Two LLCs own one property?

[Yinan Q.]

My partner and i are planning to buy a property. We each have our own LLCs. I am wondering  if we can fund the property with our LLCs 50:50? 

In other words, can a property be owned by two LLCs? This way we don't have to form another LLC and all paperwork and band account associated with that LLC.

[Jerry W.]

Yes, I assume you will use tenants in common hehe.

[Ned Carey]

Yes. Obviously you should have an agreement to the exact terms of the partnership between the two LLCs.

[Yinan Q.]

@Jerry W. and @Ned Carey, thank you for your responses. Can you provide more details how this should be done? I am assuming the escrow should know this but I trust BP more.

[Jerry W.]

Mr. Smith, Grantor, hereby sales and warrants unto Tom, LLC, a Limited Liability Company created and existing under and by virtue of the laws of Washington, whose principal place of business is 123 Smith Street, and Mike LLC a Limited liability Company created and existing under and by virtue of the laws of the State of Washington, whose principal address is 456 Jones Street, Seattle Washington 12345, Grabtees, as Tenants in Common. Hereby releasing and waving all homestead exemption rights, the fo9llowing property located in X County, State of Washington:

It would look something like that.  I would have a written agreement as to all terms of the deal, who makes payments, who is manager, who gets profit, who gets paid and how, etc.  Does that help?

[Matthew Kreitzer]

Depends on your local rules and regulations, but in the state of Virginia such a practice is perfectly lawful.

PS: Do not take model legal language and incorporate it into your contract unless such language comes from an attorney. 

DISCLAIMER: If you are in Virginia, this post may be seen as legal advertising. This is not legal advice. Do not act on this information. Consult an attorney for all legal questions.

[Troy Fisher]

@Yinan Q. yup with a Partnership Agreement you would hold the deal as TIC as stated above, I would suggest you consult with the awesome @Scott Hildebrand about drawing up the Partnership agreement and perhaps talk to him about the ins and outs of TIC in Washington State

[Levi T.]

Why not, just form LLC that owns the property, then have the two other LLCs own their percentage of that LLC. That's how I would do it.

[Steve Vaughan]

Establishing yet another LLC in WA will force you to do quarterly state B&O reporting again with the dept of rev. A pain until you can become on active non-reporter.

I like the TIC idea, although I would want to see my partners' Op Agreement to be sure. Something screwy in there and your new partner could be their crazy ex or drug-addicted kid down the road. Layers of complicated docs and arrangements lead to... potential complications!

What is the reason for the partnership anyway @Yinan Q. ? For me it would be way too much unless it was a large multi or something.  

@Jerry W. gave an excellent example of language to go over with your WA specific attorney.  He put himself out there writing that for you.  

I would look up Deeds in your county recording dept online and search through the pages until you see one that has an entity TIC. Maybe even a regular TIC. See how that deed is drafted exactly. WA (and all states, I imagine) can have some quirky customary language that doesn't make sense to us mortals. Lawyer full employment strategies and all that. Always a lot cheaper and more efficient to run a document by an attorney for review than drafting from scratch.

[Adrian Chu]

Yes, the title/escrow company can work it out for you.

[Leslie Pappas]

I think the TIC idea will allow you to 1031 exchange out separately. Bill Exeter will know.

[Scott Hildebrand]

Thanks @Troy Fisher for the vote of confidence. Yes, I do TICs quite a bit. I find that these agreements spell out duties and responsibilities without relinquishing any security for the investor and they can spell out any number of options when things go wrong. Also, they alleviate the problem of creating another entity, which has some paperwork implications. Finally, they are so flexible that you can designate who gets what percentage, etc. You will want to check with your accountant, however, because you will have some tax considerations. And get it done by a lawyer- just to make sure all the required language is there.

[Dave Foster]

@Yinan Q., it is perfectly fine for two LLCs to own differing or identical tenant in common interests in one piece of real estate. There's a couple of things that make this more attractive than the other option sugggested of forming a new LLC to own the property.

First is the expense and reporting involved in another LLC entity.

Second though and more important in my book is that by having your LLC own a TIC interest and having your partners LLC own a TIC interest you keep the utmost flexibility available to you as you move forward with that property to eventual sale and possible 1031 exchange. If and when you sell your LLC can do it's own 1031 for a property and your partner's LLC may do their own exchange for another property. You could keep them together and buy another property together as tenants in common again. or one of you could 1031 and the other LLC cash out.

Many like the liability protection of an LLC in property ownership. But a multi member LLC is less flexible when movin forward. Your scenario combines the flexibility of TIC ownership with the liability protection of LLCs. The key to your success will be how the relationship is defined in the operating agreement for the property.

[Bill Exeter]

Originally posted by @Yinan Q.:

My partner and i are planning to buy a property. We each have our own LLCs. I am wondering  if we can fund the property with our LLCs 50:50? 

In other words, can a property be owned by two LLCs? This way we don't have to form another LLC and all paperwork and band account associated with that LLC.

Hi Yinan,

Yes, you can absolutely take title in the name of your two (2) LLCs. You would structure the legal title such that each LLC holds a 50% undivided interest in the property as tenants-in-common. This structure will give you the most flexibility at the back end as well (exit strategy) so that you can each individually decide what you want to do upon the sale (i.e., sell and pay taxes, 1031 Exchange, etc.).

[Bill Exeter]

Originally posted by @Troy Fisher:

@Yinan Q. yup with a Partnership Agreement you would hold the deal as TIC as stated above, I would suggest you consult with the awesome @Scott Hildebrand about drawing up the Partnership agreement and perhaps talk to him about the ins and outs of TIC in Washington State

I think you mean a Tenant-In-Common Agreement since will be holding title as Tenants-In-Common. You will be treated as a partnership for tax purposes if you draw up and operate under a partnership agreement even if you hold title as a TIC. It is extremely important that if you want to be treated as individuals (i.e., TICs) that you operate as TICs, report as TICs, etc. You do not want anything you do to be interpreted as operating as a partnership.

[Bill Exeter]

Originally posted by @Leslie Pappas:

I think the TIC idea will allow you to 1031 exchange out separately. Bill Exeter will know.

Leslie is right on the money! The TIC structure will give you complete flexibility on your exit strategy. You each individually 1031 Exchange (or not) into and then out of the TIC ownership structure. There were a couple of comments/concerns regarding the individual LLC Operating Agreements, and you certainly want to have the Operating Agreements reviewed to make sure there is nothing in there that might cause concern or problems between each of the individual owners, but the most important document would be a newly drafted Tenant-In-Common Agreement that governs how the TIC will be managed/operated.

You should have your attorney review Revenue Procedure 2002-22.  This Rev. Proc. was originally drafted for syndicated TICs sold as securities, some states also using it as a standard for "private" TICs like we are discussing here. 

[Account Closed]

Very good info here on TIC.. I have a couple additional questions in regard to this topic.

Background: LLC1 and LLC2 hold a property as TIC with the intent to Flip it. This allows the two LLC's to pool money without forming a separate entity.

Question 1: Does the intent to "flip" run the risk of being seen in the eyes of 2002-22 as conducting a business?

"Where the parties to a venture join together capital or services with the intent of conducting a business or enterprise and of sharing the profits and losses from the venture, a partnership (or other business entity) is created. Bussing, 88 T.C. at 460."

Question 2: Are LLC1 and LLC2 unable to advertise the property for sale within their own separate marketing structures (ex. LLC1 and LLC2 both market the property separately), or is this only pertaining to some entity that may appear to be formed under the TIC?

"The co-ownership may not [...] conduct business under a common name, execute an agreement identifying any or all of the co-owners as partners, shareholders, or members of a business entity, or otherwise hold itself out as a partnership or other form of business entity (nor may the co-owners hold themselves out as partners, shareholders, or members of a business entity).

Hoping to use TIC as a legal way to pool funds without getting into the web of SEC regulations and attempt to keep tax reporting clean.

Thanks in advance for any guidance!

[Mark Ross]

Quote from @Dave Foster:

@Yinan Q., it is perfectly fine for two LLCs to own differing or identical tenant in common interests in one piece of real estate. There's a couple of things that make this more attractive than the other option sugggested of forming a new LLC to own the property.

First is the expense and reporting involved in another LLC entity.

Second though and more important in my book is that by having your LLC own a TIC interest and having your partners LLC own a TIC interest you keep the utmost flexibility available to you as you move forward with that property to eventual sale and possible 1031 exchange. If and when you sell your LLC can do it's own 1031 for a property and your partner's LLC may do their own exchange for another property. You could keep them together and buy another property together as tenants in common again. or one of you could 1031 and the other LLC cash out.

Many like the liability protection of an LLC in property ownership. But a multi member LLC is less flexible when movin forward. Your scenario combines the flexibility of TIC ownership with the liability protection of LLCs. The key to your success will be how the relationship is defined in the operating agreement for the property.

I am in a similar situation. My wife and I completed a 1031 exchange by selling land that we owned individually. We were told that we had to purchase the new property in the same name as the sellers. We bought the new property in our individual names and then immediately transferred our individual 50% interest to two LLCs in our names. We had created an LLC to own the property, but we found out that the new entity could not own the property because the 1031 exchange purchase must be acquired by the same parties. We want to stay compliant with any IRS issues and work within the newly created multi-member LLC. We also want to open a bank account and manage the property under one entity. What should we do?"

[Dave Foster]

@Mark Ross, It sounds like you live in a non-community property state. In a community property state a Husband/wife LLC that does not file a tax return is considered a "disregarded entity" and you could have sold in your names and purchased as the LLC. But in a non-community property state a husband/wife LLC has to file a tax return. So it is a different tax payer. And you could not have purchased as that LLC. Instead you purchased at two disregarded LLCs - one for you and one for your wife. Perfectly fine!

You can contribute your two interests to the MM LLC in exchange for a 50% membership interest in that LLC. That would unite all interests. But it does mean that LLC is now the taxpayer for the property. And if you ever sell the property the LLC will have to sell and do the 1031 and buy the new property.

Or you could stay as tenants in common (your LLC, your wifes LLC, and the other persons llc). And have that new LLC simply be the manager of the property. "Hire" that LLC to manage the property Run all expenses and income through that LLC. If all of you are equal members of that LLC you'll all have equal authority. But keeping the real estate ownership separate lets all of you separate and go your own ways with your own 1031 exchanges whenever you sell.

[Basit Siddiqi]

The property will be owned as tenants in common, where there are more than 1 owner for the property.