My brother (CA resident) and I (NY resident) own a rental property (located in NY) transferred to us by our parents. It is currently being rented. We have additional properties in the process of being transferred to us which may in the future be rented out as well. We are interested in making a business of it. Would you recommend starting a real estate holding company LLC?
First of all, its a common practice to place each individual property into its own LLC. Such LLC would need to be registered in the state where the property is located.
So in your case since this property is located in NY you should form a NY LLC and transfer the ownership of the property from you and your brother to this LLC (while you both would own the LLC itself). This is done to limit the liability of owning and renting this property to property itself and not to your personal assets.
If you will add more properties to your portfolio then you could repeat this with each property (form an LLC in the state where the property is located, transfer the property title to this LLC, and own the LLC together with your brother). Alternatively, you could create a holding LLC, owned by you and your brother, that in turn would own all the LLCs that you would form to own each individual property.
Either way would work in terms of liability protection, and using a holding company might prove to be a bit more convenient (yet it would add another entity to maintain, which might or might not be a bad thing). Think about it this way – if you choose to use a holding company owned by you and your brother you would have one business, holding multiple properties. If you choose to go with multiple LLCs owned each by you and your brother directly you would in essence have “multiple” businesses, holding each just one property.
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