Another legal structure question!

[Arjun K.]

I am at an impasse in my legal setup. My original plan was to buy 3 properties and then set up an LLC. I am now thinking more longer term. I considered a Series LLC, and I also considered just sticking with umbrella insurance. What I absolutely do not want to do is set up an individual LLC for each property.

Below is a hypothetical example with "Bobby" (my numbers are different, e.g. I have 3 properties). I am curious what you folks think Bobby should do:
[i]Bobby has 4 properties. These properties have on average $50K equity each (each has equivalent equity). Bobby's non-housing assets equal $200K as well. Bobby has $200K non-housing assets and $200K housing assets (across 4 units). Bobby also has $200K annual income(not from his investment properties). Bobby has $1MM property level insurance, and a $3MM Umbrella Liability.

Bobby cannot set up an individual for each property or his head will explode. Should Bobby:
(1) Increase umbrella liability to $5-7MM and call it a day
(2) Set up a primary LLC for all 4 properties
(3) Set up Series LLC with a comingled bank account (but separate books/records)
(4) Set up Series LLC with separate bank accounts

My numbers aren't like Bobby, but its what I hope a long-term picture looks like.

[Dion DePaoli]

You do not need to put each property into it's own LLC. You can vest all the properties into one LLC. Insurance will always be your first line of defense, whether the properties are in an LLC or not.

The danger in all properties in one LLC is they are all contained within the same ownership structure. So it is possible for something so horrific to happen on one property that the LLC is sued and if the insurance falls short of the judgement then additional assets might be looked at. Those assets can only be assets vested in the name of the owner who was sued. So this event can be against a person, if all properties are in the natural name or in the name of the LLC, if they are all held in one LLC. If the properties are in separate LLC's then the liability would be 'contained' within the LLC which owned the property which ended up with a judgement.

It can be a little scary thinking of all the "What If" situations but as I said, for the most part your insurance will handle the majority of the liability issues.

If you put all the properties into one LLC, you can simplify that down to one bank account, owned by the LLC and one set of books. You can roll the income and expenses into the LLC financials in a segmented fashion, having each property separately accounted for or you lump them into one. In most cases, residential does not have a complex income and expense line so to some extent creating separate accounts for each property to roll up into an LLC is more work that it is worth. For instance, a one unit house only has one renter, so there is only one income line and the ordinary expenses are not a long list of items. That is opposed to the income and expenses of a large apartment complex which has a couple different revenue lines and a longer list of expense line items.

You can keep that same single LLC for as long as you want and put as many assets into it as you want. You would need a new or different LLC if the ownership structure of the asset is different from the rest. So if all four are owned by you, they can all be put into the same LLC. If you have a partner one now or a new one in the future, you will want a new LLC for that one.

Usually separate LLC's are used for larger single assets to mitigate liability. So an owner of two large apartment complexes might put each into it's own LLC. In example of justification, any type of class action suit from the tenants could be large enough to outrun the insurance coverage and you would that event to try and make claim on the other asset, if it was in the same LLC.