When owning properties should rentals be placed in 1 LLC or more

Question

When owning multiple rental properties should all properties be placed in a single LLC or multiple LLC’s

Under an anonymous holding company?

What is the best way to avoid loss of properties when it comes to potential threats or law suits?.

David M. · Answer

@Lewis Acosta

Yup, this is brought nearly daily on BP.  There really isn't a simple answer.  Its up to and your risk tolerance.

First, read about LLC's below.  Remember, they only provide limited liability protection, not accounting/tax benefits (unless you are investing with a non-spousal partner).

https://www.biggerpockets.com/...

As mentioned, many investors just use insurance.  with or without a LLC, you need a homeowner/landlord policy.  Without a LLC, you will need an umbrella insurance policy.  If you have a LLC and you want the extra coverage, each LLC will need its own umbrella policy.  Remember, its about adding "layers of protection."  Also, you want the insurance so that you can let their lawyers fight the lawsuit, otherwise you'll go broke just defedning your LLC.

https://www.biggerpockets.com/...

Then, there is the extra overhead with operating with a LLC.  The very first link should address most of it.  But, let me highlight financing (which there have been several recent threads started).  Legal entities, such as a LLC, are not eligible for conforming residential loans.  This means you will have to use commercial financing, i.e. non-residential loans.  Many investors get "around this" either knowingly or unknowlingy by transfering Title back to their name, getting the loan, and transferring the Title back to the LLC.  As I write about in the below post, this is a bad idea in my layman's opinion.  You need to protect your corporate veil by not co-mingling funds or using the LLC as an alter-ego.  Lenders don't have a responsibility to protect your corporate veil.  Also, most lenders are residential only.  So, the only way for them to sell you a loan is to have you transfer Title.  But, I don't see this as being in your best interest.

https://www.biggerpockets.com/...

Good luck.

Bjorn Ahlblad · Answer

LLC's are mostly an REI fashion statement. I have some properties in an LLC and others in my name. I make sure we have enough liability insurance so we won't be hurt in case something unforseen happens. Adding another million to your umbrella is 150 to 200 dollars per year.

Scott M. · Answer

The best way to avoid loss of properties is adequate and proper types of insurance. Chances are you will get a lot of different advice in this thread from LLC's are BS to you need LLC's.  I fall on the LLC side of the debate and when I started I started with many more than I needed in my opinion.  I did 5 properties per LLC and for me, in the end, the cost and hassle of accounting, taxes, different checking accounts etc was too great and I no longer to that.  We have clients that have many (like over 50) properties in a single LLC and we have clients that have 1 property per LLC.  There is no "right" answer for this.  I would for sure ask your team (accountant/lawyer) for their opinion as well.

Alexander Szikla · Answer

Ideally, you want to have each property in its own LLC. This insulates assets and keeps them safe from litigation associated with another property. It is a very cheap and effective form of insurance.

Lewis Acosta · Answer

@David M. Of course any help that Is offered is always welcome. A different perspective always helps produce fresh ideas!!

David M. · Answer

@Lewis Acosta

No problem.  I know its a lot of info.  I'd be happy to chat about if you need.  Just let me know.

Lewis Acosta · Answer

@David M. Wow thank you that was so helpful I’m going to read all the info you provided. I really appreciate your input, times to move forward!!

Lewis Acosta · Answer

@Scott M. Thank you I highly appreciate your input, I will discuss it with them!!

When owning properties should rentals be placed in 1 LLC or more

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