Solo 401k Real Estate LLC – Should I set up a separate LLC for each property? 3 Factors to Consider

QUESTION:

I am looking to invest about half of my Solo 401k in equities via my Solo 401k brokerage account at Fidelity and the rest in real estate investment properties.  For the real estate investments, I will invest my Solo 401k funds in an LLC.  Should I set up a separate LLC for each property?

ANSWER:

Investing in real estate is one of the most popular investments for our customers.  While many of our customers choose to invest their Solo 401k funds directly in real estate (i.e. the title to the property is held in the name of the Solo 401k), some also choose to invest via single-member LLC where the member is their Solo 401k.  For this latter group, some choose to hold all real estate investments ina single LLC while other clients elect to hold each investment property in a separate LLC owned by their Solo 401k.  Below are 3 factors to consider in deciding whether to hold all investments in  a single LLC or multiple entities:

Solo 401k LLC – Liability Protection

  • Holding each property in a separate LLC will provide a degree of liability protection for each property
  • Holding multiple investment properties in a single LLC could expose all the properties to liability that arises on one property

Solo 401k LLC – Financing

  • If the LLC obtains financing to acquire real estate (non-recourse loan), the lender may require that LLC only holds a single property.

Solo 401k LLC – Investing in different states

  • If your Solo 401k will invest in real estate located in different states, the LLC may need to be registered in each state.
  • Rather than registering a single LLC in different states (e.g. as a foreign LLC in states other than its home state), some clients prefer to register a separate LLC in each state where they hold property.

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About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>

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