Limited liability company

3 Replies

I own 6 properties 5 which are rented 4 of them are in 4 different states if I was to make each one there own LLC "limited liability company "

And I live in California would I still have to pay the $800 California franchise tax? And would I have to pay that amount X the number of LLC even though NONE are in California?

Have been listening to Dave Ramsey and he says to put each one in separate LLC AND get umbrella policy!

Thanks

Jim

You'll find tons of topics on this very thing, just search. Based on my experience, here is my opinion. I think putting each SFR in it's own LLC is just dumb. The administrative overhead alone would be nasty if you truly want to not "pierce the veil". Dave has his own brand of advice. Keep in mind, he's like a Suze Orman, his advice is for the average person, not people investing in real estate.

I think it's perfectly fine to have multiple SFR's in one LLC. It's even fine to not if you invest by yourself. I have all mine in 1 LLC because I invest with family. If I invested alone, I probably would have done in my name only.

A 20-unit apartment complex....yes, I'd put that in it's own LLC.

Jury's out on whether you have to pay the $800 CA franchise tax on each LLC. It hinges on the definition of "doing business in California," and that's an unsettled area. Personally, I would not register the out of state LLC in this case unless my attorney/CPA insisted.

That said, I would not create separate LLCs for each property unless they were (A) high value and risk or (B) had different ownership structures.  The overhead to managing and keeping books for a company is significant.

Having multiple LLCs means more time doing work about work.  That's a bad place to be in.

I'm no tax expert, so I strongly recommend you verify this with a legal and tax professional specific to REI - It's my understanding that if a tenant decides to sue, they will come after the LLC and everything under it. Not sure if you want that kind of liability or if you'd rather minimize the risk and go with the alternative. Just my two cents.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you