If you have more than 10 rentals, put them under one LLC?

Question

Would like to know how others are structuring their rentals?

If you have more than 10+ residential properties, how do you structure it?

Put them all in one llc? Wouldn’t that be a liability though?

Would love to hear from fellow members?

Jake S. · Answer

Hey @Candace Price! I would advise consulting with an attorney for specific legal advice or a CPA about the tax scenarios. However, I personally (when I was doing the SFH game) put 1-3 properties under 1 LLC and had a LLC own that owned the LLC where the properties were owned.

Again, Id consult with an Attorney for tailored advice

Scott Smith · Answer

Hey, that's a great question! It can really depend on your investments and where you live, but I will just run over a couple of ideas. First, I would recommend running it all through really good insurance, since that will work as your primary protection (well, insurance and good business practices) and cover any frivolous claims, also. After that you will want to start splitting up your assets liability from each other, which is where the LLC comes into the picture.

The LLC allows you to compartmentalize liability between yourself and between your assets, but the issue with investors who have multiple properties. There is a Series LLC, which you only need to form once and then can privately create "child" series - which function to separate liability like individual LLCs but can be accomplished from your computer at home. You can check out this article for more on the Series LLC. IDEALLY, you want to split up liability between every property because if there ever is an issue with a single property you have "stop-gaps" that will prevent a devastating lawsuit wiping out your entire portfolio (and you personally.) The issue is that this can become very burdensome if you don't use the right assets, but when done correctly it only adds minimal expenses and can actually help organize your portfolio.

The other thing that investors who are scaling up or working with large investments is to separate their operations from their assets. So once you get your assets (properties) compartmentalized with the Series LLC (or just an LLC,) you will want to create an operations LLC. The LLC wouldn't hold any assets, but instead it carries out the functions of your investing: signing checks, hiring contractors, setting up property management, etc. These are the highest liability activities within real estate investing, so by using an operational LLC that doesn't hold your assets you can effectively limit your most precious assets.

A general idea would be: good insurance > split properties in to compartmentalized protection (Series LLC or just LLCs) > operational LLC to separate highest liability activities > introduce anonymity of ownership. The anonymity I didn't touch on, but you can integrate it to provide more privacy by removing your name from public record through the use of Land Trusts.

Just some thoughts. If you have any other questions just TAG me and I will get back to you, otherwise just shoot me a connection request!

Weston Couch · Answer

@Candace Price Hey Candace, I work in this area, so my answer to your structuring question is a little long winded. While it does provide premium protection to have one property per LLC for optimal asset protection, most investor would find maintaining a Traditional LLC for each property cumbersome and exhausting, especially once they have as many properties as you do. If you have ten Traditional LLCs, you have to worry about and pay for at least ten filing fees, ten separate EIN numbers and tax filings, any in-state taxes for each LLC, and possibly legal expenses for setting up each of these entities. And that’s not even getting into the details of what happens if you have LLCs in multiple states, each with different legal regulations and tax obligations. Bookkeeping tends to become increasingly burdensome as your portfolio grows. This combination of factors quickly become a headache for most.

A Series LLC formed in a business friendly state such as Texas or Delaware is a much more efficient and cost-effective solution for investors with multiple properties--or even those planning to get multiple properties. To use Texas as an example, you pay a single low ($300) filing fee. There is no in-state franchise tax, although you must file “no taxes due” once annually with the State Comptroller. You can add as many Series as you like, and your properties can be scattered all over our fair nation and it doesn’t make a difference for the entity. If you’re banking correctly, you can manage all of your properties with a single bank account. The Series LLC is also easy to use with traditional bookkeeping methods. It can also be paired with Anonymous Trusts for an extremely high level of asset protection. You receive all of the same benefits that you would get from multiple Traditional LLCs, but with a fraction of the headaches, costs, and most of the time, legal fees. Of course, the best asset protection plan for you is a matter to discuss with your attorney, but it’s a subject worth bringing up if you plan to expand your real estate portfolio.

Dan Perrott · Answer

@Candace Price - our attorney advised us to set up multi member LLCs between my wife and myself into multiple llcs.  This is for asset protection of the properties between personal and business -and- protection between business and business -and- protection between wife and myself since suits often are against one person of an LLC.  In all of this, only fractions of the business are exposed.  This of course sits behind multimillion liability insurance policies.  We are set up for asset protection.

I am not giving legal, insurance, or business advice as you should contact your own professional advisors.

Matthew Johnson · Answer

@Candace Price I have all of mine in 1 LLC for ease of use and lower cost.  However, you could ask an attorney about the possibility of starting a Series, or S - LLC. The idea is basically for tax purposes your rentals would be treated as a single entity but for liability purposes they would be treated as separate entities shielded from each other and outside entities. From what I understand (I'm not an attorney) this is a relatively new and untested tool, but could be interesting. All that being said, most other investors I know don't even have an LLC but do have a pretty large umbrella policy for their rentals.  You should consult your attorney and accountant but in the mean time this is a good book on the subject...

https://www.amazon.com/Estate-Investors-Corporatio...

If you have more than 10 rentals, put them under one LLC?

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