An LLC, or limited liability corporation, is one way to keep your rental business and your personal business separate.
Assuming you do want to move your homes into LLCs, what is the optimal number of homes that should be in each one? Should you put all of them into one LLC or should you break them up, and if so, how many homes should be in each LLC?
The right answer is between you and your legal professional. But what we can do is describe what we are seeing on the market.
What are other people doing?
We looked at the ownership breakdown in Dallas-Fort Worth, which contains nearly 2 million single-family homes. Approximately 20.3% of homes are non-owner occupied. For the most part, non-owner occupied homes are investor-owned, so for simplicity, we will simply refer to them as investor-owned. We calculated this by looking at homes where the property address is different from the owner’s address.
About 17% of investor-owned homes are owned in an LLC (with approximately another 3% are held in limited partnerships and 3% in corporations).
The number of homes owned in an individual LLC range from as few as 1 to as many as 608. However, large numbers above about 5 are extremely rare.
In fact, the median number of homes in an LLC is just one – as simple as that. The most common (or “mode”) number of homes held in an LLC is also one. This doesn’t vary much by neighborhood either, and holds true for nearly all of the area’s ZIP codes. About 7% of ZIP codes are exceptions, where the median total is merely “2”.
A few LLCs are slightly larger. About 10% of LLCs in the area contain four homes or more, and 1% of LLCs contain 27 homes or more.
This suggests that most investors keep the number of homes in an LLC quite small.
Breaking up your portfolio
Not to be confused with the World Series, a Series LLC is a newer structure that allow multiple LLCs to be nested within a “master” LLC.
This structure makes it a little simpler to have one property per LLC.
A few states, including Texas, offer this option. Properties held in one instance of the series are effectively separated from properties in other parts of the series. This makes it easier to break up your portfolio and have have one house per LLC, while saving time on paperwork and reporting fees.
We calculated around 1.2% of investor-owned homes are held in a Series LLC, based on the word “series” appearing in the name. In the overwhelming majority of cases, there is only one property in each instance of the series.
Disclaimer: While every attempt has been made to provide accurate and up-to-date information, this article should not be taken as legal or tax advice. Please consult a qualified legal or tax advisor to discuss your specific situation.
