Setting up LLC for remodelling business in California

[Gav Chen]

Hello all,

I recently bought a residential property and now am in the process of looking into setting up a company structure to protect my interest and assets. I live in California state. I'm thinking to do some remodelling. However, I might want to do a several more remodel projects in the future. 

My questions are:

1) Should I set up two separate LLCs? One for holding the property and the other for dealing with contractors.  

2) If I have multiple projects in the future, is there any benefit if I set up a holding company to hold those LLC?

Thanks!

[Aaron W.]

@Gav Chen Congrats on purchasing a rental property!

An entity is not necessary to own real estate to protect your interest and assets. When you start scaling into more properties, then it will be useful to have an entity in place. Many who own in their own name purchase an umbrella policy to protect against liability. California taxes can also be a burden and entities are no exception. You'll want to see the annual taxes and fees on owning in an LLC and ensure you keep these in mind. Also, if you try to get financing for properties owned in an LLC, then you will be applying for commercial loans that carry higher rates versus residential loans.

I don't think you need a separate entity to deal with contractors but that is something you can talk to your attorney or accountant about. You can probably own multiple properties in an LLC and create additional ones after you put a certain amount in one. This will also help spread the liability in case you are sued on one property, they will only be able to sue the one LLC.

Good luck!