LLC or in our names?

Question

Hi everyone, my name is Jared Liedtke I am a Real-estate investor in Ontario Canada looking into rental properties.

My question that I can’t seem to figure out is for our (my fiancé and I) first rental property should we make an LLC and put our first property under the LLC or should we just put it in our name? Or what would be the best route to take.

We are planning on using the house hacking strategy and transferring into a more BRRRR method to speed things up once we gain experience.

Background,

I am fairly new to real estate investing however I have had time throughout college to learn many things through BiggerPockets and YouTube. I have been learning new things everyday over the past 2-3 years and am getting ready to take action once I secure employment (for mortgages)

Thanks everyone! 😀

Jared Liedtke

Account Closed · Answer

I've been looking into whether it is not better to form an LLC for the past 30+ years. Attorneys, CPA and everyone you talk to have different opinions. I've had the same CPA for the past 30+ years and he though LLC's were okay. So, I did the simple paperwork and started 5 LLC's for 5 different properties.

I sent the LLC paperwork and he opened new tax ID numbers for each LLC. Then, a few weeks later, I found out what I think is the truth and cancelled all 5 LLC's. I was speaking with a real estate investor who had 50+ year of experience with LLC's. He said LLC's cause a serious problem when you want to transfer properties to a spouse, when transferring to children and when you pass away and your relatives inherit your properties.

What the problem is; when you transfer properties, at least in California, to a spouse there are no capital gains taxes to pay, but when the property is in an LLC the property is no longer personal property. It belongs to a corporation and you don't get to transfer the property, as a personal property, without paying capital gains taxes.

Account Closed · Answer

Before I cancelled my LLC's, the purpose and reason for forming an LLC is limit your liabilities to only the assets in each LLC. For an example. If I own 5 apartment buildings with insurance for up to $2 million and a tenant sues me for $5 million, them the LLC for that building limits my liability to $2 million and the tenant cannot get money from my other 4 properties. That is why we need a separate LLC for each property.

The more we own the more we have to maintain. LLC's have specific legal requirements or that can become invalid and then there are additional annual costs. Perhaps, it is easier and less-expensive to avoid the LLC and use the annual $800 cost plus your CPa and use that money to buy an additional $2 million on your insurance. Better yet, use the cost for multiple LLC's to buy an additional $2 million blanket insurance policy where the cost for one policies gives you $2 million in additional insurance for all your properties. I think??? I am definitely not an expert.

Matthew Brill · Answer

It is not worth putting the property in an LLC while you are house hacking. You can get some anonymity with a trust (I'm not familiar with Canadian laws) and then once you move out of the property transfer the beneficiary of the trust to an LLC.

Adam Martin · Answer

I have had this conversation multiple times with different people however keep in mind this is for the US.  The whole purpose of a llc is to limit your liability where your personal assets are protected  in the event of a lawsuit.  Multiple LLC's protect not only your personal assets but other business assets as well.  For someone self managing though an LLC may not give you the shield of armor you think it does, if you are negligent and I am renting from you I'm suing both.  It is very difficult to not accidentally break some of the rules that separate you and a decent attorney will pierce it especially if you are self managing.  Where I think their place is is if you are completely hands off and have a pm take care of all decisions and management, especially for a larger multi.  It would be a lot harder to call you negligent unless as an agent you did not properly address concerns and they can prove it.  There are also a lot of people who question which is best a LLC or Umbrella, I see an umbrella alone as plenty of coverage but don't' necessarily see it as either or.  If you have an LLC with a lot of assets wouldn't you also want an umbrella to protect the LLC.  There is also the question if all of this is even necessary, Nate has asked on a lot of posts if anyone has ever had a claim above their insurance and umbrella and at least from what I have seen no one has responded that they have but would be curious if you did what were the circumstances.

Ian Walsh · Answer

It really depends on your goals and resources.  If you are trying to protect real assets and you don't sign PGs then an LLC might make sense.  I know a lot of investors that only do deals in their personal name.  It depends on the goals.

Jared Liedtke · Answer

@Tucker Cummings okay so for the first few a LLC isn’t necessary until we have a few and stop living in them, Thanks Tucker!

Tucker Cummings · Answer

If you're just starting out and house hacking, LLC isn't necessary. LLC's and business entities are over rated until you get a few properties under your belt. Once you start buying rentals that you're not living in, that might be the time to get your LLC.

Hai Loc · Answer

I don't want to burst your bubble but I think your a bit confused. LLC is US based. Seems like your investing locally in North Bay Ontario Canada.. You need to look into Ontario numbered company.. Canadian and US entities are a whole different ball game when it comes to financing

Jared Liedtke · Answer

@Ian Walsh oh okay so it is one of those things that are different person to person it just depends on what’s right for us. Thanks for clarifying Ian!

Jared Liedtke · Answer

@Jack Orthman interesting, I will check for Ontario and see what happens and how hard it is to transfer in those cases thank you for the insight!

Quick question though, is there a reason for multiple LLC’s or why can’t there just be one for all or most property’s?

LLC or in our names?

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