Should an LLC be used to purchase first MFH

[Brendon Grover]

I have been wondering if it would be a good idea to purchase my first multi family property under an LLC, due to the requirements of the 1031 Exchange of having to buy your next property under the same name. My goal is to keep exchanging until I work my way up to a big enough property that produces my freedom number. Thoughts on whether or not an LLC over your personal name is a good idea to start? Thank you all

[Adam Nishikawa]

Hi Brendon Grover
Excellent question! Setting up an LLC is for your protection. You will have no problem exchanging the property under a single member LLC. The main reason it needs to be a "single member" LLC is simply- the replacement property must be acquired by the same taxpayer that disposed of the relinquished property. If you do not have a single member LLC extremely complicated situations may arise. The IRS wants a matching tax I.D. I always advise speaking with a CPA and Estate Attorney about what is best in your state/goals.

[Dave Foster]

@Brendon Grover, Completing exchanges as an LLC is not a large problem. A single entity LLC not choosing to be taxed as a partnership so not filing a tax return is a disregarded entity for 1031 purposes. All activity of the property is reported on your personal tax return so you are still seen as the taxpayer.

It's really not the complexity of the 1031 that gets you . It's the financing. The more liability protection you seek corporately, the less a lender likes it. Which is why obtaining financing as an LLC can sometimes be difficult. If you're LLC is a disregarded entity then you can sell as the LLC but purchase as yourself which can help with financing and yet still keep the 1031 intact.

An LLC filing it's own tax return can still do 1031s just fine. But it is more difficult (but not impossible) to separate the individual members.