When to use an LLC? One LLC per property or multiple properties?

Question

I know putting your rental properties into an LLC reduces the personal liability of being a landlord.  But, is it really necessary if you just own one, two, or even three properties?

Eric James · Answer

This question is asked pretty much every week.

Peter M. · Answer

@Geoff Pettis I agree with the previous posts but will add that an asset protection lawyer will also say it isn't so much about the equity as the liability of having multiple in the same entity. If you get a judgment against one, then the others can be used to satisfy the lien. If they are in separate llcs or series then they wouldn't be at as much risk. You can also use land trusts to obscure ownership and make it harder to find who to sue.

Drew Sygit · Answer

Asset protection boils down to insurance vs LLC complexity.

Lawsuits are all about money. So, some investors choose blanket insurance policy of $3-5 million or more.

Other investors use LLC's and put various numbers of properties in them.

Which method allows you to sleep best at night?

Brian Kantor · Answer

I'll add that the better books you keep, the less your CPA fees will be come tax time. My CPA (and many, I assume) charge for their time vs the number of LLCs. If you keep great books (via Stessa, for example), you can cut down on CPA costs while still holding multiple LLCs (ie, 1 per property).

That said, annual LLC creation and upkeep fess vary by state, so if in your state, these cut too much into your margins, then you may more want to consider fewer LLCs with multiple properties in each. @Charles Carillo said $500k per LLC, which is totally fine, but arbitrary. In California, $500k may yield 1 or 2 properties. In Detroit, though, that may yield 8 to 10, which are a lot more opportunities for something to go wrong and a lawsuit to happen.

As is the answer with most REI questions, there is no set answer. Everything is dependent on your budget, your numbers, your risk tolerance and your market.

Scott M. · Answer

We have had clients create an LLC for every property....some had 50 properties lol.  It was insanity from a bookkeeping perspective, and frankly, costs.  Most of our clients stick in the 3-10 range so 3 or 10 properties per LLC.  When I first started I did 5.  Then I did 10 and then I decided it wasn't really worth it in the end.  The account costs just didn't justify the realties.

As I talk to other investors a lot follow that same path.  When they start they worry more about those things and then maybe we just become complacent?  I don't know, but most seem to accept more and more into the same LLC as they grow.  Having proper insurance goes a long way in protection as well.  While I would never own in my personal name to me having solid insurance is better then more LLC's.

John Duston · Answer

Depends on the amount of equity you have in each, state LLC costs, insurance, and your risk tolerance. No real way to answer that question without talking to a CPA, attorney and insurance broker because it varies so much person to person.

Charles Carillo · Answer

@Geoff Pettis

It depends on the equity. I have one attorney that suggests having a new LLC for each $500k in equity. If you own a single family house with $500k+ in equity or 5 duplexes with $500k in equity. You can always quickclaim the properties to new LLCs in the future. Before you change anything I would speak to your attorney and your CPA.

When to use an LLC? One LLC per property or multiple properties?

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