September 22, 2011
As an asset protection lawyer in Sacramento, I find that it often makes sense to advise clients to create multiple LLCs when they own more than one investment property. While it might seem more convenient to simply set up one LLC for all of your properties, you can maximize your asset protection by putting each into its own limited liability company. This LLC should not include any business activity that is not directly related to that particular investment property.
The point of creating an LLC in the first place is to protect your personal assets in the event that your insurance cannot cover damages relating to the investment property. Business and corporate lawyers have long advised this approach. It keeps the landlord or property owner from being personally liable when a tenant sues for damages or creditors are looking for payment for various other reasons. The LLC is attached to the property, but not to the landlord’s personal home, vehicles, and life savings.
By creating separate LLCs for each property, you limit liability to that one company. If something goes wrong with one property, a lawsuit will not be able to draw from the others. On the other hand, if four properties are held in one LLC and something happens with one, a lawsuit can go after the equity and assets of the other three. Creditors are only able to seek compensation for the individual LLC and will not have access to funds from the others.
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 forming additional 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 California 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 business lawyer create an LLC each time you invest in a property, you are protecting your future earnings and personal assets.