Using a holdings company to own multiple investment property LLCs

[Alex Bernot]

I own investment properties in Ohio. Each property is under its own LLC and bank account.

My question is, does it make sense to setup another LLC as a holdings company (parent company) which will then own the other LLCs (subsidiaries)?

If so, what are some of the tax benefits that may come into play with this strategy? Should I use the holdings company as a ‘management company' (managed by me) and have each property's LLC pay the holdings company a management fee? Maybe should I own them with a trust instead?

Some of my properties are rentals and some are flips. Any insights on how to best take advantage of tax laws is appreciated.

[Michael Plaks]

@Alex Bernot

Your questions cannot be responsibly answered without an extensive discussion of your real estate business and your overall financial situation. It is case by case, and what works well for one investor may not work at all for another. If you want real help, you'd be well served by finding your own accountant to guide you with tax planning.

That said, some general pointers that also may or may not be applicable to you:

• You usually want to separate rentals from flips, both for tax reasons and legal liability reasons
• Keeping each rental property in a separate LLC is debatable; it does not usually change your taxes and is intended for legal protection which is for attorneys, and I'm not one of them
• Ditto for trusts
• Keeping each flip in a separate LLC is usually counter-productive but is also case-by-case
• Creating a holding company to own other LLCs may be a bad idea from legal protection angle, but it is also for attorneys and not for me
• Creating a management company can unify and simplify your operational procedures, depending on how you run your business
• A management company can also bring certain tax benefits such as generating active income and room for retirement plans and other benefits, however you may already have this option via your existing LLC(s) involved in flipping

As you can see, there's no quick microwave recipe here.