Are LLCs Appropriate For Holding Title Of Rental Property?

I am considering re-titling some rental houses with each having its own dedicated single member LLC whereby the LLC’s lone member (owner) would be my existing consolidated taxpaying multi-member LLC (partnership). The houses already have their own bank accounts and could easily include EIN numbers as well. Hopefully this would give me asset protection and natural flow-through. Does this layered configuration make sense, and how do I insure the process does not ‘dirty’ the property titles for subsequent disposition of the houses?

In my state – Georgia, LLCs are relatively inexpensive $100/$30 if self-created, however Foreign LLCs, i.e. Nevada Series LLCs which look good on paper are expensive to register here. TIA

– Jack, Georgia

Answer

LLCs are excellent for real estate. Your “layering” concept is very good as well. This is how many of the big players do it.

Some of them have separate entities for 1.) holding the real estate and 2.) managing the real estate. This makes particularly good sense in states that don’t charge an annual LLC fee/tax (sorry Californians–you have an $800 annual LLC tax).

They are superior to corporations in that the paper losses generated by real estate’s depreciation deduction flow through to the individuals that tax year, rather than staying within the corporation and having to be carried forward.

A tax deduction now is worth more than one in the future (time value of money 101).

The best way to keep the process “clean” is to use a good law firm that does real estate. In a city like Atlanta, there are plenty of firms of under 50 lawyers (which would be a small firm in Atl) that specialize in real estate. Don’t go to a family law (divorce) or criminal lawyer!

You can form the LLCs yourself an save a few bucks, then go to them to make sure the transfer of the titles is done correctly.

This also gives you a chance to test drive a law firm.

In commercial real estate, you’re going to need a good law firm.

From transactional work in negotiations in financing, permits and variances, and leases to litigation with tenants, contractors, insurance companies (yes, insurance companies don’t always pay just because you make a claim!), and condemning authorities….there is a lot of legal work generated from commercial real estate.

I don’t see any advantage in going for a foreign (i.e. Nevada) LLC.

You wouldn’t avoid any taxes (unless you were taxed as a corporation, which is generally a bad idea for real estate), you’d still have to register in Georgia (extra cost, loss of privacy that many seek by going to Nevada), and you’d still have to litigate in Georgia because your property is located there and the opposing party in litigation involving your property could put you in a Georgia court on that basis

Back To LLC Questions & Answers