Advice on starting an LLC

4 Replies

Hi all, curious to gather some advice on forming an LLC for my rentals. Hoping to gain some insight as I know there are a lot of folks on here who have gone through this process successfully and come out well on the other side. I currently have 4 investment properties (2 in MA and 2 in TN) and trying to expand. Current properties are condos and SFHs. I should mention that I live in MA. Looking at moving into MFs before the end of this year, but also at least 1 more SFH before the year is out. I will likely expand to at least 1-4 additional markets in the next 2 years and will need to plan for that as well. In that timeframe, I'm also aiming to get something that is north of 4 units and from I'm told, this would need to be be held by a separate LLC since it would be considered 'commercial'. I'm looking at basing my LLC in Nevada most likely, but am also looking into Wyoming. Any advice based on experience and what to ask about would be greatly appreciated. Glad to provide more info as necessary. Thanks folks!

Not an attorney, so take from this what you will. I recommend consulting an attorney that specializes in Corporate Law, Business Law, Real Estate Law, et. al.

Each investment property should have its own separate LLC. This makes things easier from not only a personal liability perspective, yet also from a business liability and investment standpoint as well. E.g., something goes wrong with Property #1, and someone is suing the LLC. They are going to have a difficult uphill battle in trying to "pierce the corporate veil" or in layman's terms, go after you and your business for any money. The only assets that the LLC possesses is Property #1, so the worst case scenario is that Property #1 would be subject to liquidation in the event of liability being found.

Furthermore, it is easier to sell units (equivalent to shares in s-corps and c-corps) to potential equity investors if they would rather invest in separate projects rather than an entire portfolio. This makes their risk easier to mitigate.

My recommendation is to: (1) Create 4 separate LLCs for each property you currently own (I recommend DE for its breadth of statutory caselaw and corporation friendly courts); (2) Quit Claim deed your interest in the properties to each corresponding LLC; (3) Repeat for new acquisitions.

Thanks for the advice Marshall!  That's a good point about the attorney's experience. 

I'm a bit hesitant to forming an LLC for each property due to the complexity (especially as I continue to grow) and for fear of what the cost would be to do so. Then again, I don't know what I don't know so perhaps this strategy is worth looking at. If you have experience doing so, I'd certainly be interested in discussing specifics.

Otherwise, perhaps there are structures designed to protect unrelated properties in the LLC from being targeted by a lawsuit stemming from an incident in just one of the properties.

Originally posted by @Eric Winn :

Hi all, curious to gather some advice on forming an LLC for my rentals. Hoping to gain some insight as I know there are a lot of folks on here who have gone through this process successfully and come out well on the other side. I currently have 4 investment properties (2 in MA and 2 in TN) and trying to expand. Current properties are condos and SFHs. I should mention that I live in MA. Looking at moving into MFs before the end of this year, but also at least 1 more SFH before the year is out. I will likely expand to at least 1-4 additional markets in the next 2 years and will need to plan for that as well. In that timeframe, I'm also aiming to get something that is north of 4 units and from I'm told, this would need to be be held by a separate LLC since it would be considered 'commercial'. I'm looking at basing my LLC in Nevada most likely, but am also looking into Wyoming. Any advice based on experience and what to ask about would be greatly appreciated. Glad to provide more info as necessary. Thanks folks!

 Exciting times when you are growing and scaling up rapidly! I would encourage you to checkout the Five Pillars of Asset Protection to start with - this is how I explain asset protection that applies to most investors who are scaling up. As @Marshall Hall had mentioned above, ideally you will want to place each property in it's own liability limiting entity so that if there is a lawsuit regarding a property it does not impact your other investment. This can get expensive and complicated, as you had stated, which is where entities like the Series LLC can come in and simplify the process, allowing you to still operate assets within the same class in a single entity and housing them in separate child series for protection.

In your situation I would have many clarifications I would want to make, but I will just spitball what it could look like. I personally like Texas LLCs because there is no annual fee and minimal requirements paired with it being a business friendly state. Theoretically, I would look at setting up an asset holding Series LLC for the properties, splitting each asset into it's own "child" series, and operate them all through the bank account and EIN of the Series LLC (unless some of the properties could be taxed as an S Corp.) Then I would set up a traditional LLC to function as my operations company, allowing me to separate the highest liability activity from my assets (signing leases, collecting rent, paying contractors, etc.)

The Series LLC could scale to hold as many properties as I would want it to, so it is ideal for a growing investment portfolio. It is as simple as I can make it, since all of the properties can be operated under the Series bank account and EIN (unless I choose otherwise.) And this way I just have to work on ensuring the bookkeeping is solid - the "burden of proof" is on the investor to prove the "child" series operate independently, so I make sure to keep the financing in line.

This is just a general approach - in your situation there could be several factors that play into the strategy you choose. The article I linked above also discusses anonymity, which becomes more and more important as you grow so people don't chase you with frivolous lawsuits because you look rich.

If you have questiosn regarding any of this just ask. I try hop on BP as often as my schedule permits!

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