A few questions about LLC's

6 Replies

Hello All, 

I am still trying to learn the ropes, just have a few questions i wanted to ask to get some education on...

I currently have a few rentals, they were previously primary residences that i turned into rentals as i moved among the USA in the military... they are all in my personal name and recently ive learned that im putting myself in a lot of risk having them this way...

My question is do i have to get an LLC in all the states they are located and place them in said LLC of that state or can i just get an LLC in x state and put all of them in that LLC?

Example: 1 property in Florida, 1 property in Colorado, 1 property in Arizona...

Do i have to get 3 LLC's, 1 LLC for each state the property in or....

Can i just get like 1 LLC in Colorado, then put all 3 in that LLC?

@William Huston , the multi-state thing certainly makes it more complicated. You should speak to a lawyer that specializes in REI and asset protection to understand the best way forward. Just as importantly, discuss where you see your REI going in the future. That will influence how you set things up now. Well worth the money you'll pay to the attorney.

Generally speaking, the trade off is between asset protection and complexity. The danger of keeping everything in one LLC is that a lawsuit can go after everything within that LLC. So someone slips on the sidewalk of your CO property and now the FL and AZ properties are at risk as well, if they're all in one LLC.

Hi @William Huston . Attorney here. Let me see if I can shed some light on your questions. First, I'll go ahead and confirm that having rental property in your own name is a fast track to Lawsuit City. You're smart to be looking at entity options. Litigation nightmares happen more often than you think to perfectly honest investors--and most of them are preventable. 

One LLC can own property in multiple states. However, pooling three properties (to borrow from your example) inside of one LLC means all could be on the line if that LLC is sued. Generally, we want to have one property per LLC for the best possible asset protection. For that reason, I'm a big fan of using the Series LLC as an asset holding company. You can read more about the Series LLC and how it compares to Traditional LLCs here. Bottom line: your location and the location of the properties doesn't make a difference in what type of entity you can have. For example, I have many clients who form Texas LLCs/SLLCs who have never set foot in Texas. Considering which entity will serve you best is a great start. 

Hey @William Huston like @Scott Smith I am also an AP attorney. You want nothing in your own name. You are a target. As the common saying goes, "the rich own nothing, but control everything." Their is a reason for that. Lawsuits, especially in todays society happen regularly and predatorily. 

Yes, one LLC can be set up in just one state, and that one LLC can own / hold the property for you. It would be very messy and expensive to keep setting up multiple LLC's and spending the holding costs on each one in different states. You want to be as simple and streamlined as possible, and a system that reflects your current investments, but gives you option / room to grow without restructuring. That is why I also am a fan of the Series LLC. The location of the property is irrelevant, numerous states have recognized the series LLC as legislative option of an LLC. And states that do not have series llc, do have LLCs, and what is measures in those states that you are sued in that don't have series LLCs are that states internal liability shields. We represent clients from all over the nation using Series LLC. The idea of AP is to pick a AP strong state like TX or NV or DE and register your company in that state, purchase the property in your own name so that you get better financing options, then transfer the property into your Company by using a legal trusts that is a member of the company LLC/SLLC.

Just one LLC/SLLC and if you use a SLLC place each property in its own series.

I get that its best to place each property in its own LLC, but how is this afforded with the annual expenses related to maintaining these LLC's? Im currently in Florida and was looking to set roots here in the future for investing and from my understandings it would be $138.75 per LLC to maintain each year.. that cost adds up and dwindles your cash flow...

If you would be collecting rent through your LLC (and you should), then your LLC need to be registered in the State where the property is. Same if you need to evict a tenant, if your LLC is not registered in the state you won't have legal authority to go to court.

Now some will tell you that you can have an LLC in another state, and foreign register it with the state where the property is. Yes you could, but you would be paying registration in both state. Why not paying once in the property state then?

Also some state do not offer good charging order protection.

For all these reason, it is often suggested the following setup:

Create a single member LLC in each state where you have property. These LLCs being disregarded for federal tax purposes won't require any filing (but you may in some state have some state filing).

Create a holding LLC that will be the single member of all these LLCs. Choose a state with good charging order protection. Also, you may want to add anonymity. Two good states usually recommended are WY and NV.

This holding LLC will be the one filing taxes every year if it is a multi members (1065 and issue k1 to members), or could be disregarded for single member and filed on your own tax return.

Some states will offer series LLC. They are great if you have many properties in these state, but that won't add any benefit if your properties are in another state as you will then be back to the foreign filing requirement.

Originally posted by @William Huston :

I get that its best to place each property in its own LLC, but how is this afforded with the annual expenses related to maintaining these LLC's? Im currently in Florida and was looking to set roots here in the future for investing and from my understandings it would be $138.75 per LLC to maintain each year.. that cost adds up and dwindles your cash flow...

Yes each LLC will cost you some money:

Initial cost: initial filing, operating agreement drafting (preferably by a lawyer knowledgeable in asset protection; avoid the basic legalzoom template). It may cost you between $200 for a DIY route to over $3000 for a full service attorney solution.

Recurrent cost: annual filing (varies widely, some state having no requirement, while other could cost over $800), registered agent (usually between $35 to $100)