One LLC or Two

by Lisa
(Plano, TX)

I am a real estate broker and am planning to form an LLC to start my real estate company. My husband and I also invest in real estate and would like to protect our properties in an LLC.

Can both of these operations be performed under the same LLC by just having two different DBA names?

Or do we need to form a separate LLC for our rental properties? My husband isn't an agent or broker and doesn't plan to participate in the real estate brokerage.

Thanks

Answer

You can structure your business operations either way you suggested. That is, you can run both your real estate brokerage and own property in the same LLC.

However, I suggest you consider separating the two businesses into two separate LLCs.

Real estate--whether commercial or residential--is fraught with exposure to liability. In particular, environmental liability.

The environmental laws in the US are very strict, and as an owner, you are strictly liable for pollution found on your land, whether it is your fault or not.

Example: We had a client who owned land outside a major city in Texas. The city had a landfill nearby, and there was concern that substances from the landfill had migrated to our client's land. Even though it was the city's fault, the TCEQ was going to hold my client responsible for potentially millions of dollars in cleanup. It took hundreds of thousands of dollars in legal and expert fees, and more than a decade, to work out an acceptable settlement.

I know many real estate attorneys who say that it is insane to hold any real estate in your own name (other than your primary residence)--and that it's only slightly less insane to have your operating business hold your real estate.

Therefore, I would keep real property separated from your operating businesses, so that a potential environmental liability on a property you own doesn't jeopardize your brokerage.

This protection works in the other direction as well--if your brokerage is sued (say, a fraud claim by a disgruntled buyer whose house depreciates in value)--your real estate will not be subject to attachment because it is owned by a separate company from the brokerage.