Why do savvy commercial landlords create separate LLCs?

| Jan 25, 2021 | business formation | 0 comments

If you are in the commercial real estate business, you likely have a steady flow of income from every property you lease. Still, owning commercial real estate is not without risk. If a tenant or someone else sues you after an incident at one property, you do not want to jeopardize either your other properties or your personal assets.

Savvy commercial landlords often create separate limited liability companies for each property they own. This approach protects your wealth by limiting the assets a plaintiff may go after in litigation. Consequently, if you own more than one property, you may want to invest some time and money into forming separate LLCs.

How much equity can you afford to lose?

You probably know exactly how much equity you have in each of your commercial properties. You may also understand when each property stands to become profitable. When deciding whether to form separate LLCs, you should consider how much equity you can afford to lose.

A single LLC probably protects your personal wealth. Multiple LLCs, though, may confine your potential loss to each individual property. If you think of establishing individual LLCs as buying peace of mind, you may factor LLC setup costs into your budget. This approach is akin to buying insurance for each property you own.

Do you want to keep good records?

There is also a paperwork advantage to creating multiple LLCs for your commercial rentals. If you do so, you can easily and logically segregate records, receipts, investments and tax liabilities. This approach allows you to keep close tabs on each of your commercial rentals.

Ultimately, because making a profit is the primary purpose of investing in commercial rentals, maintaining separate records through independent LLCs may simply be smart business.