How to structure LLCs for rental portfolio

[George Bell]

Hello, 

I’m curious to hear from experience investors about how they structure/ organize there LLCs. From local real estate meetings , real estate attorneys, and other local investors I’ve heard different ideas and I’m not sure which direction I would like to go. 

1. Have your portfolio in one LLC . Get a large insurance umbrella policy for that LLC for protection. So in the event of legal troubles the umbrella policy should cover the potential damage before they can come after your properties. Umbrella policies are only good per LLC so it wouldn't make sense to spend the money on multiple umbrella policies for multiple LLCs imo.

2. Have your properties in multiple LLCs . Therefore they can only go after what is in each individual LLC.

3. From a local RE attorney. Set up partnership ship LLC - have the deed of each house in the partnership LLC. Set up another LLC to have a 1% stake in the partner LLC. The LLC with the 1% stake is responsible for contracting work and property management. Therefore if you come upon legal trouble they can only go after the LLC with a 1% stake , therefore the most they can get is 1% of the value of the property .

I could see some pros and cons of each. I’m curious to hear from others with larger portfolios and how they are structured.  Thanks 

[Stuart Udis]

@George Bell Since you already own 7 single family homes its paramount you get your asset protection in order immediately. Here's the blue print:

The deed holder should be a Wyoming LLC because you will become invisible to your tenants & aggressive creditors & attorneys. Next, the GP which owns 1% should be a Delaware LLC because Delaware corporate laws are well established and business friendly. Next you want to form an LLC that will serve as the management company for your LLC and perform duties including rent collections and sign all contracts on behalf of the business. I know its expensive but you will be well protected :)

Or you save a lot of money and be better protected by doing this consistently and well:

-carry appropriate types and amounts of insurance

-sign contracts with indemnification provisions

- obtain all necessary licenses and permits to operate your business

-ensure all vendors/contractors are licensed and insured and list you as additional insured

-sign well drafted and fair leases and be a responsive landlord 

-be an active owner or hire an active PM  who avoids or at worse timely eliminates premises liability exposure 

The strategies you often read about are sold by alarmist asset protection companies who fail to disclose how impractical they are. At the end of the day your objective is to prevent liability events from occurring and if they do, to be prepared. Whether its your tenants, creditors, attorneys, the boogeyman, crazy ex etc. you're afraid of.... none of the wonky asset protection strategies aid in preventing the liability or claim from arising and add no additional protections, anonymity or preparedness. If you set out to do the items I shared regularly you will actually cut down on liability and if a liability event occurs you will be far better prepared. If you want to form an LLC in the state in which the property is located, that's fine but single member is all you need. It may keep your name out of the docket and could be a helpful business planning tool but those are the benefits, and that's all.