Should I create an LLC for my properties?

[Darsh Patel]

Hi everyone, 

I own a few small multi-family properties (8 units total) and I have heard that it is good to transfer rental properties over to an LLC ownership. I wanted to ask what would be the benefit of doing this? Also, how would I go about creating an LLC/transferring the properties over and how much would it cost?

I'm trying to figure out whether the cost of the LLC is worth doing it now or if I should wait until my portfolio gets bigger. Any help is appreciated! Thanks

[Andrew Holmes]

@Darsh Patel

Hey Darsh: Great question.

From an investors perspective based on growth not taxation or asset protection

If you want the best taxation advise talk to a good accountant or CPA. 

Asset protection talk to a good attorney. 

Where do put properties in your personal name, LLC or S corp is going to depend on your goals, asset protection, long terms planning.

If you are under 8 properties you can hold them in your personal name and insure them property with a additional umbrella coverage. 

If you want to grow quickly then here is a plan we follow: Assuming you intent to scale to 25 properties. 

For Rentals. 

Each LLC or a Each series in the LLC holds 5-6 properties for asset segregation.

1-5 properties Personal Name - Then transfer to LLC or S Corp (S corp has some other advantage not getting it to that for this discussion)

6-25 Properties Buy directly in LLC (limiting 5 per llc)

Some people in the tread had suggested that 1 property per LLC. I don't think it makes sense because of the costs. I think a few properties per LLC makes more sense and will depends on your goal.

As far as insurance. We have 1 Million per property and Personal Umbrella of 4 time your net worth. So assuming you Total assets owned - Liabilities = 1 Million then we carry a 4 Million personal Umbrealla in addition to the insurance on each property. 

See Examples Below on the setup .