This is exactly why you never want your CPA deciding,
eh, whether you should set up an LLC in the first place
or B how many properties or assets you should be setting up in each LLC.
You see, most people think that CPA stands for Certified Public Accountant.
No, no, no, no.
It actually stands for Can't Protect Assets.
I'm kidding. Of course not. Really.
Some of my best friends are actually CPAs,
and we love all of our CPA friends, especially our fellow Ken McEvoy.
Dot com tax advisor Eric Freeman.
But seriously,
this is one of our subscribers that I currently have two single family
home rentals. One is in my LLC.
I hope to purchase another property by the end of the year.
My accountant says if you're a good landlord,
you don't need an LLC for each property and it's for your bank account, etc.
But my legal advisor says the opposite.
Thoughts on whether to get an LLC and accounts for each property.
Great question.
So here's a schematic of what it looks like.
He's got one property that's owned by an LLC that is then owned by him.
He's got an other property that he owned personally
and then he's got a future property that he's intending to buy.
Now, on this particular property, if something were to happen in that property,
then the LLC is going to be legally responsible, not the individual.
So only what's inside this LLC is actually exposed,
meaning the equity in this House
for sure is exposed and any bank account or anything else that the LLC owns.
That's what's fair game to a creditor.
They cannot reach any of the personal assets
of the individual, including the other property.
So that's why having an AC is great.
The other property that he owns directly has numerous issues.
Number one,
if something were to happen in this property, the responsible party
is the individual and there is unlimited exposure, meaning
even if this property only has $10,000 or $20,000 in equity,
if there's a judgment for a million or 2 million,
that judgment goes against the individual.
It doesn't matter that the property only has ten, 20, $30,000.
And so there's going to be a judgment for that larger amount.
And remember,
you can attach anything that this person owns
so they can go after your other properties,
your other assets, your their bank account,
and more importantly, any future earnings that you will have.
So if you have a W-2 job, you have income.
I can go after that income this year.
Next year, ten years from now.
So that's the main reason
why we don't want to have you individually own the property directly.
So the question becomes, do
I want to put each of these properties into their own LLC
or do I want to put these properties inside the already existing LLC,
which I think is really the question that the subscriber was asking.
I can tell you one thing, though, whether you're a good landlord or not,
has no bearing as to which structure you should go with.
Okay, You can be the best landlord in the world,
but this is the most litigious country in the world.
And no matter how good of a landlord you are,
there's a really good chance you are going to get sued
one day in the future, whether it's your fault or not.
In a perfect world, from an asset protection standpoint,
I would love to see every single property in their own LLC
in each property should have their own iron employer identification number
for you to go open a bank account.
And each of these LLC should have their own bank account.
What you're trying to do is establish that these are independent entities
separate from yourself and a really easy way to do that
is to have separate ions and separate badge accounts.
I do understand that from a financial standpoint, this may not make sense.
Obviously, it costs money to go set up the LLC to get a registered agent
to maintain these losses on an annual and ongoing basis.
So at some point it may be costing you $1,000,
$2,000, $3,000 to maintain this structure.
And if your properties are not cash flowing that much, I understand that
from a financial situation it may not make total sense.
One of the options you do have
is to put these two property is into the existing LLC.
You have in the future property into the existing LLC you have.
But you just need to understand is that if something were to happen
to one of your properties, remember we said earlier that LLC is responsible
and anything inside that I'll see is fair game.
And in this new scenario we're going to have all three properties
in that same LLC,
which means that all three properties are going to be exposed to each other.
Now, that may not be the end of the world.
That's really an individual decision.
It really depends more on how much equity is in each property,
but just understand that if everything is in one LLC,
if something happens to property number one, a slip and fall
boiler explodes, asbestos, you name it, then there's a judgment against the LLC.
They will be able to go after the equity of your second, third and fourth property.