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Multiple LLCs for Multiple Investments Properties?Category: Legal News
Most people understand that placing one’s investment property inside of a protective entity — such as a corporation or an LLC — makes good sense for a number of reasons, including most notably, personal asset protection against any liabilities that may attend to the property. But what about for the client who has more than one investment property? Does he really need a separate entity to cover each such property? The answer, of course, is that it depends. In our view, it may depend, in part, on how much exposure the client faces through any one property, and whether the risk of such exposure is outweighed by the cost of administration of a new entity to house that asset. Typically, where a client holds a significant equity stake in any investment property, such that there is much to lose through a creditor’s enforcement efforts, we believe it makes sense to keep such property separate and apart from other assets, through its own LLC. On the other hand, where a client has newly acquired several investment properties, say, a collection of single family homes in a single development, and such that there is very little equity in such properties yet, it may not make practical sense to house each such property in its own LLC. Indeed, until such time as those properties increase in value, it may make sense to keep such properties in the same LLC for the time being, and thereby avoid the administrative expense of maintaining multiple LLCs through minimum franchise taxes and multiple returns. Of course, once any property shows an increase in value — such as may now offer the client much greater exposure through a creditor’s enforcement effort — the client may move such asset into its own LLC. Needless to say, the investment property’s equity is not the only factor to consider in determining whether to create a separate LLC for each investment property, and one may wish to consider as well the nature, size, geography and commonality of such investment properties before deciding on how best to insulate those properties through an LLC.