by Richard Keyt, Arizona LLC lawyer
One of the most common questions real estate investors ask me is “if I own multiple investment properties, should I put all the properties in one LLC or should I put each property in a separate LLC?”
The answer to the question is that usually, every investment property should be owned by a separate limited liability company that owns only one property and that is not engaged in any other business activity. The reason is simple: to maximize asset protection.
Consider the fairy tale of the three little pigs. The three little piggies each owned three rental properties. The first pig owned his properties in his name. The second pig owned all three properties in a single LLC. The third pig formed three LLCs and each property was owned by a separate LLC. By sheer coincidence, the water heater in one of the properties owned by each pig blew up and killed a tenant.
The first pig got sued by the family of the deceased and lost all of his life savings when the judgment exceeded the insurance coverage. The second pig lost all of his equity in his three properties, but his other personal assets were protected. The third pig lost only his equity in the property owned by the one LLC that had the accident and his personal assets and the equity in the other two properties were protected.
Asset Protection Rule Number 2 (for Asset Protection Rule 1 see Two Primary Asset Protection Rules for Real Estate Investment): Hold title to investment real estate through a limited liability company. Most real estate investors know that the reason to form an LLC and to transfer investment real estate to the LLC is to reduce or eliminate the risk that the investor may lose his or her life savings because of a disaster with the property. If the water heater blows up at the rental property and you hold title in your name, you may be sued and a judgment that exceeds your insurance coverage could take your life savings. If your LLC owns the property, it will be the defendant in the lawsuit and you should not be liable personally unless you were the reason the water heater blew up.
Asset Protection Rule Number 3: Diversify your assets. The old adage “do not put all of your eggs in one basket” applies to real estate investment just like it does to any type of investment. If you satisfy Asset Protection Rule Number 2 and create a single LLC to hold title to your three investment properties and a disaster occurs on one of the properties, the creditor could reach all of the equity in all the assets owned by that limited liability company, i.e., all three properties.
Do Not Be Pennywise & Pound Foolish. If you buy three properties today for no money down, you will not lose much if you lose all three properties in the near future (but you might in the future when the properties appreciate in value). However, if you have $50,000 of equity in each property, you risk losing $100,000 that could easily be protected by having a separate LLC own each property. By saving the relatively small amount I charge to form additional LLCs you risk losing all of your equity in each property held by the same LLC. The more properties your single LLC owns, the greater the risk that there could be a problem with one of the properties that could result in a lawsuit.
Consider the one time cost to form an LLC as an alternate form of insurance that you should not go without. The cost to form an LLC is peanuts compared to the amount you may invest in property coupled with the property’s appreciation in value over time.
How to Hire Arizona LLC Attorney Richard Keyt to Form Your Arizona LLC
If you value your time, want to protect your personal assets from creditors and would like an Arizona LLC attorney who has formed Arizona entities since 1980 to form your new limited liability company and give you a copy of the Arizona LLC Quick Start Guide for $599 ($549 for AZREIA members) including all costs and fees, let Richard Keyt form your company.
The quickest way to hire Rick to form your new Arizona LLC is to call KEYTLaw LLC lawyer Richard Keyt or KEYTLaw legal assistant Richard C. Keyt, CPA (ext. 3) or Gia Goodman (ext. 7) at 602-906-4953. You may also complete our online LLC Formation Agreement and pay with your credit card in our store. Click on the following link to access our short online LLC formation questionnaire in Adobe .pdf format.
If you have questions about the Formation Agreement or about forming an Arizona LLC, contact Arizona LLC lawyer Richard Keyt or KEYTLaw legal assistant Richard C. Keyt, CPA (ext. 3) or Gia Goodman (ext. 7) at 602-906-4953. We do not charge for entity formation related questions.