How do you hold your investment properties?

Question

hello all,

We are on our third investment property and i was trying to find out how investors with multiple properties protect their assets from liability. Of course theres liability insurance but beyond that, do you keep all the properties under one LLC or separate LLCs for each? Do you put them in a land trust?

A lawyer suggested separate LLCs to me so if something happens on one property, the rest wont be affected.   What are others doing to limit liability?

Thanks!

Martha

Kristopher Hanks · Answer

@Martha Daisley I hold mine in a corporation. All of my properties are owned by the same corp. I have the most liability insurance I could get based on where the properties were located. You can also look at umbrella policies that will kick in when your liability insurance is exhausted. I don't really want to deal with preparing tax returns for multiple LLC's and having checking accounts for each company. If you are that concerned with potential liability, I have heard of legal insurance where you pay a monthly fee and you can get legal help when you need it. You can also factor into your numbers setting aside money to hire an attorney if it becomes necessary, which is not a bad idea. I just might do that in the future.

Martha Daisley · Answer

@Chris thanks for your reply. Yeah, i guess our concern is that all our properties have good equity and cashflow well and we wouldnt want to lose any of them.

I was told the land trust would be good to hide the identity of, the owners so people wont know what we own in the event of a lawsuit. But the lawyer said the tradeoff is that we are putting our assets in the hands of a trustee which could technically sell the property without us knowing. So he suggested multiple LLC's and of course, liability insurance.

What is your opinion on land trusts?

Martha

Martha Daisley · Answer

im going to take out commercial liability insurance which is 1 million per property. I think that would be enough no? I was thinking maybe having two LLCs then to split up the liability yet not have too much of an accounting nightmare.

Chris K. · Answer

@Martha Daisley

There are many options, but let's consider your lawyer’s suggestion. When using that idea, one issue you want to consider is the rough value of the assets you are comfortable holding in each LLC. For example, let's be unrealistic and say you own twoproperties that are each worth $5,000. If so, it might not make sense to create two separate LLCs for those two properties. Now let's imagine that you own two apartment buildings where each building is worth $1.5 million. In that scenario, perhaps it’s wise to create two separate LLCs.

In my experience as a lawyer, I don’t think there is a perfect solution that works for all investors. There are simply too many factors to consider before any lawyers can recommend a good solution for you. I would recommend that you review the responses you get from BP and discuss the ideas you get from BP with your lawyer.

Personally, I’ve a LLC that own multiple properties because I don’t think the collective worth of those properties justify creating another LLC. I also own a propertywhere there are layers of fictional entities due to the value of the building and its ownership structure. I also have another property where the value alone probably wouldn't justify creating a separate LLC for it, but we used a more complicated structure due to the other investors involved. While each structure is different, I would say that they are good for each specific situation.