LLC for Managing Rental Properties

[Keani Le'a Barnes]

Aloha Everyone!  

My husband and I are born and raised in Hawai'i trying to go beyond affording the "price of paradise"...We recently began investing out of state in Ohio and closed on our first property 2 weeks ago. We are about to put an offer on another property tomorrow...I know from reading the forums that we can't put our properties into an LLC without the "Due on Sale Clause" issue, so we don't feel comfortable with that risk at this time. I thought we could at least reduce our taxable income by creating an LLC to manage the properties, taking draws only when needed to purchase more properties. Is this a good idea or just further complicating things, since we aren't getting any asset-protection from the LLC? Assuming it's a good idea, do we still personally pay for all repairs? Or does the LLC?--who then bills us for the expenses?

Thanks for your help!

[Michael Gilman]

You get no tax advantages form holding a property in an LLC.

From an asset protection and anonymity perspective , LLC are helpful but sometimes trusts can be more effective. It really depends on the state. If your state allows Land Trusts that would be my preference. Otherwise, best bet is likely to hold each property in a separate LLC and managing the properties through a management LLC. The LLC holding the property should not engage in any business or enter into any contracts. The management LLC enters into all contracts, pays all expenses and collects all rent. If books and records are kept properly (including properly transferring money to holding LLC) potential plaintiff will have a harder time going after the actual property since there is no privity. The property management company would not have much assets to go after. However, nothing is guaranteed and there is always a chance of a judge allowing plaintiff to "pierce the veil."