How LLCs Are Connected To Investment Properties

Business owners have a vested interest in limiting their personal liability. A limited liability company (LLC) is a type of business entity. Owners of LLCs are not personally responsible for any debt taken on by the business.

In other words, the owner’s personal property (house, cars, bank accounts) cannot be seized by people or organizations who are owed money by the business. Anyone who is starting a business and plans on establishing an LLC should contact an attorney. The laws and regulations governing LLCs differ by state. 

The option to choose an LLC is available to individuals and businesses, not banks or insurance companies. This can be particularly advantageous to people who are looking to buy investment properties.

Series LLC

People who own multiple properties may choose to create a series LLC. Though it can be used for organizational purposes, it can protect you is one of the biggest reasons someone should choose one. 

Imagine that you have six investment properties. You and your attorney can choose to break these up into different series LLCs. Three properties can go into LLC 1, and three properties can go into LLC 2.

The purpose is to silo your risks. LLC 1 and LLC 2 are protected separately. If you are someone who invests in properties, ask yourself how many you plan on acquiring. Allow your attorney to advise you on how to maximize your level of protection. 

The Logic Behind A Series

When people first learn how to mitigate their level of personal liability and risk through a series LLC, they may ask why properties are clumped together. For example, if you have six properties, why make two LLCs? Why not 6?

There’s nothing explicitly saying that you can’t. However, people still choose to group their investment properties. Each series costs money. For your six properties, you can cut the cost down by creating two or three LLCs. And some people have a dozen or more properties. Managing that many LLCs can quickly become a financial and logistical burden

Piercing The Corporate Veil

You lose your ability to silo when you commingle funds. Money from LLC 1, for instance, cannot be used for properties contained in LLC 2. This is referred to as commingling funds. Should you choose to create LLCs for 15 different investment properties, you are responsible for ensuring the money generated from each one is not used towards others. 

When you commingle funds, you expose more of your investments to risk and liability—also known as piercing the corporate veil.

Jayaraman Law

Don’t expose your real estate investments to undue risk. If you have further legal questions regarding your properties or matters involving real estate litigation, contact Jayaraman Law to schedule a free 15-minute consultation. Let us develop a solution that specifically addresses your concerns and legal needs. 

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