Would you create more than one LLC for real estate investments?
I'm working on a business plan for a real estate investment company. I buy, hold, and manage rental properties. I'm thinking of creating a new LLC for each property but I'd like to manage them all under one central LLC. Do you think this is a good idea?
- 1 decade agoFavorite Answer
Greetings again Lacey, most of our investors do create an LLC for their investment property. Either after closing or before you should place the property in an LLC to separate yourself and your other assets from that liability.
Secondly the formation of an LLC makes it harder for the pesky tenants to track you down and annoy you, that is why you hire a property manager; like me!
There are two reasons to have more than one LLC.
Reason #1. Each LLC is a separate entity so if one is involved in litigation it should not endanger the others.
Reason #2. One of the most effective ways of limiting liability is for one LLC to own the assets and another to lease them from that LLC and operate the business from.
So, Lacey 1 LLC buys all the property. Lacey 2 LLC leases that property from Lacey 1 LLC and operates an rental property business.
The LLC that leases the property has no hard assets to take.
This gets pretty complicated at tax time, and also if you do something terribly egregious most judges and jury's will lump them all together anyway.
Better talk to an atty and a tax guy.
Most generally this is not the usual method, only people with extremely large assets tend to do this kind of deal. Several major corporations do things like this.
- 1 decade ago
Having a separate LLC for each property helps 2 ways: (1) it isolates liability -- if a property goes bad you can probably limit your exposure (but note that if you are going to borrow funds your lender might ask you to cross-collateralize and they'll be able to get at other properties and entities to the extent you agree to have those entities sign on to the same lending arrangement or if you provide guaranties), and (2) lets say you take outside investors or partners but you take different partners for different properties -- having a separate LLC for each property makes the arrangements easier.
On the downside, (1) there is the added expense and organizational upkeep of additional entities and (2) you have to keep track of how much you are keeping at a particular LLC and how much you are distributing out to yourself or your management LLC -- keep too little there or fail to keep proper distinctions (lets say you just have one bank account and you just pay all expenses for both LLCs from that and you don't properly document distributions but just take whatever money you want from the property level LLC whenever you feel like it) and you open yourself up to an attack by creditors where they can "pierce the veil" and get at the higher level LLC or even you personally.
Also, lets assume that you have a management LLC ("A") which is a member of two LLCs ("B" and "C") which each are used to hold a single property. Remember that you can distribute funds from B to A or C to A and A can send money down to B or down to C relatively simply, but you can not exchange funds from B to C or C to B without having some separate loan documentation since B and C are separate entities from each other.
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- 1 decade ago
That the best idea Ive heard yet. That's exactly how it should always be done. If someone gets hurt in one of the buildings (LLC) they are limited to suing that building. I would consult with an attorney for the logistics.
- ♥uuɐuuǝɾ♥Lv 41 decade ago
I think it'll be a lot of work come tax time, since you'll have to file a return for each one, but it is a good way to keep track of them independently. I'd probably do it that way.
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- 5 years ago
First, find a securities attorney. What you are doing will be close to a security so you must be very very careful. Good luck, this is a great idea.
- Anonymous1 decade ago
I used to do insurance for a guy who did this for all his buildings. I thought it was a pretty sound idea.Source(s): http://ohio-insurance-forum.blogspot.com/
- Anonymous1 decade ago
Keeping them separate splits the liabilities. That way if one fails, it doesn't take the others down with it. ~