One LLC or Many LLCs?

[Christopher R.]

Hi! I would appreciate suggestions about forming LLCs. I plan on doing most buy and hold investing. I will buy single family homes and rent them out.

Should I form one big LLC for everything? Or should I form one LLC per property?

Do you have any experience with websites such as LegalZoom as far as forming an LLC? Are they adequate or should I contact a lawyer?

Thanks

[Kimberly H.]

1. 1. Costs vary depending by state as far as creation and maintenance fees.
2. 2. If you are the sole member of the LLC, the LLC won't need a separate tax return. Some people think that a sole member LLC won't hold up in court; check the case law in your state for that, I see no evidence of that in my state.
3. 3. People mistakenly think an Umbrella adds coverage you don’t have. All it does is up the dollar limit on the coverage you already have.
4. 4. If your state has series LLCs that may be the best option-start a new series when you want to separate out some properties from each other.
5. 5. There are downsides of LLCs. Each one needs its own bank account, and bank accounts have minimum amounts you need to keep in the account to avoid fees. You most likely need an attorney to represent the LLC in court and in property tax reduction appeals.Then there is the bookkeeping aspect of having them all and making sure you have the right checkbook on you.
6. 6. An LLC does give you anonymity as far as who owns it if you use a registered agent. One thing lawyers do before suing is the deep pocket test; if they can't figure out who owns the LLC, that test gets much more difficult.
7. 7. An LLC works only if you follow the rules of keeping it separate from you. If you self-deal by giving yourself a mortgage, comingle money, etc., a lawyer can pierce the corporate veil and then it won't protect you.
8. 8. As far as using those online lawyer websites, I have seen them use clauses that are not legal in my state on leases, I would use caution if you go that route. You should be able to find a lawyer in your state who can do it fairly inexpensively. And make sure you use a lawyer who does this all the time for rental properties. I have gotten wrong legal advice from attorneys when asking for advice outside of their area of expertise.
9. 9. I would figure out what equity you have in each property and set up your series LLCs based on that. If you have a 100k property with a 70k mortgage, do you really want/need a separate LLC to protect that 30k in equity?
10. 10. A lot of people acquire the property in their personal name to make the closing process easier and get a conventional mortgage, then put it in LLC. All mortgages have a due on sale/due on transfer clause. Most have never heard of banks calling loans when transferred. However, if rates go back to 18% like they were in the 70's I wouldn't be surprised if that happened.
11. 11. The reason why people can’t give definitive info on how LLCs work exactly is because the rules are vague, and there is limited case law. Everything else is conjecture. I’ve gotten difference answers from different attorneys since they are basically guessing what would happen in certain instances.
12. 12. In my state you can transfer to an LLC without selling it, you just record a deed. The transfer stamps here cost less for a transfer as opposed to a regular sale. Once my attorney did one I just recreated what he did for the other properties. You don't need to be an attorney to record a deed at the courthouse. And again, the online website deeds looked a lot different than what my attorney has done.
13. 13. When you transfer a deed, the title insurance that covered you when you bought the property may not cover the LLC once they own it. I haven't done the research to figure that out yet.
14. 14. Make sure you add your LLC as additional insured to the insurance policies you have.