Multi-state LLC?

22 Replies

I live in Texas and have one rental property in KS. I'm looking to acquire another rental property in TX, and I'd like to establish an LLC to benefit from the liability protection. What do I need to know about a TX LLC operating in KS?

The first question is do you have any business partners. If no, I think what you need to know is that your LLC will offer you no more protection than a standard liability insurance policy. You are spending more on filing fees, attorneys fees, etc...than if you just buy some insurance.

Thanks, @Rob Beland . My wife is my only RE partner right now. I was under the impression if you have rental properties, you should form an LLC. I will look into insurance then if it offers the protection I need. I'm new at this, but I assume you're talking about more than a simple fire policy?

Correct @Richard Mahn . You should add a $1M liability policy to your fire dwelling policy. You wont benefit financially from having an LLC and the liability insurance is much more affordable than setting up and maintaining the LLC for liability protection.

Hey Rich, were in tx? Looking to move to San Antonio but little nervous any who. I'm no expert but been reading a lot. "The real book of Real Estate" by Robert Kiyosaki pg 108 "10 rules for RE Asset Protection" you might be able to find book at your local library. Basically it recommends to get an LLC, so you can sleep better but again I'm no expert just putting my 2 cents.

Originally posted by @Richard Mahn :

I live in Texas and have one rental property in KS. I'm looking to acquire another rental property in TX, and I'd like to establish an LLC to benefit from the liability protection. What do I need to know about a TX LLC operating in KS?

Its interesting, I too initially thought there was a "right way" to make sure your assets would be protected. However, the more I research and look at pros and cons the more I see its a situation of there being pros and cons either way. I would say do your homework on LLC vs no LLC so it works for you in your specific scenerio and investment strategy/goals. And know why you went that route, either way. Don't go off what one guy says, even if they're an "expert", or you found the info in "Rich Dads" book.

Hello all, 

@Rob Beland

I am wondering if you could share some insight from your perspective.  Why would you recommend a high limit policy over a separate entity?  

From where I stand, I would rather put a cap on each property so that in the event of some major liability, I won't lose my other holdings or personal assets. That's my understanding of the benefit of the LLC. Where as having an insurance policy is going to provide you with a higher coverage than your typical liability limit, but wouldn't protect your other assets.

Your thoughts?  

Not an attorney but my understanding and practice is each rental is its own LLC. If sued it (I'm not an attorney) is supposed to protect my personal assets and limits the liability to the LLC (the property and its insurance). Vs my personal home taken away or leined because of my investment.

I place each rental as its own LLC to protect them from the others. So if one LLC is sued the others are not a part of the suit. All of my separate LLCs are owned by one LLC in which myself and my partner are the pass through owners.

The cost to file an LLC varies by state but can be done on most states websites.

Not an attorney, just the way I was taught to protect myself. Nothing is a guarantee I guess.

Unless the laws have changed recently you would need an LLC for each state you own a property as each state must have a representative (read person who papers can be server upon in your behalf-usually an attorney). The costs can be very high in some states and usually it is much cheaper to do an umbrella policy. LLC's as someone above mentioned are easily broken as most people do not do the appropriate meetings, record keeping etc.

There are also tax consequences. 1031 exchanges are much more difficult from an LLC.

There is no "right way" that will apply to everybody.  There are some general guidelines that will fit most folk, but your unique strategy will require a customized approach in order to achieve your objectives. 

The BEST way to get it done, i guess you could call this the "right way", is go to an asset protection/estate planning or real estate attorney with an outline of exactly what you're plans are, and have them give you a proposal for a corporate structure.

It's not the cheapest thing on the planet, but worth doing.  Once you have the structure set up (correctly) you can easily expand it as your portfolio adjusts in size and your strategies and techiques change.

There was a post just the other day about how the discussions on LLC's here on BP is not great. I tend to agree, simply because most of us aren't attorneys, and therefore aren't legally qualified to give that advice, and the way all do our own deals vary greatly.

My advice on this - spend the money and hire a pro and have them get you going in the right direction. I have a pretty good guy here in Utah that has done a lot of this for me and for several of my clients.  DM me and I can give you a referral to him. 

Originally posted by @Oscar Navarro :

Hello all, 

@Rob Beland

I am wondering if you could share some insight from your perspective.  Why would you recommend a high limit policy over a separate entity? 

In the real estate investment business 90+% of all lawsuits are tort lawsuits involving landlord negligence (Slip and fall as an example). This type of lawsuit would name the "owner" of the LLC as well as the LLC and the plantiffs lawyer will go after all of the owners other assets and other LLCs. There is no protection in this case. Even in a multiple member LLC if one member is found to be negligent the LLC will still offer no protection and the plantiff will go after the LLC to the limits of the members ownership in the LLC as well as all other assets.

I cant come up with a scenario that would result in a lawsuit for a single member LLC with no employees where the liability is limited to the assets of the LLC. If somebody else can please let us know.

To be a little more blunt, if someone is injured as a result of your negligence at one of your properties and you have all your assets in one LLC or 100 LLCs and you dont think their attorney is going to peel away the layers of your LLC(s) and go after everything you have you are either ignorant or sadly you are misinformed.

This is why I find the forum a good place to learn something everyday. Each of you above have some really good feed back. I have to agree with Blair, you are best off doing it the correct way now rather then having it catch up with you later. Spend the money and

go to an asset protection/estate planning or real estate attorney.

With as little as it cost, place each rental as its own LLC to protect them from the others. Good advice (non-attorney spokes person) Tim.

Rob, another day, another lesson learned from you...Thanks

Richard, I hope this was as informative for you as it was for me.

@Rob Beland

Guess I was misinformed (preferably to the alternative :) ).  Thanks for your insight.

All good information. Thanks everyone. I think I'm off to schedule a meeting with an RE attorney. If I can get away with an umbrella policy, great! I simply don't want to cut corners for a relatively small cost now only to regret it later. Any BP recommendations for RE attorneys in greater Austin area?


Sorry to join the discussion late. I'm going through a similar dilemma... LLC or umbrella policy (or both). I'd be interested to hear which way you go with it. I live it CA, which makes it tough to stomach the idea of multiple LLC's ($800 per year, each).

I've heard similar info to what Rob mentioned... lawyers will find a way to pierce the LLC's. I've also heard that insurance companies may not cover you if things go wrong...

Originally posted by @Richard Mahn :   I think I'm off to schedule a meeting with an RE attorney. If I can get away with an umbrella policy, 

First off, good move speaking an attorney.  I can recommend a good guy.  DM me if interested (no, I don't get referral fees from anybody I refer to, but I wouldn't mind a nice christmas present or a good bottle of scotch once in a while... hint hint to all my network guys)

I think you're using a phrase that I interpret differently, but what do you mean by Umbrella policy? Are you referring to the LLC, or a hazard / liability insurance policy?

We are using a Texas Series LLC. Each property goes into its own cell, or series, in the LLC. The properties do not all have to be in Texas. My CPA files the LLC tax return, with a K-1 for each cell in the series. We have used land trusts to transfer title (no bank mortgages on these houses, so no due-on-sale clause).

@Rob Beland i'm curious as to why you think a single member LLC is worthless? i've seen no laws that say a single member LLC does not do what an LLC does. there are ways to pierce the corporate veil of course but that takes time and money and may be enough to stave off a lawsuit because they won't know many particulars about piercing until discovery. and an LLC won't protect me from beating the hell out of a tenant to get rent of course, but nor will insurance. typically contingency tort lawyers look for slam dunks not complicated corporate structures to figure out how to bust.

i do agree with the advise of getting insurance. 

@Dooreuhn Cee there are absolutely laws that say a SMLLC is not the same as a MMLLC. A single member LLC is not even recognized by the IRS. Its sort of a non-entity. The point I try to make with a SMLLC is that people go to seminars and read books and they are told if they want to invest in RE go set up an LLC. Before they do their first deal they have spent thousands of dollars. Now think about your exposure in a lawsuit. As an example you have 5 properties worth $200K each for $1M in assets. Even if you are conservative and have debt of 60% that leaves $400K in equity. This is all somebody is going to ever get if you are sued and they win. For a certain percentage of investors there are situations that warrant setting up the LLC. Having a partner is one. 90+% of investors dont need an LLC and liability insurance will give them the same if not more protection and they are not paying to set up and maintain the LLC. Go to the next level and consider somebody with a combined $5M in equity and price out $5M in liability insurance. Its peanuts compared to the costs and responsibilities associated with a SMLLC.

@Rob Beland The lack of IRS recognition doen't amount to a law, nor is it persuasive in a tort lawsuit, nor does setting up an LLC cost thousands of dollars, nor does an LLC stop you from getting insurance... but I understand the point you are trying to make.


Sorry to jump in late here, but are a few misunderstandings in this post, and OP's answer is actually pretty straightforward!

By way of credibility, 'm attorney dealing in corporate-planning and asset protection in Utah and work primarily with real estate investors. 

Rob is right in that it is always a good idea to have a strong umbrella policy in place to protect you and your assets. Keep in mind however that is an insurance company's job to deny claims, and that they are very good at doing so. Their paying out is not guaranteed and it is not guaranteed that an award granted to a plaintiff would be less than the policy amount.

With that in mind, an LLC is the next layer of protection after your insurance policy. Rob is incorrect in saying that an LLC can be disregarded by a plaintiff's attorney. Yes, you as the owner may be named in a suit, but in Utah at least, there has never been a court case where the owners of a properly maintained Limited Liability Company have been found personally liable for the acts or responsibilities of the Company. If, in the examples above, an LLC is the owner of a piece of property, then should the plaintiff prevail in their suit, they may properly attached to everything the LLC owns to satisfy the judgement they've been awarded, but they may NOT attach to assets the LLC doesn't own, such as the owner's personal accounts, property, etc. That is like saying each time Apple loses a products liability law suit, the shareholders must personally pay out their bank accounts to the plaintiff. Incorrect. There is a lot of corporate maintenance, accounting, etc. and rules that must be observed to maintain the integrity of an LLC, but they are simple once you've learned them.

As in Texas, Utah also benefits from Series, LLCs which allowed risk stemming from properties to be isolated to each respective property, so that a tenant in one property may not sue for the assets of the entire portfolio, but only for that single property in which they were injured. 

The multi-member vs. single member LLC debate is very common here in Utah. It boils down to this: multi-member LLCs benefit from charging order protection, meaning the company can't be held responsible for the liabilities of the owners. Single member entities don't receive this protection, but all other protections afforded by an LLC are preserved, again, at least in Utah. This means that SMLLCs still retain the protection whereby the acts of the company cannot be imputed to the owner.

An LLC registered in one state can owner property in any other state, it must simply register with that state's division of corporations and obtain authorization to do business there. A new LLC doesn't have to be created in that state, only registered.

I sincerely hope this all helps and if anyone has any questions please feel free to call or email:

Breglio Law Office

[email protected]

(801) 560-2180

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