LLC for one or LLC for all

[Marisa Voelkel]

Just recently I had a notice from our insurance carrier underwriting that they were canceling or insurance for our rental properties. They apparently have strict rules about what the owner company can be involved with. Currently, we have one LLC that is engaged in several real estate aspects: BRRRRs, Flips, rentals, my agent commissions go through it, and contracts for general contracting. After speaking with our banker, a title company, my accountant, legal, and others, it was determined that the insurance companies are not fond of rental owning companies doing more than just owning and managing rental properties due to liability risks. So, we are opening another LLC specifically for owning and managing rentals. That means I have to move my properties from one LLC to another, open a separate bank account, change bank accounts for rental income and expenses, etc. My understanding is this significantly limits liability if were were to be sued by a tenant (could only go after rental company, not everything else we do).

Now, I believe the right legal CYA move is to have one LLC for each individual property, but personally, I don't want to keep up with the bookkeeping on that! So, we are segregating off our rental endeavors to a single LLC to protect our other operations. Redoing the titles and warranty deeds for our properties is costing us money I could have avoided if I had known better. Thought I would share in case others can learn from this. There is SO MUCH advise that is thrown at us when we first get into real estate investing, it's hard to filter through it. And I realize this is not a new topic... but sometimes hearing it a different way helps.

My advise to those planning on having more than one business venture in real estate is to set up a separate LLC from everything else just for rentals. It will help keep insurance down and limit the risk to the other operations. Just my 2 cents. Always open to other suggestions.

[Andrew Syrios]

I generally agree that you should have a separate LLC for each separate business. That being said, the idea of putting each property in a separate LLC is arduous and I think (in my non-lawyer opinion) unnecessary. (The exception being large apartments and commercial properties, of course.) I haven't seen it proven but I sincerely doubt that having each property in a separate LLC is going to stop any legal action from being limited to that property.