22 Replies

Hello everyone!!

Needing some advice from LLC owners. I currently own two SFH that are rented. I'm in the process of selling one right now and keeping the other one. The house I'm keeping is rented and it's worth about $250,000. I owe $52,000 on it, and should have it paid off in two years. I plan on buying two more rental properties by the end of this year and I'll be paying cash for them. So my question is, should I get an LLC now? I feel like I should since my properties are going to be paid off, but would like to hear from the investors who already have LLC'S. What's the best way to get the most protection, things I need to be aware off before forming an LLC. Meeting up with my real state lawyer in two weeks to see about forming my LLC.

Hey Maria,

I would recommend it. The chances of you being invested go up as you attain more properties, and in the case there would be a lawsuit that exceeds, or is excluded by, your insurance policy it can directly impact both the property involved and any other personal assets you have. The LLC functions like a stop-gap, so if one of your properties is involved in a lawsuit than only the property (properties) in the LLC are at risk because they are separated from you. The ideal is to have each property protected in an LLC, or through the use of a Series LLC for investors with multiple properties, so that any potential legal action will be contained. If you have all your properties in a single Traditional LLC a legal action can impact all of those properties, though it shouldn't be able to impact you personally.

I often explain to people the "5 Pillars of Assets Protection." As you have more money invested into your properties you want to continue to add more "pillars" to support the additional exposure you face. Each investor has a different risk tolerance, so ideally your attorney should be able to talk you through your options. 

Good luck to you moving forward! Feel free to shoot any other questions my direction, if you have more.

@Maria Luna if you are buying cash, and owning free and clear, having separate LLCs with great insurance for each one is what I would do. Probably best to speak with an attorney to see if there are better options for you. Having a bunch of paid off properties is very enticing for lawsuits, so you probably want to isolate each property from the others

@Scott Smith

That’s kind of what my understanding was just from reading other post here on bigger pockets, just wanted to make sure. Thank you so much for your advice. I for sure want to make sure that I have all the protection I need for my rentals and personal residence. Meeting up with my real state lawyer in a couple of weeks to go over what’s the best option for my personal situation. 

@Jason D.

That's my plan, to have separate LLC's For each property. Just wanted to make sure I was on the right track with what I have read here on BP. Meeting up with my real state lawyer in couple of weeks to go over the best option for me. I really appreciate your advice.

I've been wondering this too, but separate LLCs for each property? Wouldn't that be a hassle to handle once you get 10+ properties? The funds all have to be separate so you are talking about managing a checking account for each one? 

I'm in process of converting my stuff to LLC as well.

@Maria Luna

I have one LLC for all seven of my properties.

My attorney recommended not getting a series LLC. I've read the pros and cons about it. I'm good with just one LLC and keeping it simple.

I agree with @John Morgan . I have one LLC with four, soon to be five, rentals. I also have about 80% LTV, though, so I'm okay with this. With your equity positions, I'd be a bit more careful. Best to talk with your attorney, as you stated.

Originally posted by @Derrick E. :

I've been wondering this too, but separate LLCs for each property? Wouldn't that be a hassle to handle once you get 10+ properties? The funds all have to be separate so you are talking about managing a checking account for each one? 

I'm in process of converting my stuff to LLC as well.

It can be if you are just using Traditional LLCs. If you use an entity such as a Series LLC you can actually operate all your properties from a single bank account if you want, but each property can be placed in it's own liability compartment. The issue is that you are weighing the cost of the potential lawsuit versus the guaranteed additional costs and administrative requirements of protection. Most people who have seen someone go through a lawsuit tend to really want additional layers of protection, while those who have not seen how utterly frustrating lawsuits can be will often lean toward a higher risk profile. But each person needs to make their own decision on the risks they are willing to accept - my only advice is to get a realistic idea of what the best-case scenarios and worst-case scenarios look like.

@Maria Luna

Piggybacking off your other comment you made about an eight unit – I would open an LLC. Especially if you don't have W-2 income, uncle Sam might look at you funny when they try to figure out how you're making a living.

@John Morgan

As long as you feel comfortable with just one LLC. I'm gonna really ask my lawyer what's the best for my situation.

@Nick Rutkowski

Yes, I’m trying to get the best protection I can. I have income coming in every month from rent, just not from a regular W2.

20 SFHs, 1 LLC, 1 umbrella policy, 1 checking account, 1 spreadsheet, 1 laptop, 1 mobile phone, 1 pickup truck, and Cozy. Life is good.

Congrats,@Terrell Garren .  Out of curiosity, how do you handle reserves for 20 SFRs?  Separate savings accounts for each (that’s what I’m currently doing for my 4 SFRs)?  One savings account with a large cash position?  

@Mark S. One LLC business checking account that I keep around $25K in. No sophisticated formula, just what I've rocked in on after 10 years of learning. I ramp it up to around $50K in the fall/winter to cover property taxes due in January.

@Maria Luna

If you have equity in the property I would definitely reccomend it's own LLC. I create a new LLC for every 4 properties, and a new LLC for every property that is paid off. In addition I have a $4m umbrella.

Helps me sleep better at night. Bad things happen when you don’t expect them to. Be safer then sorry.

@Derrick E.

When you have multiple properties in multiple LLC you can create a management Corp that will be the one signing lease and collecting rents for all your properties. Once a year you can then transfer some money back to each single LLC. The management Corp can keep the reserve account and pay all the taxes and expenses.

Also to simplify taxes and improve the asset protection and anonymity, I would have all these single member disregarded LLCs be owned by one WY holding LLC.