Multi Family Owned by my LLC

[Shane B.]

Hello Bigger Pockets Community! My wife and I are preparing to make our first real estate investment and are trying to figure out whether or not we should own with an LLC. There's lots of info readily available on the pros and cons for both, but I think we have a somewhat unique situation and would love to get some feedback from our experience investors!

We currently home two homes in NJ, our primary residence with lots of equity and a vacation home, with even more equity. Life is good, but owning two homes is a lot of overhead, with over 20k in property taxes paid out each year (and now only 10K can be used as a tax deduction). Here is our idea...sell our primary residence and make our vacation home the new primary residence. We will then buy a multi-family property with our newly formed LLC, but leave 1 of the units vacant, since this home will be closer to where we work and children go to school.

Obviously, we'll have the protection of owning the rental property in an LLC, but my thought is we'll also benefit on taxes, since we'll receive all deductions from our primary residence. For the rental property, we'll be able to write off all rental bills as expenses. Yes, we'll be using in the "vacant unit" in the investment property part of the year, but it would not be our primary residence.

This strategy would significantly reduce our personal overhead and drastically improve our cash flow.  Thank you in advance for any and all feedback regarding this strategy, including any legality issues that might prevent us from following through!

[Basit Siddiqi]

@Shane B.

Selling primary residence = potential tax savings through section 121 exclusion($250,000/$500,000 of gain excluded).

Holding new multi-family unit in LLC = expenses related to the vacant unit will not be deductible if you plan to use it for yourself.

An attorney can provide guidance of liability protection from owning the property in an LLC. You do have to treat it as a business. I don't know how planning to live in one of the units does from a liability standpoint.