Thoughts on Business

It usually makes sense from a liability perspective to have a separate limited liability company (LLC) for each investment property when you have more than one. It is easier (and less expensive) to set up one LLC for all of your properties, but you can maximize your asset protection by having a separate LLC for each investment property.

In Massachusetts, the filing fee due to the Secretary of Commonwealth to form an LLC is $500. In addition to the initial filing fee, annual reports must be filed each year at a cost of $500 per LLC. The attorney’s fees for preparing the certificate of organization and operating agreement for a standard real estate holding LLC should be very reasonable. If the LLC has multiple partners and special drafting is required, the cost could be a more depending upon the complexity.

Business and real estate lawyers advise using multiple LLCs for multiple investment properties. An LLC created specifically to hold investment real estate should not include any business activity that is not directly related to that particular property. One of the reasons an LLC is used is to protect your personal and other business assets from liability in the event insurance coverage is not sufficient or the property is subject to the claims of creditors. Use of an LLC for each property will help limit exposing unrelated assets to potential liability.

If liability arises from one property, a successful lawsuit resulting from a claim against one property should not be able to seek remedies from the other properties if they are held in separate LLCs. On the other hand, if four separate investment properties are held in one LLC and something happens with one, a lawsuit can go after the equity and assets of the other three. For example, if you have $100,000 equity and assets in each of four properties and are sued over one, there is $400,000 available to settle that suit. If each property had its own LLC, then only $100,000 would be available, saving you considerably.

While there is a cost associated with having separate LLCs, it is minimal compared to what most property owners stand to lose by overlooking this option. We can help you with this process here in Massachusetts so that you’re fully in compliance with all applicable laws. Many property owners look at it in the same way as they do insurance, knowing that it provides considerable asset protection. By taking the extra step to have your lawyer create an LLC each time you invest in a property, you are protecting your future earnings and personal assets.

If you still are not sure whether you should have more than one LLC, a qualified attorney can discuss your options with you. If you’re interested in reading about other topics or have questions that you can’t find answers to just let us know. You’re invited to schedule a free consultation. You can also email glen@willrayconsulting.com or call 508.250.0797.