1 LLC per State or 1 LLC per property??

Question

Hi all... I've read several posts on an LLC search but have not found "the one" that helps decipher the dilemma around creating 1 LLC for each house vs 1 LLC in each state I'm investing in and putting all homes in that LLC.

I have seen the comments on Series LLCs but am still struggling to analyze that impact to the pro's and con's as well.

I'm looking for insight from this community: I have 2 LTRs in TX, 1 STR in Tahoe, and 2 homes in NC (1 STR and 1 LTR). I have been plotting scenarios for these options:

1. 3 LLCs (1 in each state) with 2 homes in each
2. 4 LLCs (splitting the NC homes since one is STR and one is LTR with logic that "more risk with STR" could be beneficial to keep it separate
3. I'm sure there is a series LLC option, but this is the one that I'm least familiar with

Any helpful advice or pointers for analysis would be immensely appreciated.

Thank you in advance!

Mary M. · Answer

@Scott M. I think the reason people mention Umbrella policies is folks are told LLCs protect them from being sued and losing their properties. An Umbrella policy will protect as well and for a single investor is going to be more cost friendly then multiple LLCs.... but each person should discuss with their Ins Brokers, CPAs and Attys.

Bill B. · Answer

I haven’t found any llc’s necessary yet but I only have 12 properties in two states. Just pay for the umbrella. You are 100x more likely to do something personally to get sued for more than your regular insurance limits than your property is. And in that case the llc’s don’t help at all. Since you own the llc’s you get sued for your ownership of them and lose everything. Everything from a someone runs out in the street while you’re looking at the car radio, to a kid drowning in your pool, or a slip and fall on your personal property. These are all circumstances where the llc is useless and the umbrella is everything.

Scott M. · Answer

@Justin H. You do not "need" an LLC in each state that you own property in. If you have 1 LLC in CA and then owner property in 10 states with that LLC you would need to register it as a foreign entity doing business in the state (each state may call it something else) but you do not "need" an LLC in each state. @Toni Conway you can make it as easy and/or as complicated as you and your account/lawyers want to. I am a fan of owning property in an LLC but also a fan of not overcomplicating it. For your situation 1 LLC is all I would do and have done. After the crash of 08 we owned hundreds and hundreds of properties all across the US (Buying from bank bulk sales) and they all went into 1 LLC. As a property manager we see clients do all sorts of things. Some do 1 property per LLC, some do 1 LLC for 5 or 10 properties. Some separate by state. There simply is no right answer for this other then what you decide to do. Always love the folks who chime in about umbrella insurance as if that has anything to do with an LLC. Might as well chime in with don't do an LLC and eat your fruits and vegetables. Has about as much to do with setting up an LLC or not and insurance. No matter if you have an LLC or not you need insurance, property, liability, umbrella and professional at the very least. And yes, you should eat your fruits and veggies : )

Mary M. · Answer

Have you talked to your insurance broker and your CPA about if you even need an LLC? They will mean you pay more for your tax returns business tax filings, etc etc. They also will not protect you incase you get sued. Better to just have an umbrella policy IMO.

Justin H. · Answer

@Toni Conway I’m in CA so that what I know best, but my understanding is each property would need to have an LLC setup in the state where it is located. A CA LLC should not be directly holding a out of state property. If the LLC isn’t properly registered it can lead to all types of problems, like if you do actually get sued. I’ve heard of issues when you try to evict and the judge or tenant (or their counsel) identifies the LLC as not a true legal entity. The eviction could get tossed.You can have a subsidiary LLC of the parent LLC hold property in other states, but it definitely gets tricky. One problem with subsidiaries is that it potential leaves open a path back to the parent LLC in a suit. Not sure on your business structure, but some states also don’t offer maximum protections for single member LLCs either. I’m unfamiliar with series LLC so I can’t help there. As for the number of properties per LLC, that mainly depends on how many you are willing to risk. In CA, property is so expensive that one per LLC is best, despite the $800 franchise tax per year. Many people have 10+ properties in CA with no LLC and just umbrella insurance. Sometimes insurance companies will find ways in the fine print to justify not paying out for all claims leaving you vulnerable, especially when there is high dollars amounts involved.It’s a matter of your risk tolerance and ability to navigate the complexities of multiple LLC without driving yourself or your accountant crazy. Also, much depends on who you are and what you do that could make you a target. Attorneys are trained to do asset searches to identify deep pockets prior to filing a suit.One benefit of the single LLC per property is that when you go to sell and need to show the buyer proof of rental income and expenses, it is easy and not combined with other properties. Same goes for a lender who will want to see bank accounts and tax returns. Plus having one property per LLC means each has their own bank account and tenants/vendors only focus on that one. Lots of other benefits, but it comes at extra costs and energy.Disclaimer: I’m not an attorney or accountant. Please consult the appropriate professionals.

Toni Conway · Answer

@Chris Seveney This is great information! Thank you for sharing this perspective... I have more homework to do with this. It's an option that I had not considered based on what the "majority" says about exposure. I'd be very interested in more specifics about the insurance wording.

Chris Seveney · Answer

@Toni ConwayI have notes and rentals. I keep between $1M-$2M per LLC is what my cpa and attorney advised.I also use a property manager for every property which includes some indemnification language as well as the insurance policy. In speaking with my attorney this significantly limits risk.I also do not keep significant equity in my properties in a LLC as at the end of day, if you are sued and there is assets but also liabilities, what is there to take? As a reference I know of several large real estate developers who have over $500M in assets in one LLC and have little debt on it but a kickass insurance policy.

Toni Conway · Answer

@Chris Seveney how many properties do you have and in how many states? Is your situation the same? I also have an Umbrella policy right now (they say they cannot add new properties until renewal so that was a little sketchy) and have relied on that for a few years. Is your decision to have just one LLC (with potentially multiple properties that could be attacked in a litigation) due to just trying to remove you personally? Thanks so much for your insight.

Chris Seveney · Answer

@Toni ConwayI would have one LLC with an umbrella insurance policy.