If you are a property investor, you might already have formed a limited liability company (LLC). Should debts and liabilities arise, your personal finances would not be affected if you have chosen to form this type of business entity. Your liability is limited instead to the financial investment you have made in the property itself.
One question you might have is whether you should form a new LLC every time you invest in a new property. There is no clear-cut answer to this question. In certain situations, forming an LLC with every new property makes sense, but in other circumstances, it may not. Here are some points to consider before you make your decision.
If you are in the business of flipping properties, getting a new LLC with each one could be a wise strategy. Doing so will ensure that each property is separate in terms of liability and taxes. A liability issue with one property will not have an impact on other properties.
More Than One Investor
In the case of multiple investors, an LLC with each new property could be a better choice than a partnership. You would only be liable for the assets that the LLC holds, and that is not always true with a partnership.
Properties in Different States
It may also be a solid plan to form new LLCs if you buy properties in more than one state. You can get an LLC in each applicable state. That means you will not need to register the LLC as a foreign entity in each new state.
The Cost Factor
If you choose to start a new LLC with each new property, you will have to pay the fee for each one. You may also need to pay a separate fee for every tax return. This may not be a good idea if you have very limited funds to invest.
You might have problems getting a traditional loan for multiple LLCs formed for single properties. On the other hand, an alternative lender could help you with financing, so you might continue to form new LLCs if that is your preference.
Only you and your partners can decide whether a new LLC for each new property is advisable. You might find that it makes perfect sense, or you may opt for a general liability insurance policy instead. Feel free to consult Express Capital Financing for real estate investment solutions.