Is it a more wise idea to set up a new LLC for each individual property you own? I am thinking if you have multiple properties, like 20 plus. I figure if someone sues you for tripping over their shoelaces on one of your properties, they will only be able to sue the LLC on that property? Correct?
I am investing in GA/SC.
Thank you
Rob
If you manage and own all the LLCs, it doesn’t matter. Your personal liability joins them all together. You are always personally responsible for any action you take or any action you are required to take and don’t. It doesn’t matter if you are acting on your own behalf or that of an entity.
You also need to file a tax return for each LLC, pay an annual fee for each LLC, have a registered agent for each LLC, maintain separate books for each LLC, etc. That gets very expensive.
overkill :guns
So from your answer, it is better to put all of your properties under one corporation? Is there any argument against this?
Thanks
That reduces complexity, but increases risk. There is no best way. There is only the best way for your situation and you find that by having a qualified planner review your situation.
Thank you.
Instead of one property per LLC, why not consider limiting the equity in your LLC to, say, $250K. You could have several fully financed properties in your LLC before the equity reaches $250K. With 20 properties, you might just need 4 or 5 LLCs to limit your exposure to no more than $250K for each LLC.
$250K is certainly a lot lower than the coverage limit you will have on your liability insurance policy (policies).
I remember thinking that might be the way to go before I owned properties. Now that we’ve got several, I couldn’t imagine having that many LLC’s (taxes, paperwork, etc). Dave’s idea is a good compromise. I definitely wouldn’t do 1 for 1.
This set up doesn’t help for the situation of the owning and managing all the LLCs. A creditor will seize the LLC assets of the LLC where the injury occurred. The others will be subject to a charging order that will prevent them from operating while draining cash to the tune of $600/hr for a receiver.
Ownership must be separated from management to create a separation.
BLL,
It seems to me that your observation is valid when the LLC manager is also managing the properties, regardless of whether all 20 properties are held in one LLC, five LLCs or 20 LLCs.
In my view, managing the LLC is not, by default, the same as managing the property. Wouldn’t outsourcing property management to professional property management firms mitigate the issue you raise and shield the non-offending LLCs?
I generally take the perspective in my posts of the typical RE investor, a person who owns, manages, and maintains the property himself while outsourcing only big jobs like a roof tear down, and has a net worth less than a million dollars. That is why I take the position that insurance is usually sufficient, multiple entities don’t really reduce risk, single member LLCs are effectively useless, there is no money to properly fight a lawsuit, etc. I exclude the case of the high net worth investor with too many assets to manage himself and the willingness to spend the amounts necessary to buy true protection from a qualified planner.
That would reduce the risk significantly, but there is also the risk where the manager who has hired the PM didn’t properly supervise the PM and is held responsible because he didn’t properly supervise his agent who cause an injury. It’s a stretch, but remember that corporate officers carry insurance for just this purpose. The risk is real and there is case law to back it up.