I am trying to figure out how to blend the asset protection of multiple LLCs holding properties while keeping my accounting needs simple.
Lets assume that I have 5 different properties. Ideally, I would like to keep each one in its own LLC but I sure as heck dont want to manage 5 different bank accounts and file 5 different tax returns. I heard a suggestion recently of using a parent LLC (partnership) that would own other LLCs (single member). The single member LLCs could then own one property each.
Since single-member LLCs are disregarded for tax purposes, would this allow everything to flow up to one bank account and one tax return??
Would this keep all potential liabilities contained with a single LLC??
If the properties were mortgaged, how would the title and loan need to be recorded??
If the parent corp is paying all the bills, does it create some kind of piercing of corporate veil of the single-member LLCs??
Any feedback and experiences would be appreciated.
This type of parent/subsidiary can work, but you create a nexus to link everything together if you are managing the properties personally. The key is to have the ultimate ownership rest with an entity unrelated to you. That breaks the management/ownership link. Unfortunately, taxes play a big role and need careful consideration when forming the entities.
While it may be ideal for you to have each property held by a separate LLC, how much equity are you protecting?
If you only have $20K equity in each property, why not have all 5 properties held by a single LLC? John Hyre suggests that you limit the equity exposure in your LLC to $250K or less. Once you have $250K in equity, put the next property you acquire into a new LLC.
you don’t have to have a single entity “own” the other entities.
You can have a single entity act as property manager without mucking up the ownership structure. many bank accounts, but all the activity flows through one account except for the monthly/quarterly payments to the “property owners.”
requires good great record-keeping. treat it like a business (charge a management fee, send statements to the owners, etc).
still have the personal management issue.
In the situation you proposed, does the “property manager” entity/LLC need to be qualified as a legitimate “property management company” in the state of business? (What I’m trying to ask is that states have certain requirements (i.e. a broker’s license, etc.) to manage “others’” properties. Would those kinds of rules apply to the management LLC in your scenario?)
Thanks. I’ve been thinking about the idea you explained for a while.
you would have to check with your state for the specific requirements.