I'm often asked if real estate investors need to create a separate LLC (Limited Liability Company) for each investment property they own, or if one LLC can cover them all.
My answer is typically yes — create an LLC for each property. In fact, many investors and builders name each LLC after the address of the property, i.e. “123 Main Street, LLC.” This practice will give you the greatest amount of liability protection for your investments.
Let's back up a bit and remind ourselves why an LLC is so important in the first place. With any property, there are inherent liabilities — from a broken balcony railing to old electrical wiring or mold. The LLC forms a wall that shields individual owners from personal liability. If sued by a tenant or guest, the defendant is the LLC, not you. And the judgment can be collected only from the LLC's assets, and not from your own personal assets.
Now getting back to the case of multiple properties. For example, let's say you purchased a few rental properties and deeded them both to your LLC (named My Properties, LLC). An unfortunate incident occurred at one of the properties and your tenant was awarded a large settlement. In this case, the judgment can be collected from any of the assets owned by My Properties, LLC — this includes both the property where the accident occurred, as well as your other rental properties included in the LLC.
By setting up distinct LLCs for each property, you can protect each investment on its own. If Property A is sued, only those assets belonging to LLC A are affected. Your own personal assets are shielded, as well as those from Property B, Property C, etc.
While setting up and maintaining multiple LLCs may seem like a hassle, taking that little extra time upfront will help you make the most of your investments and avoid any legal pitfalls in years to come.