One LLC or multiple for each property ?

Question

I'm a relatively new investor with three SFR's, looking to buy #4. I've been advised by my CPA to create a separate LLC for each property, along with individual business accounts for each. From what I understand the LLC's provide some protection from my other assets and there are tax benefits associated with them. The initial setup cost about $300-400 for each which I thought was reasonable because they are being filed in a different state than I live in. However each year he's preparing my tax return the filing cost for each LLC seems to be going up, from around $350 to $480 for each LLC, not including my personal taxes. Is there a more cost efficient way to manage my properties, such as perhaps one LLC to cover all properties and a large umbrella insurance for liability issues ? Any guidance would be greatly appreciated.

Rod Hanks · Answer

@Kenneth Burke

That would be good for your accountant but I don’t think so for you. Look up Series LLC that may be a better option if available in your state than a separate LLC for each rental. There are some guys that do 5-10 properties per LLC but it would be an unnecessary expense for a LLC for each rental.

Randi Plevy · Answer

Series LLCs are common in DE and may be formed there regardless of where you own property.

Bob Floss II · Answer

@Kenneth Burke What kind of properties are you buying? If you are purchasing single family rentals, it's overkill to have each in a different LLC. The only time I recommend a property in one LLC is something large like a shopping center or an apartment building over 25 units. You can also save yourself a lot of time and effort by setting up a series LLC if your state allows it. Your attorney should really be taking a few minutes to discuss your investment plan.

Corby Goade · Answer

Everyone has a different opinion of the right way to structure your business. Find an attorney and an accountant you trust- see if their philosophies align and set things up the way that they advise. If and when you get in a bind, you'll have professionals who understand and support your structure and can get to work on protecting you, which is the entire point of the structure.

Best of luck!

E.S. Burrell · Answer

@Kenneth Burke

I have seven properties split under  four separate LLC’s. Recommended by my  attorney and CPA. I have absolutely nothing in my name and when I sign anything, I sign, “My name, manager”.  I feel protected for the most part.

Evan Polaski · Answer

@Kenneth Burke, I was at one point up to 6 single families all in the same LLC.  Since these are sole member LLCs they are pass throughs directly to my tax returns, and don't file their own returns, so my accountant does not charge for them.

As mentioned, from a pure risk-mitigation perspective, having each property in its own LLC is probably your best bet.  Then any liability with that property is limited solely to that property.  Separate bank accounts are also required, but everything is stand alone.  If you have higher priced properties, this may be worth the expense and headache.

For me, the potential liability issue did not outweigh the headache of 6 LLC, 6 bank accounts, 6 check books, debit cards, etc.

Are these sole member LLCs, and therefore disregarded entities that flow directly onto your return?  If so, I would ask why you would get billed for a filing that doesn't happen.

Carl Millsap · Answer

@Kenneth Burke Look into creating a series LLC in another state and register it to do business in NY/ PA. Outside of what your attorney and CPA recommend check with your insurance agent for the best way to insure the properties i.e. umbrella policy above and beyond each liability policy.

Guifre Mora · Answer

Its a great question and has multiple answers. Your CPA has a narrow view that is specific taxes and accounting, I'm not diminishing his knowledge or advise, just giving a different view on a broad and complex theme.

There are different goals for you to consider. One is a Tax liability, two is exposure to liability (risk) and three is how you pass to pass this to your family. All three are interconnected. Some are taxed some are not and some are good individually but serves little purpose for the other two.

Rule Number 1. Exit strategy, determine how to tax the LLC. What's the nature of the investment (commercial, SFR, Mobil home). What is your personal income tax bracket, does the property produce gains or loses, what's your intent 5-10 years out hold it or sell it. These questions will determine how to form your real estate investment entity.Rule number 2. Buy as much insurance as you can afford to ensure all of your LLC’s real estate and business activity. Make sure you have written proof of insurance showing that the LLC is a named insured.

Rule Number 3. Form a disregarded LLC or multiple ones to hold title to your real estate so that if a lawsuit occurs, the LLC will be the defendant rather than you. (Even if you form an LLC and transfer the real property to the LLC, you will remain liable for your conduct).Rule Number 4. Create a holding LLC that owns your other LLC's. Treated as an S-Corp if applicable.

Kenneth Burke · Answer

I have only bought single family homes up to this point, however I would like to upgrade to multi-family in the future.  I live in New York and the properties are in Pennsylvania. From what I found series LLC's are not available in either state yet.

James York · Answer

I’ve been reading on this as well. I read something last night that the protection created by the llc can be easily negated in court if you comingle finds or have financed the property in your own name(even if it’s deeded to llc). I spoke with a friend today and he said his attorney said different. I’m not a conspiracy theorist, but cpa and attorney gain from more entities and aside from costs, there isn’t much harm to you. Just may not be as much protection as you think. I’d love to hear that I’m wrong, but it all seems to make sense.

One LLC or multiple for each property ?

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