[USER]

Our properties are currently in our names. What’s the advantage of having them in an LLC instead?

[Ian]

I’ve done a lot of research on this and the conclusion I’ve come to is than an LLC doesn’t do a ton for you until you have a higher (2M+) net worth. Unless you have a high net worth, you’re not likely to be the target of a lawsuit. Individuals may want to sue you, but lawyers won’t typically take a case to sue a lower net worth individual because the chances of getting a payout are virtually zero.

There are not tax benefits, because LLCs are “disregarded entities” according to tax code, which means everything goes on your personal tax return anyways.

There are some legal protections, but they’re not iron clad by any means. If someone does sue you a good lawyer can unwind an LLC during the discovery process pretty quickly. An LLC can serve as a barrier to discourage lawsuits, but once a lawsuit is filed the LLC will be stripped away pretty quickly.

The book keeping becomes more complicated, and taxes become more complicated (which means more expensive assuming you’re using a CPA).

All of that to say, LLCs are not worthless by any means, but they’re not magical either. They add cost and complication, and they add some protection as well. It’s more a question of whether you’re educated/ready for that additional 20% cost and complication they add, and whether you need the extra 15% of protection they give you.

[Bryan]

Read/listen to the following “How to Use Limited Liability Companies & Limited Partnerships: Getting the Most Out of Your Legal Structure” by Garrett Sutton.

There’s an overwhelming amount of good info about LLCs, LPs, tax structures including S-corps and more.

[CoCo]

There are several advantages to having rental properties in an LLC:

1. Limited liability protection: An LLC provides limited liability protection, which means that the owners’ personal assets are protected in case of a lawsuit or other legal action against the rental property.

2. Tax benefits: An LLC can provide tax benefits, such as pass-through taxation, which allows the rental income and expenses to be reported on the owners’ personal tax returns.

3. Professional image: Having an LLC can give your rental property a more professional image, which can attract more tenants and potentially increase rental income.

4. Asset protection: By having your rental properties in an LLC, they are considered separate legal entities, which can protect them from creditors or lawsuits related to other properties or businesses owned by the same individuals.

However, there are also some potential drawbacks to consider, such as additional costs and paperwork associated with setting up and maintaining an LLC. It’s important to weigh the pros and cons and consult with a legal and financial professional before making a decision.

[Author]

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