How to Structure a Residential MFH Portfolio in MA

2 Replies

Hello Fellow BPers in the Massachusetts area!

As most of you already know, MA landlord-tenant law tends to lean one way. I'm wondering, what is the best way to set up a long term, buy and hold, real estate company in Massachusetts? 

I've heard of people using multiple LLCs (one for the property management, one for the holding company). 

I've also heard of people using trusts and even S-corps. For those with experience investing in Massachusetts, I'm curious, what do you use and what do you see as the advantage of that entity structure? 

Thanks in advance for the response!

Clinton 

@Clinton Holmes ,

There are many possibilities, but leaving everything in your name or one entity is likely the most risky. You can use a trust (for privacy) and have your LLC be the beneficiary (for protection of assets). Be sure to check with your insurance company about having the right coverage under the right entity.

The MA landlord-tenant law is really about dealing with tenants and how some can game the system/be impossible to evict; it does not really impact how you should structure your businesses.  Screening your tenants properly is the best way to hedge your risk of having troublesome tenants (see the BP blog post, which is gospel) and carrying ample insurance in case someone gets hurt on your property is equally important.

We currently use LLCs (no trusts) for our rentals and each rehab/new construction project. The LLC comes, it goes, and everything is separate. You will want to follow strict accounting and banking habits - do not transfer between LLCs directly (use a personal account).

Of course, please consult the appropriately licensed professionals and do not rely on my sole advice as I am not an attorney, accountant, or insurance agent.

Cheers!

Ray

@Clinton Holmes Ray was pretty spot on.

I would add it really depends on what your doing. For many real estate investors, the trouble of forming and maintaining a LLC isn't worth protection from the theoretical threat of a lawsuit. It costs just over $500 a year for the LLC thru the state and then $200-500 for tax filing, so it can be pretty costly.

What really matters is this, 

How much equity do you have in the property? Is it enough to spend almost $1,000 a year to protect? 

Are you investing with Other peoples money/partners? 

Personally, we setup a trust for for each property (for privacy) and then have a LLC as the beneficiary. We have a couple different LLCs that we use depending on whose invested. Me and my wife have one for our properties and then ones where we have partners invested in as well.

Ultimately, nothing beats having a great real estate lawyer and getting advice from them on what your trying to accomplish. 

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