Questions after podcast 197 with Chris Heeren

[Joshua Engemann]

Hello, I listened to BP podcast 197 earlier on my drive home and learned quite a lot from listening to Chris Heeren. Towards the end of the podcast he spoke about protecting your investments and a few things really stuck out to me. 1. He spoke about reserves funds for your properties and recommended a minimum of 1000$, but probably $2000 per unit. I assume he means annually? I just wondering if this was a standard for reserves? Maybe a percentage of the rent? 2. He also talks about his lines of protection, first and foremost is insurance, and second he said he has his properties in different LLC's. This is something that I haven't heard of before. I knew operating as an LLC is a protection for you personally, but have never heard of operating as more than one. I assume it would fall under the "all your eggs in one basket" category. Is this a common practice? How many units would you say would be a max for one LLC?

[Chris Heeren]

What James C. said is correct. I currently have 54 units and keep $54K in a cash reserve, I have properties built in the early 1900's so I want to keep a little extra in this account. When I replace a roof, I then take my cashflow and put it back into the reserve account until it gets back to $54K. I plan to build that up to $108K, though the additional $54K would be used to purchase properties all cash and refinance back out (currently I have a bunch of lines of credit I do this with, but since that is not my own money, it could dry up without much notice). Since the 2nd $54K will mainly be tied up into properties it won't be as liquid as the 1st $54K. Money above and beyond these amounts can go towards whatever I want, different investments, upgrade in cars/house etc, down payments on apartment complexes.

So I currently have all my properties in 3 LLC's and have just created a 4th LLC for my 2017 purchases. I basically keep about 10-15 properties per LLC and will really start revising that plan after I expand past 5 or 6 LLCs. I do this for assets protection as if I had some major lawsuit from a tenant and lost, they could potentially get all my properties in that LLC. Rather than lose everything I've worked for throughout my life, I break them up into smaller chunks. I should hopefully have my 4th LLC filled up by this summer and at that point, if I hit a major lawsuit and lost, I would only lose 25% of my properties. I spoke with Rod Khleif who has owned over 2,000 single family houses and he said that he doesn't even recommend putting more than 10 into an LLC - creating 200 LLCs? that isn't for me, it's really what your comfort level is. Lawyers will tell you to put every house in it's own LLC - I could also never see doing that.