LLC for multiple properties? Single LLC per property?

Question

Hey All,

As I contemplate my next steps I wonder what the hive-mind's thoughts are on the LLC question. One per property? One for a portfolio of properties? One for all the properties no matter where they are?

Steven J. Umaña · Answer

My recommendation is usually to keep each property in a different LLC to avoid comingling assets and therefore risks to those assets, and to contact your insurance provider in order to ensure the LLC is an insured party under the policy. An important consideration in all of this is to make sure you are operating each LLC as a different "company" as much as possible to lessen a creditors ability to pierce the corporate veil and come after you personally. To further mitigate that risk, we have clients who layer their LLCs with a parent / sub structure which is beneficial for a number of reasons, including scaling a portfolio, entering into to JVs, etc. That being said, there are clients of mine who own hundreds of properties and they like to put 2-3 properties in an LLC as 2-3 properties are a small percentage of the total properties in their portfolio.

The land trust structure could have different benefits in other states, but we normally do not advise clients to use a land trust and an LLC in Ohio, except in the case where our estate planning team advises clients to form and hold assets, including membership interests, in trusts for estate planning purposes. Hope this context helps.

The land trust structure could have different benefits in other states, but we normally do not advise clients to use a land trust and an LLC in Ohio, except in the case where our estate planning team advises clients to form and hold assets, including membership interests, in trusts for estate planning purposes. Hope this context helps.

Joe Martella · Answer

The age old question.  It all depends on who you talk to.  I watched a tax attorney/CPA speak and he recommended that you don't have a separate LLC for each property.

I spoke with a different attorney who then said to put the properties in a land trust with the LLC as a beneficiary.

The next question is quit claiming the deed to the LLC with a loan under a personal name.  The issue I asked about is insurance.  Who has insurable interest.  If the property is deeded over to the LLC and the loan is in your personal name, who insures it?  Will insurance cover if there is a claim?

Without clear answers, I think that liabilities are being created to protect from other liabilities.

Austin Steed · Answer

@Steven J. Umaña do you recommend having a parent company of all the LLC's. A business partner of mine does this and I thought it wasn't a bad idea. Just another layer of protection.

Steven J. Umaña · Answer

@Austin Steed More layers certainly doesn't hurt and a lot of larger developers have multiple layers between them individually and the property holding LLC.

If there is a single person who is buying multiple properties, I will sometimes recommend just having various single member LLCs, unless this person plans to JV with others, which in that case use of a parent LLC to act as a member in those JV LLCs is helpful, as well as the parent acting as the sole member of the other title holding LLCs. If there are two or more people who are planning to acquire multiple properties, I always recommend the parent / sub structure so that they do not have multiple, multi-member LLCs which could cause more expense and labor at tax time. These things are easier to talk about over the phone as there are nuances to consider with each investment plan, portfolio, etc.

David M. · Answer

@Jason Kern

It really all depends.  There are investors who have up to 50 residential properties in their personal name.  Some investors go 1 to 1.  Others do a batch per LLC.

You need to have the LLC formed or registered in the State that the property resides.  Remember, LLC's are legal entities, I guess think of them as "cold-blooded" persons who can't move from State to State like a "warm blooded" person like us, formed within / by a State.  So, an out of State llc has no legal standing in some other State.

Don't forget that LLC's incur other direct and indirect costs.  You need to operate it as a separate entity to maintain your corporate veil.  You need to get commercial financing since legal entities are not eligble for conforming residential loans.

Alan G. · Answer

@Jason Kern I’ve seen this question a hundred times. Here are my thoughts and the way I set up my structures. Stop thinking about the number of properties per LLC and start thinking of the value of the assets in each LLC.

For instance you may want to limit the value of each to 1mm , which could be 10 properties worth 100k each or just 1 property worth 1mm.

As you build your portfolio it will start to get cumbersome having so many LLC s although it may be necc.

I personally have LLCs with a single 7 figure building but have others with 15 or 20 single family homes in them. It really depends on how comfortable you are. It can also change as your portfolio grows.

Jason Bott · Answer

In regards to the insurable interest on the transfer to the LLC, as long as the owner of the LLC is the same individual who is on the mortgage, there will not be any issues with the insurance policy providing defense or settling Property claims.

Jordan Moorhead · Answer

@Jason Kern I like the no more than $1M worth of property in one llc route

David M. · Answer

@Austin Steed

If you can afford all the LLC's, the extra holding company is nice in case you get sued or audited.  You can move funds around the LLC's via the Holding LLC (remember to follow the lines of ownership to move the money correctly).  Otherwise, you'd have to take the draw to your own personal bank account, then to the next LLC.  You'll need to cough up your personal bank account to show the complete tracking in the worse case.

Just one idea...

Jason Bott · Answer

@David M. I agree that anything more than a 1 to 1 is sloppy and leaves the door open to all sorts of possible issues.

The most common issue is the distribution of claim money.   The insurance carrier is required by law to issue the check with all of the Named Insureds along with any mortgagees.  At that point everyone questions the relationship between the Named Insureds and it can be a project to get that check cashed and deposited into an account.

LLC for multiple properties? Single LLC per property?

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