Is each property in a LLC realistic or best advice?

Question

I have heard that you should keep each property in its own LLC.  I have owned rental property since 2007. I have never meet another investor that keeps each property in its own LLC, especially SFH.  I do keep larger multifamily in separate LLC.

To do one LLC I have multiple bank accounts (taxes, rent deposits,  operating and reserves),  seperate credit card, tax ID, tax filing, property management login, and email.  I could not imagine doing this for 40 seperate units.

It seems this would be a bookkeeping nightmare for me.

Is anyone using this type of asset protection strategy for 5+ properties?

Jake Baker · Answer

@Jonathan Small

I believe it is overkill. Depends on your risk tolerance as well.

I will do 5-8 properties per LLC. I invest in Jacksonville FL where the homes are worth in the low 200s.

I find that CPAs will tell you to have one LLC for each property... maybe because they can charge you more per tax return :)

Max Emory · Answer

@Jonathan Small, depends on your risk tolerance and how much you're willing to spend to maintain all of the entities as others have said. If the SFHs are $500k+ each then maybe you have each in its own LLC. But, that's still overkill to me.

You want to have a structure that doesn't overcomplicate your accounting and is practical to operate/maintain. The more complex the higher your maintenance costs will be (bookkeeping, tax advisory, tax filing, entity fees, attorney fees, etc). It adds up and makes it not worth it very quickly.

It also makes your operations more complex to ensure you're (or, your team) never commingling between entities or flowing cash inappropriately.

I see this a lot in my REI bookkeeping firm and it defeats the purpose of the structure.

*I'm not an attorney nor a CPA/EA/etc.

Greg Scott · Answer

I have a friend that put one property in its own LLC and then had a master LLC over all of them. He probably had about $50K of equity in each house when he formed the LLC.

I agree with you. That feels like overkill.  That is a lot of cost and work to protect $50K.

Bryan Montross · Answer

Someone once told it to me like this. When starting out and you only have a couple of properties it is probably best to keep them in separate LLCs. As you move further in your investing and have many properties, then you can start putting multiple together still based on risk tolerance. Why? If I keep putting my properties into the same LLC for the first say 5 properties, if anything happens at any of those 5 properties you could lose them all and have to start over. If you were at all relying on money from those investments, it is now gone. If you had kept them each separate, you only lose 1/5 of what you have worked hard to build. Now say you have 50 properties and you decide to make bookkeeping easier by putting 5 properties into each LLC. Now if something happens at one of the properties you could lose 5 out of 50, but you still have 45. So losing 5 properties means a lot more to the person who only owns 5 properties than it does to the person you owns 50. How much are you willing to lose if something does go wrong at a property? That's what you should be thinking about.

Ko Kashiwagi · Answer

Hi Jonathan,

This might depend on the type of properties - it would require a different strategy for a 100k home vs 1M home. A smart strategy I've seen from an investor is to put maximum 5 in one LLC, and then form another for the next 5.

Joseph Bui · Answer

Personally, all of mine are in 1 LLC, each of them have 1 million liability through home insurance and I have an umbrella policy of a few million. I’m also dealing with properties that are worth about 100k or so, so strategy might be different for higher priced properties.

Michael Smythe · Answer

@Jonathan Small can be done, but as others have pointed out, can be expensive.

If you pursue this, you will want a "master" or "property management" LLC. This LLC will act on behalf of the property LLCs and sign leases, collect rents, etc. You will need to disburse funds annually to each property LLC - but if they are all single-member LLCs this may not be required and only the PM LLC will need a bank account, etc.

This is not legal or tax advice, so be sure to check with tax attorney and/or tax professional.

Is each property in a LLC realistic or best advice?

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