Create an LLC and how many?

Question

All,

I have 4 investment properties in Chicago, and need to put them in an LLC.

1) Can I just do this myself using a quick claim? I noticed the form only really needs a notary... or do I have to use an attorney?

2) Should I create one LLC for each property or put them all in one LLC?

What has everyone else done?

Manish

Rich Weese · Answer

Point to remember- An LLC ONLY limits the award or judgement from someone involved in that property. If you are the owner of the LLC, and run over a bus stop full of kids, everything you own is at risk. Consult an attorney to find a safer way to kep the LLc asset from attachment from any source. There are ways, but consult an entity or estate planning attorney.

Sarah Lawlor · Answer

Hi Manosh,

Pasting here a related answer from the user 'nationwidepi' from a couple days ago:

"As far as owning multiple properties, what you must understand is that you can have one, two, or ten properties (or more) inside one LLC. What you have to determine is the amount of "equity" you are williing to risk. If you have 10 properties all with only $2,500 each of equity, you could decide to place all 10 inside that one LLC as you are only "risking" $25,000 in equity. On the flip side, if you had 10 properties each with $25,000 in equity, you would be risking $250,000 in equity. Too much in my opinion so in that case, I would choose to divide up the equity between multiple LLC's so that only a certain amount of equity could be at risk."

Also, today I came across a good article that addresses this question (unfortunately I only copy-pasted this part into an email, so I don't have the URL and don't know who wrote it to give them credit):

"Multiple Entities For Multiple Properties

Now that you're convinced you should use an LLC to hold your real estate, the next question is how many properties per LLC should you have. Should you create one LLC and hold all your property under it, or should you create a new LLC for each property?

There are several reasons why you should consider having multiple LLCs--one for each property.

First, having multiple entities prevents "spillover" liability from one property to another. Suppose you have two properties worth $500,000 and they're held in the same LLC. If a tenant is injured at property 1, and wins a $750,000 judgment, he will be able to put a lien on BOTH properties for the entire $750,000. Even though property 2 had nothing to do with the plaintiff's injury, the plaintiff would still be able to attack that property.

On the other hand, if each property had its own LLC, then your creditor could only put a lien on the property where she was injured (assuming that they cannot pierce the corporate veil).

Many banks and lenders require separate LLCs for each property. They want the property they're lending against to be "bankruptcy remote". What this means is that the lender doesn't want a problem at a separate property to jeopardize their security interest in the property that they're lending on. If they are lending money to you to buy the building on 123 Main Street, they only want exposure to risks from 123 Main Street, and not from a bunch of other properties that you own elsewhere. Therefore, lenders often insist on a new entity for the property they are lending on."

Omar N. · Answer

Manish--

For me that debate comes down to how paranoid you are vs how much extra work you want to put in.   I dont know about IL, but in NJ you HAVE to have a lawyer rep you in eviction court if the property is in the name of a biz entity.  Not cheap.  And I agree with what Dan said, alot of extra work to file the taxes for seperate entities every year.   Its and relatively cheap to set this situation up, but more of a pain to maintain.

BUT, if you can forsee a scenario where you may ever get sued, its nice to not have all your eggs in one basket.

Another piece to that equation might be the size of these investment props, ie are they 5 units, or single family.