Although there are numerous reasons to pursue one or the other, it occurred to me that many investors lack an entity and asset allocation plan.

Whether you’re a single investor with a single rental unit or a group of investors with many commercial properties, you’re probably aware of the benefits of moving your property to an LLC (Limited Liability Company).

Some benefits include:

LLCs assist safeguard an owner’s (members’) personal assets, principal house, cash, and equity in real estate and investment accounts from lawsuit or debt collection. LLCs may also apply for and get a Federal Employee Identification Number (EIN). This allows an LLC to create a distinct credit rating from its members while without impacting the individuals’ personal credit status.

Step 1 of 2
Unlock complimentary case assessments, project assistance, document review, and other essential legal services
Generis Global

Taxes: After an investor creates an LLC, the IRS permits the LLC to pay federal taxes on property earnings at the federal level as a single proprietor, partnership, S-corporation, or C-corporation. This may save the LLC thousands of dollars in federal taxes each year, depending on the size of the assets and the amount of earnings. It should be noted that this is not always the case at the state level (for example, Californian LLC members pay an 8.4 percent or $800 franchise tax each year).

Although many real estate professionals believe that placing assets in an LLC is a smart practice, it is not clear whether a single LLC should own many properties or if each property should have its own LLC.

I’ve set up several LLCs for real estate investors and have found that many investors create a new LLC whenever they buy a new property. Other investors, on the other hand, simply update their current LLC to include a newly bought property. Although there are numerous reasons to pursue one or the other, it occurred to me that many investors lack an entity and asset allocation plan.

I decided to poll my real estate acquaintances, both individual investors and owners of major commercial real estate management firms. I’ve also drawn from my own real estate investment folly in the past. We spoke about Series LLCs, 1031 exchanges, and associated ‘downleg’ and ‘upleg’ assets (to be addressed in a future blog). While several variables influenced their entity and asset allocation selections, it became clear that three considerations drove their decision on whether to place many assets in a single corporation or each property in a separate LLC:

The above list is far from complete or thorough. But, taking these three variables into account when acquiring your next investment property or forming your next LLC may save you money and worry in the long run.

Whether for a quick question or a full legal strategy, we’ve got you covered.
Expert Attorneys on Demand!
Request Free Proposals
Expert Attorneys on Demand
Whether for a quick question or a full legal strategy, we’ve got you covered.
Request Free Proposals
Request Legal Assistance
Whether for a quick question or a full legal strategy, we’ve got you covered.
Expert Attorneys on Demand!
Request Free Proposals
Expert Attorneys on Demand
Whether for a quick question or a full legal strategy, we’ve got you covered.
Request Free Proposals