - are you paying cash or getting a loan?

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    6Reply
  • Ron Hall
    Investor · Joplin, MO · Member since 2015 · 76 posts · 78 votes
    7y

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

    5Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y

    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

    12Reply
  • Jonathan M Peters
    Handyman · Mountlake Terrace, WA · Member since 2018 · 48 posts · 14 votes
    7y
    @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!

    7Reply
  • Scott Morongell
    Investor · Charlotte, NC · Member since 2017 · 791 posts · 479 votes
    7y

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

    4Reply
  • Jonathan M Peters
    Handyman · Mountlake Terrace, WA · Member since 2018 · 48 posts · 14 votes
    7y

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

    4Reply
  • Jonathan M Peters
    Handyman · Mountlake Terrace, WA · Member since 2018 · 48 posts · 14 votes
    7y

    Whoa! 

    I did a quick search:

    https://www.biggerpockets.com/renewsblog/2013/08/17/rental-properties-llc/

    This might be helpful!

    2Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    7y

    LLC for residential with a mortgage - slow you down

    LLC for commercial asset - necessity

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  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    7y

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

    https://www.legalzoom.com/articles/forming-an-llc-...

    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 name...you shouldn't either.

    8Reply
  • Account Closed
    Member since 2018 · 83 posts · 66 votes
    7y

    @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.

    2Reply
  • Account Closed
    Member since 2018 · 83 posts · 66 votes
    7y

    @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.

    0Reply
  • Kyle NeffPro Member
    OP
    Rental Property Investor · Cincinnati, OH · Member since 2015 · 127 posts · 59 votes
    7y

    @Brie Schmidt

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

    1Reply
  • Oleg Shalumov
    Rental Property Investor · Teaneck, NJ · Member since 2016 · 567 posts · 291 votes
    7y

    @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.

    3Reply
  • David Smith
    Rental Property Investor · NJ/PA · Member since 2016 · 555 posts · 149 votes
    7y

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

    3Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    7y
    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

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  • Chase Louderback
    Real Estate Agent · Luray, VA · Member since 2016 · 459 posts · 293 votes
    7y

    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.

    6Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    7y

    @David 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.

    3Reply
  • Adam Peacock
    Rental Property Investor · Member since 2019 · 48 posts · 38 votes
    7y

    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.

    1Reply
  • Bryan Beal
    Rental Property Investor · Greenville, SC · Member since 2019 · 115 posts · 264 votes
    7y

    @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.

    3Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    7y

    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.

    0Reply
  • Mike Freske
    Attorney · Minneapolis, MN · Member since 2018 · 62 posts · 36 votes
    7y

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

    0Reply
  • Cassandra Sifford
    Rental Property Investor · New Castle, DE · Member since 2016 · 376 posts · 158 votes
    7y
    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?
    1Reply
  • J Mort
    Member since 2019 · 2 posts · 1 vote
    7y

    @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.

    1Reply
  • Nick GiulioniPro Member
    Rental Property Investor · Carmel, IN · Member since 2016 · 1k+ posts · 615 votes
    7y

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

    0Reply
  • Christian Becker
    Rental Property Investor · Idaho Falls, ID · Member since 2018 · 67 posts · 78 votes
    7y

    @John Morgan

    I don't think having an LLC will make anyone think not to sue if they get hurt on your properties. It will just limit your exposure.

    I'm struggling with the same decision right now. The best protection is one LLC for each property. I'm going to lump 10-20 SFR into one LLC for ease of use. They're each about $50-60k.

    And I’ll be getting an umbrella policy to cover everything as well.

    My attorney recommended one LLC per property for max liability protection. But I need a practical solution. Filing paperwork for each and maintaining bank accounts, etc for a ton of properties becomes very time consuming and expensive. Each LLC costs money to set up and maintain with the state $100-300 per state depending per LLC per year. LLCs out of state I'm paying for a registered agent there which costs money ($125 per LLC per year). Annual tax filing by accountant is $450 per LLC. We're talking something like $775 per LLC per year for my LLCs which is one months gross rent for one SFR.

    6Reply
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