I'm wondering if it's a good idea to open up a different LLC for each rental property or is there too much headache to make it worth it? Also, I'm not asking on whether I should start an LLC vs an umbrella policy. Thanks in advance!
If you live in a state where LLCs are cheap to set up, then there's no issue with doing a different LLC for each property. The expense comes at tax time - if these are not single member LLCs, your tax prep bill could get pretty hefty as each LLC will require its own tax return. If you know how to do LLC tax returns yourself or these will all be single member LLCs, then tax time wouldn't be too complicated.
Right now, I have 3 properties and while I don't keep them under different LLCs, I do keep a separate bank account for each one and you would have a difference bank account for each LLC as well. (Each one of mine is owned slightly separately - 1 is owned by me solely, one is owned by me and my boyfriend and one is owned by my boyfriend's IRA, thus the need for separate accounts) The separate bank accounts is honestly the most annoying part of it. If I need to order a stove part, as an example, I gotta flip through my wallet and make sure I'm using the right debit card for that property. If I need to buy stuff for more than one property at a time, I'm forever getting through the checkout lane as I want separate receipts and am paying for items on different debit cards. My Lowe's account is kind of a nightmare to break out and pay sometimes.
I have heard a strategy that putting five similar properties into one LLC is pretty common. I think it's to limit liability to just those five properties while not giving you the nightmare of 5 times as many LLCs to manage, but I'd love to hear somebody else's opinion on that.
i agree with most of what Linda says. I am a big advocate for getting a seperate llc for each property. This will help limit any liability exposure you have to your self and your personal assets. Keep in mind that depending on your state, this can add up is costs and yearly minimum tax (ie. Dumb California). However i find the costs are minor compared to the liability exposure if you were to be sued on one of your properties. If that property is sued they can go only after the llc that owns it and its assets, if thats the only house it owns then its all they can go after. It is important to note that you keep those expenses seperate from other llcs or personal accounts or it can allow for some attorney to potentially pierce the corporate veil.
I would say you will run into logistical problems just as @Linda Weygant has pointed out. It's enough to manage one LLC and one checkbook never mind three. There is no reason tax wise to keep three separate checking accounts. The issue people sometimes run into is commingling money in your personal account with your business account. As far as having three LLCs or one LLC, you could have one checking account for everything related to your rental properties. As long as you aren't paying personal bills out of your business account and vice versa you are fine. No real reason to keep three accounts except personal preference. Similarly there is no real reason to keep three LLCs unless you have different partners on different properties. In that case keep everything separate. If you are talking about three SMLLCs and you own everything, you don't really gain anything. Along with you LLC(s) look into liability insurance sufficient to cover your total equity. Don't worry about the value of your real estate since you likely have mortgages. Just be sure you are insured for the value of your equity. This is your exposure in the event you are sued.
In my state, it's a bit of a headache. a $500 headache for each LLC every year. It would depend on your property cashflow. If you have a large multi-unit that cash flows plenty each month, I would say do it.
Wow! Great feedback everybody! I'm going to check into my state's rules and fees and go from there. Sounds like until my portfolio grows, I will keep the 1 LLC.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing