One LLC or an LLC per property?

Question

Hello,

My wife and I have three condo's in Charlotte, NC. We have them all under one LLC equal partners (25% each) with my brother-in -law and his wife.  We just set up the LLC last year (properties purchased within the last three years) and a friend said its safer to have each property in its own LLC? Wondering what other opinions are as we hope to add additional properties (not condo's) in the future. Thanks

Claude S. · Answer

@Brian Plajer

I found it easier to have separate LLC (and separate LLC checking accounts) for each property. It sure makes keeping track of funds coming in and going out at tax time much easier.

Account Closed · Answer

@Brian Plajer

I would say 1 llc for every couple of properties is a good rule of thumb but it all comes down to how you operate as well (CPA and State Fees can quickly add up). LLC’s don’t really provide as much protection as you think if you are very hands on with the properties (think doing maintenance or direct interactions with tenants). I’ve had a CA client when I was a Multifamily broker in San Diego get hit hard in a lawsuit as the “corporate veil” was pierced as he was interacting directly with the tenants and conducting his own maintenance on the properties. If you are handing everything off to a 3rd party that does add additional strength and protection to your LLC.

Also I saw your post about the 3rd condo! Congrats!

Reinaldo Lopez · Answer

Hi BP colleagues,  those are all great ideas and it all depends on your personal comfort zone or situation.  Another way is to create a grantor trust for each property, that is one layer, then all gains pass trough to a LLC while you have total control of the property. That way the grantor trust dosen't generate income (very high tax bracket). Then you can file under a LLC or pass it on to you (lowest tax bracket). This might sounds complicated but your attorney (probate or family planning  better) or a financial advisor can advise better on this because it varies between states. Good luck

Rita Goforth · Answer

@Brian Plajer hi Brian! I’m a Realtor in Charlotte. I would advise consulting with an attorney on this however on a basic level my understanding on this is that separate LLC’s per property adds an extra safety net because let’s say for example one of your tenants decides to sue you they can only go after you for the LLC affiliated with this one property instead of an LLC that potentially owns several properties. Hopefully this makes sense! :)

Damon Cameron Jr · Answer

@Brian Plajer

It completely depends on you! There is no right or wrong answer. If your properties are all worth $150,000 each then maybe one LLC for every 5 properties. You have to remember that each LLC needs a tax return so your CPA will charge you for each LLC tax return. If your properties are worth $500,000 each then maybe one LLC per property makes sense but there is no right answer.

Brian Plajer · Answer

Thats a good point especially if we add more properties

Chris Cogan · Answer

@Brian Plajer listen to episode 109 of the biggerpockets podcast. It's all about asset protection.

This is a summary:

https://www.biggerpockets.com/files/user/brandonatbp/file/10-ways-to-protect-your-asset---biggerpockets-podcast-show-109

Allan C. · Answer

@Brian Plajer best way to look at this is how much personal equity do you have exposed. Some people are uncomfortable with $50k equity, while others are fine with $1M under 1 LLC. Based on info you’ve shared, I suggest to put a couple of properties under a single LLC.

Brian Plajer · Answer

thanks Damon, that makes sense and next year will be the first year we do a tax return with the LLC so that is an important factor.

Brian Plajer · Answer

thanks, that is my understanding of the benefit, as well. I just can't imagine some of the larger volume investors have an LLC for every  property.

One LLC or an LLC per property?

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