Do I need one LCC per house?

7 Replies

Hello bigger pockets fellows!

I have four SFR properties in Georgia under a C-corp. For safety reasons, I was told it was better to put each house in a different LLC. One of the problem is that it looks costly (100$ to set up each LCC and 50$ per year registration fee on each LLC). What do you think of that cost and is it worth to do it?

The other problem is that each property needs a different account. Is that true ? If it is, it looks very complicated.

I will appreciate if someone know more about this topic

It is suggested to put each property in a separate LLC, because if you get sued they can come after all 4 properties if lumped into one entity. Others suggest you can keep them in 1 LLC and take out extra insurance for that particular LLC.

I am not a CPA or attorney and i would suggest speaking to one in your area. Also, check out some articles about owning in a C Corp Vs. an LLC

https://www.corporatedirect.com/c-corps-s-corps/wh...

http://loopholelewy.com/loopholelewy/01-tax-basics...

Hope this helps,

Ryan

It doesnt hurt but it can be expensive and unnecessary. We generally lump a few houses per LLC but dont want to have to deal with dozens of tax returns and filing fees etc. If we buy an apartment building we always try to do that in a new company though, but single families or duplexes stuff like that 5-10 per LLC has worked fine for us. Although @Ryan Saulle local legal advice is advisable. 

@Jean Paul Rousseau

Who advised you to put the real estate within a C-Corp? It is usually not suggested to put property that tends to appreciate within a C-Corp.


Whether to put each property within a different LLC or within 1 LLC depends on your Risk exposure and your Risk appetite.

Putting all your properties within 1 LLC exposes all your properties if you get sued. Creating multiple LLC's limits what is exposed in the case you get sued.

You may want to also incorporate an umbrella insurance policy in addition to the LLC's for your asset protection strategies.

You do need a separate bank account for each LLC. You need to keep each account separate or you risk commingling funds and piercing the corporate veil. 

@Jean Paul Rousseau Agree with @Basit Siddiqi comment. You might be mistaking C-Corp for LLC. Most investors tend to use LLCs for their RE holdings. Nonetheless, you do not need one LLC per property. In fact, things will get onerous pretty quickly if you go down that route and have multiple properties.

Best (cost efficient, not the best risk mitigation strategy) way would include getting an umbrella insurance policy (as mentioned by Basit) as well as ensuring your lease is air-tight. 

Thanks to everybody for your keen answers.

I am a french citizen living in France and paying my taxes in France. Having a C-corp allows to pay 15% taxes in US (on small gains due to depreciation) and nothing in France, so that does not add up to my french taxes. Furthermore my children are the company stockholders. I am just president and I lend money to the corp to buy houses. The corp repays me in 20 or 25 years (I will be dead but my children will get the repay). Of course I am not taxed in France on the repay and the company does not serve dividend at this time. Nevertheless I was told to require a small interest on my lendings; it will be 1% but due only in fine, so there is a good chance my kid get it. I don't know if it is the best choice, but it is the rationnal.

One problem is the large variation of the $ to Euro exchange rate, but there is a diversification advantage and this effect should be less important on the long term

Due to the cost of having one LCC per house, I think I will stay as it is for now and may reconsider the situation later on if I pursue my investments.

This leads me to another question. As the corp owes me a lot of money, it has very few equity and that should give some protection. Nevertheless, those lendings are registered to the french tax administration (to be sure it's not considered as a taxable gift), but nowhere in the US. Only my US CPA takes it into account; is that a problem? 

As far as you know there is no need to register this here in US. You would just report the balance on your Corporation tax return which your CPA should be able to handle for you.

When setting up entities there are multiple decisions for each property that have to be considered. 1. Liability protection 2. Ease of management 3. Tax Angles. 

The number of properties per LLC should be based on a number of different factors: equity, number of units, cash flow, location of real estate, and tenants. They are often rated on a scale from Poor to Excellent. The investor has to decide what level of each and mix is optimal for their situation.

For example, you might own 4 properties with a sum total of 50k in equity but one of the properties generates $900 per month positive cash flow. In this situation I would structure it so the cash cow property is held separate from the other 3 rentals despite the low overall equity. In other words each person/situation is a case by case scenario.

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