Do I need to set up a new corporation for each rental property?

[Steve Davis]

Hello Bigger Pockets,

I buy, build, and sell houses through my current corporation that we will call ‘buy&flipincorporated’. ‘Buy&flipincorporated’ only performs flips and owns zero rental properties. I am closing on a new property in June. I will be tearing down the existing dwelling and building an 8 unit apartment in its place. I plan on renting out this apartment long term and not selling it.

My accountant has advised me to set up a new corporation - lets call it ‘rental_incorporated’. He advised me to do this for two reasons. The first being that it is simple and more orderly from a bookkeeping/accounting perspective as it will be separate from my flips. The second is for liability reasons. So if for example, my tenant slips and falls and wants to sue me he can only go after ‘rental_incorporated’ and not my ‘buy&flipincorporated’ company.

So let’s say I buy an additional property and I were to build another apartment to rent out long term. Should I go through the process of creating another new corporation or should I buy it and rent it out through ‘rental_incorporated’ meaning I would now have 2 apartments in that one company? Should I buy all my rental units through ‘rental_incorporated’? How do I prevent tenants from suing the entire corporation?

Any info helps. Thank you.

[Jason D.]

@Steve Davis I agree with your accountant. I would separate my flipping business from my rental business.

Whether you need a new rental LLC really depends on a few things.... what are the properties worth? How much equity do you have in the properties?

If you have a lot of equity, I would separate them into separate LLCs, if they are highly leveraged, you could keep a couple together within an LLC and just have good insurance coverage.