LLCs for Real Estate: One or Many?

Question

Let's say you have an investment portfolio of 5 properties. Would it be better to have a separate LLC for each property, or would one LLC suffice?

Are there different risks when having multiple LLCs? Are there more tax benefits? What are your thoughts on LLCs for Real Estate Investing?

Ana Garcia · Answer

Hi @CJ Moulton!

Great question and one with many different answers, depending on who you ask.

As a tax strategist, I usually recommend my clients to avoid having 1 LLC per property because it can get very complicated and extremely expensive, especially when you co-own real estate with other people. LLCs do not bring more tax benefits, they do however, provide liability protection.

With this said, the first question to ask is "how much equity do your properties have?" and hence, "how much liability protection do you need?" If your properties have a lot of equity (low or no mortgages), you want to make sure they are legally protected through LLCs or other means. How many LLCs do you need to legally protect your 5 properties will depend a lot on the amount of equity in each property and what your risk tolerance is.

Are LLCs the best entities for real estate? They typically are the best for rentals (although there are tax strategies in which other entity types may help bring bigger tax savings). DO NOT try any other entity type for rental activities unless you consult with a tax planner first!

I hope this clarifies some of your questions. In order to give a more exact response, it is important to know how much equity you have in the properties and what your plans are for the future (how many more properties do you plan to acquire/sell, etc.)

Happy investing!

Randy Rodenhouse · Answer

There's no additional tax benefits since all our flow through entities. Typically you could put three or so properties into an LLC depending on the amount of equity you have in each property. So you may want to put $200-$300k in equity in each LLC and then form another LLC to reduce risk. There's no perfect ratio but you get the idea.