When to start a LLC?

Question

Hey everyone. I currently have 2 rental properties close to downtown Nashville, TN, self managed, and looking to buy more. Class B and I have great tenants that pay on-time and luckily do not receive many call at all regarding issues. Should I start a LLC or wait until I have 3+ properties?  I just don't know when it's beneficial to have them under a LLC to get the most benefits out of having a LLC.  Thanks for any insight and feedback.

James G. · Answer

@Levi Crabtree there's no right or wrong answer here. An LLC can provide asset protection, tax benefits, etc. so it's really up to you when this is important enough to start utilizing. Some people own far more than 2 properties and still don't have an LLC. My advise would be for you to do an extensive amount of research on the benefits of owning your properties in an LLC, and then make your ultimate decision from there. Hope this helps.

Basit Siddiqi · Answer

@Levi CrabtreeThere is no right or wrong answer.Some investors opt for umbrella insurance over an LLC.Some investors who get an LLC put 1 property per LLC, some investors put a couple properties under an LLC.Have you spoken to an attorney to see if an LLC is right for you?Some items such as your risk exposure, comfort with risk, wealth may play a role if you get an LLC or not.

Tim Hendricks · Answer

Set up costs depend upon who you use to set it up and whether or not you use a business as a registered agent, or if you know an individual who can act as the resident agent and agree to let you use their name and address for any court summons that needs to come to you. The registered agent has to be in the state where the LLC is doing business. My registered agent charges $125 /year. Tennessee has an annual report filing fee of $300 minimum.

Agree with James above. Do some research until you know how to operate through an LLC, and what is expected as far as filings, tax implications, etc. You will also have additional tax prep expenses unless you do it all yourself.

Levi Crabtree · Answer

@Tim Hendricks thanks for the reply.  The two properties I own are condos. I do not feel like I’m at risk of getting sued, just trying to figure out when to start a LLC. My thoughts were the same related to setting up and maintaining the LLC. What are the ballpark yearly fees for a LLC?

Tim Hendricks · Answer

Hey Levi,

Tim Hendricks also in Nashville. I waited until I had several properties just because of the expense of setting up and maintaining the LLC. Wanted the profits from the real estate to pay for it. However if you think that there is any possibility of a lawsuit coming your way, I would do it as soon as possible. Better to have 1 property in an LLC if you get sued than to have 50 properties in your own name if you don't get sued. We now have 61 current SFR on lease options. Are you buying houses or condo's?

Tim Hendricks

Costin I. · Answer

@Levi Crabtree - make sure you have exhausted all other means of mitigating risk and have substantial equity and/or cash flow to protect, before looking into more expensive and convoluted asset protection structures. Here are some diagrams to help you in this quest for answers:

Mark Gliebe · Answer

@Levi Crabtree hey Levi I own 3 rental properties (1 a condo in Nashville) and do not have an LLC yet.  It is not necessary until you have a threat of loss or lawsuit like previous people have commented. What I did was get an umbrella policy that covers all my assets.  This umbrella policy is addition to my insurance policy I have on all my different properties.  I got one for $1mil and it costs me $225/yr.  As long as your assets are under the value of your policy you should be good to go.  My assets appraised do not value more than a $1mil.  You can get $2mil and I believe even $5mil policies (don't quote me on that).  You would need to talk to your insurance provider.  That is much cheaper option and I would look into that before you start paying unnecessary fees for an LLC.

When to start a LLC?

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