I had a couple questions regarding the best way structure and form the LLCs for my rental propertiesâ¦â¦.and some of the logistics behind it. I currently own 2 rental properties under my own name (w/ an umbrella insurance policy). My plan is to form an overarching holding company LLC and then place each of these properties as their own entity LLCs under that.
- Does it make any difference if I form the holding company before the individual LLCs to hold the properties?
- When I purchase future properties, would I purchase under the holding company and then move those properties into their own LLCs under that? When I look for commercial financing, I'd assume I could get better terms under the holding company (which would have a history of + income) rather than a newly formed LLC with no history.
- When I travel to look at properties out of state, or spend money on general real estate expenses not specific to any one property, would I just capture those under the holding company? If I didn’t form a holding company, how would I have captured these general expenses?
My goal is to maximize liability protection while allowing for the flexibility of a larger future portfolio. I would appreciate any advice you have. Thanks in advance!
A commercial bank will want to see you tax filings, having the holding company won’t do anything for you really vs just having yourself listed as the entity owner. Anyone can sue you or the parent entity all the same, however they have to pierce the vail in both cases, which would be very hard...
It's a real PITA to keep each property in its own LLC, when your small it's all fine and well, but once you get 50,100,500 properties with just as many entities. That's bananas. Most group properties by area, building or something else.
Most commercial banks you will want to do business with are locked into a state or a small number of states, so investing out of state gets harder as your splitting up your business relationship with other banks in each service area. You want to focus on building your relashionwhip with a bank.
Talk to an attorney and look into a"serial LLC"
Consider a seperate property management company instead of holding company for liability purposes.
Seperate Entities for protection may be more work but also may be required based on your goal of asset protection. Insurance, equity involved, cost, complexity, anonymity, location, etc should also be considered in developing an asset protection plan.
Thanks for the feedback. I’m thinking that as I grow, I’ll sell off my smaller buildings so that I can focus my time on the larger ones, so owning more than 20 or 30 separate buildings is probably out of the question. Even then, I may just group them together (by location or by value) in order to find a balance between costs and protection.
We’ve looked at the series LLC and unfortunately they don’t have that in VA which is where we’d prefer to file. Also, from what I’ve read, it appears that it hasn’t been well tested since it’s a newer structure. I’ll probably still speak with an attorney before I pull the trigger, but good to hear some other opinions.
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