How Many Properties Did You Own Before Creating an LLC?

Question

Real Estate Investors...?

At what point does it make sense to keep properties in your personal name versus moving them into an LLC, partnership, or S-Corp?

I recently had a conversation with an investor who owns several rental properties personally because that's how he started years ago. Another investor with a similar portfolio has multiple LLCs, a holding company, and separate entities for management.

Everyone seems to have a different philosophy.

Some prioritize liability protection.

Some focus on financing flexibility.

Some are looking for tax advantages.

Others want to keep things as simple as possible.

What's your approach?

• How many properties did you own before setting up entities?
• Have you found the additional complexity worth it?
• Have lenders ever pushed back on your entity structure?
• If you were starting over today, would you structure things differently?

Curious to hear what strategies experienced investors are using and what lessons they've learned along the way.

Ryan Spath · Answer

We still hold all of our rentals in our personal names.

Our thinking has always been pretty simple, we carry umbrella insurance coverage that is roughly equal to our net worth and have felt comfortable with that approach. Years ago, I had a conversation with an investor who is far wealthier than I am, and his opinion was that LLCs are often more important when you have partners, multiple owners, or more complex business arrangements. For a straightforward portfolio, he felt good insurance went a long way.

That doesn't mean we'll never use LLCs. If we eventually pay off the properties, we'll probably revisit the idea. For now, since everything is leveraged, we're comfortable with how things are structured.

Before getting into real estate, I owned businesses in another industry. We were sued, or at least threatened with lawsuits, a few times. My experience was that unless there was clear negligence, it's not nearly as easy to successfully sue someone as people make it sound. It's usually a long, expensive process that takes a toll on everyone involved.

What I'd really be interested in hearing is from investors who have actually been through a lawsuit involving a rental property.

What happened?
What were the claims?
Did you own the property personally or in an LLC?
Did the LLC actually make a difference?
Would you structure things differently today?

There is a lot of advice out there about asset protection, but I'm always more interested in hearing real-world experiences from people who have actually had to test their setup.

Christopher Tile · Answer

@Ryan Spath makes a good point. For smaller portfolios, insurance can go a long way.

On the tax advisory side of things, most of our clients are looking to scale and get infatuated with the idea of entity structure. Whether that be because someone told them they need one, or the idea of having LLCs seem "cool". Of course, all of the CPAs here on the Tax forum will guide them in the best way, but sometimes clients get too caught up in it at the beginning of their journey. Forming entities, deeding properties to LLCs, management entities, WY holding structures... It can get complicated quick (and discouraging for clients that don't take it upon themselves to fully understand the structures).

The truth is that they absolutely help for asset protection and anonymity. However, that doesn't mean everyone should rush into entity formation. This is not a one size fit all and should always be determined on a case-by-case basis.

@Matthew Schumacher - great question because you'll absolutely get 100 different answers haha. Great way to see how everyone is thinking about this.

My answer - if you have 1-2 properties, let's worry about stabilizing the property first, being a good landlord (helps on liability front), and keeping proper books. From there, we can see how you feel about scaling and setting up a proper entity structure (and how the accounting setup will change with entity structure)

I've seen people set up 3 entities before they even buy a property, find out they have to pay for entity tax returns due to 2-member LLC (not in community property state), change entities to single member LLCs, and go from there. Of course that might've been bad planning/advice, but my point is its energy that could've gone elsewhere for the first property.

Julius Vincent · Answer

Great thread. Two angles I haven't seen mentioned yet.

On insurance, there's an alternative to the umbrella once you have scale. I have a client who, instead of buying a separate umbrella that sits on top of everything, raised the liability limit on each individual property policy. Liability coverage per dollar is cheaper, so carrying a high liability ceiling on a modest property (think several million in liability on a 100k house) can come out cheaper than a standalone umbrella. Worth noting carriers vary on how high they'll write that limit, so it doesn't work everywhere, and it really only pencils out past 10 to 12 properties.Also, the profession matters almost as much as portfolio size. A lot of my clients are physicians and other high-liability professionals who favor entities not because of the real estate but to wall it off from a spouse's exposure. If one spouse carries real claim risk, keeping the rentals in their own structure is about protecting the household, not the doors. Agree with the case-by-case theme here. Owner liability profile just belongs in the mix alongside size and leverage.

Jason Malabute · Answer

For a smaller portfolio, solid insurance (an umbrella policy that roughly tracks your net worth) really does carry a lot of the load, so I wouldn't rush into entities. Where I see people get tripped up is getting infatuated with structure too early, stacking LLCs, holding companies, Wyoming entities, usually because someone told them they need it or it just sounds like what "real" investors do. Entities genuinely help with asset protection and anonymity, but it's not one-size-fits-all and it really should be a case-by-case call. If you're sitting at one or two properties, I'd focus first on stabilizing the property, being a good landlord (which itself cuts down your liability exposure), and keeping clean books, then revisit the entity question as you actually scale, since your accounting setup shifts once entities are in the mix. I've watched people spin up three entities before they even close on a deal, get stuck filing a partnership return because they set up a two-member LLC, and then have to unwind it all back to single-member, energy that would've been better spent on the first property. The right structure really depends on your specific situation, so it's worth walking through it with your own CPA and attorney before you start forming anything.

How Many Properties Did You Own Before Creating an LLC?

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