LLC structure for Buy & Hold Investing

[Dentric Vance]

I finally nailed down my investment strategy, and decided to go with buy and hold investments. So starting out how should I structure my LLC(s) for buy and hold investing? Will I need multiple LLC's? Should I start a property holding LLC, as well as a property management LLC, or do everything under one banner. Feel free to point me to a forum post or podcast that could answer this question.

[Chris Reel]

Hey Dentric - congrats on taking the next steps in your real estate investing venture! My advice, get your first property into an LLC before thinking about developing a web of entities that hold all of your properties. Your first investment will show you a lot of things that books don't (and you will want to have the resources in place to be able to rectify those instead of being spread too thin with multiple properties).

Also, don't rush into thinking you need a new LLC for every property. Instead, when you're at the point where growing your portfolio is feasible, I would set a value threshold (total dollar value) for each entity. Once you reach that value threshold you open up a new LLC to hold your newer properties. So, for example, say your threshold is $200k and you're buying $50k properties. Once you have 4 properties in that LLC (totaling $200k in value) you'd create a new LLC to house your next properties. Another way to structure it is using an ARV threshold (so in the case above you rehab $50k houses and the ARV is $100k respectively... with 2 houses you'd reach your value threshold and thus create a new entity). Does that make sense?

This is advantageous from a tax-savings perspective, lack of confusion perspective and also allows underperforming properties to be kept above board by those that are doing well (this last point can be a blessing and a curse all at once, but for the sake of this answer we'll say it's a plus!). 

Hope this helps and I wish you the best of luck! 

Chris 

*Please note that this response is for educational purposes only and is not to be construed as legal advice or to have formed an attorney-client relationship.