All in the same LLC?

Question

I have two rentals and right now I am about half way done with my 2nd brrrr house. The rentals are owned by my LLC just for them. I am wondering should I be operating a second LLC for the management side? I do a lot of my own work but am getting to the point where I contract more out. I have been purchasing a lot of tools I want to be able to write off. Also in my contracts so far I do the landscaping therefore own a mower for it. What’s your opinion of best way to save on taxes and write off all the tools/equipment I need for this?? Thanks in advance!

Scott Smith · Answer

@Brett Loetz, The Series LLC is a great method to hold and separate investments so the risks are not commingled. A shell company is another great strategy to isolate all property management and public facing operations, to keep the visible parts of your rental businesses separate from your investments. While the series LLC can be multiplied to separately cover each investment, the structure simplifies the pass through properties of the business and can be tailored to individual ownership and management.

Natalie Kolodij · Answer

Having an LLC that just runs the income/expenses but doesn't actually own your rentals has no purpose.

It's providing you no tax benefits and no legal protection.

David Swedberg · Answer

Hi @Carlos C., I posted on your second thread then read this one. I think having a SMLCC to handle the business, property management and handle any payroll to keep your public faced operations visible where they need to be is good advice.   I had that operating company pay a triple net lease to my holding llc.  Keeping assets in anonymous (at least a different name) LLC's separates your equity risk depending on the net worth of each property and your appetite for risk.  The series llc work very well for separating assets - like to 5 to 10 doors reference above.  The risk is separate with ability to adjust for partnerships at an individual level.  Hope this doesn't make it more confusing for you.

I tried a totally anonymous C Corp in Nevada 15+ years ago and found I didn't need anonymity because I was dirt poor and didn't care.  I still have that C Corp and it works great as a web company now, but not for it's initial setup.

Carlos C. · Answer

Yes... a couple of months ago the thought of moving my rentals to and LLC or other entity was not a concern... and the more I read the more confused I get... several types of structures and setups. For almost 20 yrs... I manage my rentals and try to be a good and responsible landlord and property owner... no major issues so far... for some reason I started to read on LLCs, asset protection and anonymity... now I dont know if I should restructure my assets or just continue my RE journey.

Mark S. · Answer

@Carlos C. It seems to me, as I read all the posts on BP regarding the whole LLC issue, that we sometimes make things far more complicated than they need to be. Separate management companies, an LLC for each property, etc. How necessary is all of it anyway for the typical small time investor (maybe 5 or 10 doors). One of the most successful RE investors I know, with around 75 SFRs, has been doing this for many years, believes in solid insurance coverage and well-maintained properties, doesn’t utilize multiple LLcs and has never had an issue.

Carlos C. · Answer

My goal is to separate my assets in a holding company and a traditional SMLLC as a management company... all for asset protection... not for tax reduction.

The Holding company LLC and all LLCs with it will be SMLLCs. I have a consultation with an attorney tomorrow (Mark J. Kohler firm), hopefully determine the best scenario for my assets.

I will as about the C Corp option .... or LLC taxed as an S.

Natalie Kolodij · Answer

This is a whole different arena than just a separate LLC that people use to run income and expenses through.

Just having an LLC where all your reporting goes has 0 tax benefit.

Mike S. · Answer

I am a proponent of having a separate entity to do the management of all you other entities/LLC, to act as management company with the tenants and to be the public face of your operation.

This management entity In my view should be taxed as a C Corp (either a C Corp or an LLC taxed as a C Corp) to get most of its tax benefit (welfare plan, vehicle mileage remboursements, deduct most of your ancillary expenses and training,...). It will add one tax return, but your taxes will be very low if you limit your income in proportion to your expenses. Unless you want to use that to get a W2 and contribute to a Qualified Retirement Plan and/or justify earned income for a future loan qualification.

Natalie Kolodij · Answer

There's 0% chance a judge would just say "oh sorry it doesn't have assets"

This is why states have charging orders, but I'm not an attorney.

Maybe @Scott Smith will chime in on the legal side.

Sylvia B. · Answer

The management LLC is the public face of your business. It interacts with the public, which is where you find the potential for liability lawsuits. If it owns nothing, then a judgement against it is uncollectable. Assets owned by a different LLC are not at risk.

That's the thinking behind the strategy, anyway . . .

All in the same LLC?

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