1 or more LLC's recommended?

Question

Hello!

I have 4 rentals in Missouri and 4 in Kansas. I've heard a number of different suggestions on whether an LLC is even needed and/or just have umbrella insurance. I've decided to go the LLC route for protection. I've heard 1 LLC property so my question is should I do one LLC for all properties, or 1 LLC per state (may be easier for tax purposes?) or one LLC per property. What have you all found to be best?

Thanks!

Nathan Gesner · Answer

Please educate yourself on the pros and cons before making a decision. Too many people create LLCs with no understanding of the work involved.

David Greene just talked about this on his podcast and it's a short version of what I'm going to tell you: https://www.biggerpockets.com/...

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

Jake S. · Answer

Okay so you can go a couple of routes. Id definitely recommend the LLC be in the state that the property is in. Ive heard some wont let any single LLC have more than 200k of equity (if it holds more than one property), at that point theyll utilize another LLC, refi, etc.A route ive chosen to go down is, I have a parent LLC in Wyoming which owns the LLCs in each state and Ive decided to do a new LLC per property as Im going after a bit larger properties at this point otherwise Id stick to the rule above.Next ill be starting a trust up that controls all of this. But still waiting on it.I also use Stessa.com to bookkeep and they even have a banking feature now, making it easier to start up an account per property!

Scott Kimminau · Answer

Thank you Nathan! This is fantastic information!!! Thanks so much.

Scott Kimminau · Answer

Thank you Jake! This is great information and I'll definitely check out Stessa.com too. Thanks!