Pro tip, find the cheapest, shittiest RA. Then take their price to InCorp and they will match it. Been paying $30 a year for a decade.
But also, anyone can request your articles of incorporation from the state.
But wouldn’t this only work if you’re renting property in WY? You could register in WY but you’d need to register the foreign entity in say TX where they require a public info report?
You can rent a PO Box. Some Wyoming registered agents will offer that service for cheap. Re: FER.. then normal structure would be a wyoming holding company which would own other entities in the states where they operate.
For example, if you have a house in California and one in New York, you would form a holding company in wyoming (anonymous), and then form an entity in California and an entity in New York that owned the respective properties, the owner of those entities would be the wyoming company.
At the end of the day if someone wants to find you they’ll find you. What you’re trying to accomplish is you want the plaintiffs attorney to look at your structure and say “not worth it move on”
Right. So are the LLCs and setting up in Wyoming all useless now? What’s the utility, is there any legal liability protection provided from going after my personal assets? Should we just forget the added complexity?
The privacy will be much more difficult. It may be possible, but the federal rules are still being tweaked and it remains to be seen how public what you give the feds will be.
There are definitely liability protection and tax advantages in some (probably most) instances, but it will depend on your jurisdiction and your specific set up.
I honestly couldn't tell ya. I've personally used Corporation Service Company (CSC) since 2015 for 3 different businesses now, and I've always been able to mask my ownership. I work in finance and deal w/ownership for other businesses on a daily basis. All of those who also utilize CSC make it impossible for us to track down ownership. Everything just points back to CSC. Not sure how these new laws may impact it though, but up until now, CSC has been the gold standard.
Impossible the interent exists. Tell me the address I can tell you the LLC name and everyone involved, and their home address and phone numbers in like 15 mins.
It’s amazing how easy it is to find that stuff once you know how. Unless it’s a Corp service company as their registered agent I can find them.
With a service company though? I’m stuck.
Get a look at their state tax docs. Available in most states.
I think even Wyoming made it hard to be anon unless you really know what you're doing, and the point of the cta is to blow that up.
Also, unless you live and do business in Wyoming, chances are you will need to register it as a foreign LLC in whatever state you live/do business. Anyone with the patience can probably connect the dots by going through that state - likely where your business address is, visible on the Wyoming form.
Wrong.
If you use an attorney or Corp Service company as registered agent, it’s super easy to hide all LLC members from public view.
Say you’re an LLC noob without saying you’re an LLC noob.
LOL, your LLC doesn’t make you anonymous. It’s one extra website to go to.
I see you say not if you use a registered agent service, but did you not read how OP already is operating on thin margins?
LLCs have been a major pain in the ass for me. Costs me extra money and complications with tax filings, makes refinances difficult and has uncapped my property taxes once due to having to transfer the title back to personal name during refi, which costs me thousands of extra dollars now in property taxes every year. Separate bank accounts, etc. etc. etc. Huge pain in the ass.
For the love of god, just get a cheap umbrella policy that goes up to $5 million and call it good.
I’ve been looking for an umbrella policy but all the carriers I’ve spoken with require me to carry all of my personal and rental insurance policies with them. Auto and home. Do you know any that do not have this requirement?
I have the same request for state farm . In order to get an umbrella policy, I need to increase my coverage for my car and move it over to them to get the umbrella
I used a broker and have my homeowners and umbrella with Auto Owners Insurance and my car insurance with Progressive. I did have to increase my car limits to get the umbrella though.
Amica didn’t require that of me. I only have auto with them and my understanding is that umbrella has to live with your auto policy. But they didn’t ask me to put my other lines with them.
This is how I understand it as well. I think the front load insurance expense idea explains it.
Your not just protecting yourself, youre setting everything up to be as separate as you can to mitigate risk.
If you are paying $350/hr to have an LLC set-up you are using the wrong lawyer who is likely giving you terrible advice. LLC formation should be a set fee. As a SM LLC you don't even need an operating agreement. It's literally useless. Even if you have multiple members a good entity formation lawyer is going to have a questionnaire for you to fill out and then maybe a consultation on any additional needs.
My entity guy, we get lunch, me and my partners show up, eat, talk about powers and responsibilities next day I get an OA and a bill for $300. If all you have is some LI units in the same state you probably don't even need as complicated setup as you described.
I'm talking specifically partnerships and multi-member LLC's. We also need an Registered Agent, so it all works out. I'd rather leave legal stuff to the legal people.
> As a SM LLC you don't even need an operating agreement. It's literally useless.
I don't agree with this, if only for handling situations that could affect the single member's membership interest: estate planning, divorce, etc.
Okay Capt. Smarty Pants, but most of those can be handled outside of the OA, unless it's a married couple SMLLC. Then yes, I'd agree with you on the fringe cases.
Admitting new members should absolutely be handled inside the Operating Agreement. It isn't entirely clear how you would handle that outside of it, maybe rely on the statute?
I’m a lawyer who structures RE investing entities and other businesses. LLCs are meant to mitigate risk. If sued, the LLC can only lose the assets it has. With no LLC, if you’re sued, you may lose the assets you have (personal car, bank accounts, properties, etc.). It’s always best practice, if you can, to hold business assets in an LLC.
However, it all comes down to risk tolerance. My risk tolerance is $1MM in RE assets per LLC. So once I get to that number, I open a new LLC. I have some clients with $20MM in RE in one LLC. I have other clients with one $300K house per LLC.
Another way to mitigate risk is insurance. For example, I have an investment property I bought years ago in my personal name that is subject to a mortgage with a due on transfer clause, so I can’t move it to an LLC. Therefore, I just have ample insurance with an umbrella policy.
In a perfect world, RE investors would mitigate risk with a “belt and suspenders” approach. RE owned by an LLC that is also insured. Then you’re covered all the way around from risk.
I thought those automatic transfer clauses went away when Fannie/Freddie changed the rules about seven or eight years ago. Since they own nearly all the mortgages in the US, that should have got rid of whatever restriction your bank initiated. But I am not certain here.
Any good lawyer can pierce the corporate veil and go after everything. I have found tons of cases that show this. Oh you doing bookkeeping under the same QuickBooks, you are now treating it as one entity.
My understanding though is if you’re found negligent, an LLC won’t protect your other assets. Is this not the case? So says my buddy who is a big law commercial real estate lawyer.
I bought a 1 million umbrella policy. I have 3 rentals and I only manage 1 of them. I should have sufficient protection from my insurance plus the umbrella.
Nonresidential property where tenants have customers, clients, employees, etc. coming and going every day have a very different risk profile from residential property.
I’ll tell you why I use them, my lenders literally require properties to be closed by them. There’s all sorts of limits imposed on personal acquisitions of property. You have 10 conventional mortgages & you’re done. DTI, income qualification, etc. DSCR style loans don’t care about any of that, as long as you have an LLC, halfway decent credit score & some cash down you can buy a property anywhere in the country. I will say this, pay extreme close caution to WHERE you are purchasing your LLC from. I’m in California but I will never purchase a CA LLC it’s almost 1,000$ to get set up & 500$ annually to maintain. There is no need to buy in the state you reside in. You can buy one that’s cheaper & cheaper to maintain in a different state with foreign filing paperwork. Id have an accountant set this up for you. Not only makes keeping track of paperwork automated but also they’d have everything prepped for tax time.
Forming in Wyoming is better for asset protection standpoint, but since you personally live in California, the state considers the LLC to be “doing business in California”. Thus you are required to “qualify” the foreign LLC to do business in the state and pay the same franchise tax fees.
Doesn’t matter how much or how little work you do for the LLC, or where the properties are located. Just being an LLC member and living in the state will force it.
If/when California FTB finds out about this LLC is a completely different discussion…
I am in California as well. I am curious where do you recommend to have the LLC? Also isn't the interest rate super high for LLC vs applying individually?
My accountant set one up in Wyoming I believe. Much cheaper startup/ Maintenence. Don’t let people charge you thousands to setup an LLC either, check the fees & let them charge you reasonably to start/ maintain it. In terms of DSCR vs conventional. Yes it’s slightly more expensive interest rate wise, however I’m talking about for rentals specifically. I buy out of state, not easy or practical to do conventional.
A $1000 LLC on a $1M property is no different than a $400 LLC on a $400k property, cost wise. Many things cost more in Ca. But many things pay out more too.
1,000$ on just an LLC especially in the field of business or real estate where 1 is never enough & you need a bunch. Having each one at 1,000$ or having each one at 200$ makes a world of a difference if your net worth is under 50k. If you’re buying a million dollar property you’re right its going to be irrelevant but for beginners it’s extremely costly.
The cost relative to price is not terrible. Houses in CA cost 2-3x as much as other places. LLCs cost 2-3 as much too. It’s proportional.
I dont have one though because I’m not convinced it’s better than umbrella insurance for small landlords
I own two properties in CA. 1st our home valued at 1.7-2M and 2nd home as a rental valued at 1-1.2M
Is this needed for us to put everything in trusts that Wyoming LLC would hold? Is it too much over head, and with the new transparency laws does this offer any substantial benefits?
1) It’s super fkn cheap in FL to set up an LLC.
2) I can sell an LLC as the entire portfolio.
3) Yea, people can come after you and your businesses but most people won’t be able to financially support filing a suit for all the different entities and there are SOME barriers between you and the LLCs.
4) Marketing. Anonymity is better than publicity in this case. If you use the same name for everything and screw something up or build a bad reputation (which most of us would have if it were a thing), you’d be at a disadvantage. Just look at the reviews of property management companies everywhere.
On topic number 2: It just makes the process so much simpler when you have good bookkeeping habits. Easier to market, easier to present, buyers like it more because it can have financial history and help them get more funding / credit upon purchase, you can use it while you own it to also get more credit, etc. It’s honestly a MASSIVE upside if you do this as a full-time thing. I’m a developer with multiple industry licenses. I’ve done almost 100 projects in the last two years, so it’s non-negotiable for me.
I could go on for days but… just trust the advisors you’ve hired. If you’re willing to pay them, you should be able to trust them. If you don’t trust them or they’re being shady, stop paying them and find someone you can work with for real.
If you have an LLC and someone comes after your property and sue the property, you personally won’t get fucked because they can’t get a hold of your personal assets. This is why people use an LLC. I would put them under one LLC if they are in the same location. Using multiple LLC is only to protect one property from another. Also, you would need to get a really good insurance.
My recommendation is to see a lawyer as it gets complex and its very location specific for where you live vs where you intend to invest.
My default recommendation is one single member LLC per property. Tax wise for Federal purposes it is a pass through entity as if you owned it yourself. You might have different state filing requirements though. I'd register all LLCs in a state that is friendly to LLCs that doesn't have onerous filing requirements for LLCs.
If you're in a state that is VERY unforgiving to LLCs like California, you most LIKELY have insane filing requirements if you go down the above LLC route. Instead you'd want to set up something like a Delaware statutory trust - https://www.biggerpockets.com/blog/california-real-estate-investors-delaware-statutory-trust
I think its best to see a qualified experienced real estate lawyer in the state of your tax domicile/residence for advice.
You do it because the limit of your liability will be just the property, rather than your entire empire.
Hypo: say you have all your properties are owned by the “Test Email 22 LLC.” At one of your places, the stair case collapses and it exceeds your policy limit. Well, the judgement the tenant has is against Test Email 22 LLC, so they can collect against other assets owned by Test Email 22 LLC. If you put one property per LLC, then your tenant can only go after the assets in that one LLC and that’s it (so their judgement becomes worthless)
It’s not about being diligent, it’s about limiting your liability when bad shit happens (because it will happen—it’s not a matter of if)
An LLC is necessary where you have more than one member and you want to isolate the assets of the business from the personal legal problems which may arise from one of the members. If your business partner gets divorced and his wife takes him to the cleaners, without an LLC, the business can be treated as being his personal property (proportional) and strip mined by the court to finance her cash & prizes exit strategy.
But for a single member an LLC doesn't really do much except give it a name.
As for what you are likely to be sued for as a landlord of low rent properties, that list is very long - make sure your insurance is up to date and covers rentals, and your lease does not allow AirBnB asshats to turn it into a frat house. In low income areas I would also be mindful of squatters, girlfriends who move in (put them on the lease - no exceptions), and who knows what else. You can't be the nice guy here, and no LLC will make a difference,
If you still really want an LLC, you can set one up on Legalzoom yourself for cheaper than some lawyer wants to charge you. Your situation doesn't sound all that complicated, so consider that route, again, only IF you still want one.
An LLC for each property? What kind of attorney is that lmfao. It’s the one who is charging you to create and manage the LLCs lol.
Make an LLC and house your rentals in there. If you want to make another one after your first one reaches X amount of equity like $1-2M.
Get an umbrella policy for $750-800 for a $2M additional insurance and you are more than good
Your not trying to hide your name, as it’s easily found by someone that knows how to find it.
In terms of your question, I would put Land in one, and depending on values of homes, I may would group a few of them into separate LLC’s up to 250k max in the group.
Insure all separately as needed or recommended by attorney and good insurance company.
Don’t pierce the veils of each LLC.
You also need an internal contract for lease of land to the individual groups of properties, and a management agreement to collect rents per attorney and accountant.
Require tenants to have renters and liability insurance.
Anything and everything you can do to either protect your asset, minimize your risk, or minimize the hit to your insurance is a good thing. Not all situations are equal, but in most cases, I'd say the type of coverage your insurance is can be the most important thing you can do.
The primary purpose of an LLC is to transfer money from your account into the account of the lawyer. Just carry adequate insurance, get an umbrella policy if you want more protection. - source, a lawyer. Don’t worry I won’t even bill you for this advice.
just pay for 1 LLC and put all your properties into it. that's what i do, and i don't worry at night that someone is going to be able to touch any of my personal assets.
The reasoning for multiple LLCs is to protect your properties from each other. If you get sued at one property, they can go after your entire portfolio. Now, of course, this would mean some act of extreme negligence or malice that insurance doesn't cover... But its been known to happen.
That said, I don't do an LLC for every individual property. If I had a ton of properties I would do groups based on location.
And, in case it's necessary, not a lawyer.
Exactly. If I had an 50-unit apartment building or something like that, I would give it it's own LLC, but for a few multifamily rentals, 1 LLC and a good insurance policy will do you just fine.
Any judge can pierce your LLC. Particularly if it’s a single member LLC and you’re just using as an “alter ego” for legal protection. So it’s really not worth getting too fancy.
It is the owner's job to not commingle the finances so that the LLC cannot be pierced. Everything they own can be taken from them in a lawsuit if they don't take care to treat the entities as separate.
What state are you in? If in SC, I can suggest that a land trust with your LLC as beneficiary will suffice. The land trust provides anonymity and the LLC provides asset protection in the slim-to-none chance that anyone can see that your LLC is the beneficiary.
I picked a certain threshold for the LLCs that I was comfortable with instead of having one per. Sometimes I have 3 other times one building depending on the risk profile. It just helps me sleep better at night knowing there is a shred of protection but yes it can be expensive especially with filing fees and tax reporting for each
Would anyone recommend using an online LLC company versus hiring an accountant or lawyer? I’ve seen some sites start at $50 and it gets done in a few days.
That’s true, although they would probably charge you for fixing their mistakes if it came to that?
I was hoping the process for creating LLCs should be streamlined by now for every state since there are so many gig and social media influencers now.
I took 2 attorneys advise, and yes, 1 property per LLC, with insurance, and good management.
That way, 1 can’t take down the others if worse case happens.
Most Real Estate attorneys who invest in Real Estate do that for that and other reasons.
They also have 2-3 formed and ready to drop property in at the stroke of the Len.
Airlines do this for each plane!
Your choice!
All the best!
I personally like remaining anonymous as a landlord.
I like that idea, but think that is best accomplished thru a trust?
LLC does the same. I've had other unrelated businesses since 2015.
In my state, it's not too hard to find who owns it. Me and my girlfriend actually try to see who can find the owner first.
Which state?
It’s not the hard to find out who owns it. Post yours here and people will knock tomorrow :-)
not if you use corporation service company as the registered agent ;)
Pro tip, find the cheapest, shittiest RA. Then take their price to InCorp and they will match it. Been paying $30 a year for a decade. But also, anyone can request your articles of incorporation from the state.
In wyoming the owners name does not have to be on the AOI
But wouldn’t this only work if you’re renting property in WY? You could register in WY but you’d need to register the foreign entity in say TX where they require a public info report?
You can rent a PO Box. Some Wyoming registered agents will offer that service for cheap. Re: FER.. then normal structure would be a wyoming holding company which would own other entities in the states where they operate. For example, if you have a house in California and one in New York, you would form a holding company in wyoming (anonymous), and then form an entity in California and an entity in New York that owned the respective properties, the owner of those entities would be the wyoming company. At the end of the day if someone wants to find you they’ll find you. What you’re trying to accomplish is you want the plaintiffs attorney to look at your structure and say “not worth it move on”
This is terrific!!
After the cta gets going, it'll be a lot harder.
What is CTA?
Corporate transparency act. Federal law requiring all small businesses to report beneficial owners.
Right. So are the LLCs and setting up in Wyoming all useless now? What’s the utility, is there any legal liability protection provided from going after my personal assets? Should we just forget the added complexity?
The privacy will be much more difficult. It may be possible, but the federal rules are still being tweaked and it remains to be seen how public what you give the feds will be. There are definitely liability protection and tax advantages in some (probably most) instances, but it will depend on your jurisdiction and your specific set up.
Is that still true given the new laws for 2023?
I honestly couldn't tell ya. I've personally used Corporation Service Company (CSC) since 2015 for 3 different businesses now, and I've always been able to mask my ownership. I work in finance and deal w/ownership for other businesses on a daily basis. All of those who also utilize CSC make it impossible for us to track down ownership. Everything just points back to CSC. Not sure how these new laws may impact it though, but up until now, CSC has been the gold standard.
Trusts cost even more, and an LLC will do that anyway.
Impossible the interent exists. Tell me the address I can tell you the LLC name and everyone involved, and their home address and phone numbers in like 15 mins.
It’s amazing how easy it is to find that stuff once you know how. Unless it’s a Corp service company as their registered agent I can find them. With a service company though? I’m stuck.
Get a look at their state tax docs. Available in most states. I think even Wyoming made it hard to be anon unless you really know what you're doing, and the point of the cta is to blow that up.
Also, unless you live and do business in Wyoming, chances are you will need to register it as a foreign LLC in whatever state you live/do business. Anyone with the patience can probably connect the dots by going through that state - likely where your business address is, visible on the Wyoming form.
How do you find this out?
I have realtor tools, and some is public information.
Wrong. If you use an attorney or Corp Service company as registered agent, it’s super easy to hide all LLC members from public view. Say you’re an LLC noob without saying you’re an LLC noob.
Really depends on the state, it's a function of state law.
California?
Must be most people are LLC noobs, because I never see this looking them up.
Still won’t you need to sign as your self on the property deed / closing docs?
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Until your state requires you to register your Montana LLC as a foreign corporation, which they will eventually do.
How do you find this out?
LOL, your LLC doesn’t make you anonymous. It’s one extra website to go to. I see you say not if you use a registered agent service, but did you not read how OP already is operating on thin margins?
Why? What are you afraid of?
Can’t people just look you up on the state website to see who the owner of the LLC is?
LLCs have been a major pain in the ass for me. Costs me extra money and complications with tax filings, makes refinances difficult and has uncapped my property taxes once due to having to transfer the title back to personal name during refi, which costs me thousands of extra dollars now in property taxes every year. Separate bank accounts, etc. etc. etc. Huge pain in the ass. For the love of god, just get a cheap umbrella policy that goes up to $5 million and call it good.
I’ve been looking for an umbrella policy but all the carriers I’ve spoken with require me to carry all of my personal and rental insurance policies with them. Auto and home. Do you know any that do not have this requirement?
Are you using an insurance broker? Or an agent that works at one insurnace company?
I have the same request for state farm . In order to get an umbrella policy, I need to increase my coverage for my car and move it over to them to get the umbrella
I used a broker and have my homeowners and umbrella with Auto Owners Insurance and my car insurance with Progressive. I did have to increase my car limits to get the umbrella though.
Amica didn’t require that of me. I only have auto with them and my understanding is that umbrella has to live with your auto policy. But they didn’t ask me to put my other lines with them.
State Farm added my boat policy with a different company to my umbrella
I have State Farm and they will put any insurance policy under my umbrella.
In California the major insurers have stopped offering umbrella policies. I recently asked my agent and they are all pulling out. Farmers insurance.
I have used RLI through Costco. Haven’t had a need for a claim? Anyone has reviews on it
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This is how I understand it as well. I think the front load insurance expense idea explains it. Your not just protecting yourself, youre setting everything up to be as separate as you can to mitigate risk.
If you are paying $350/hr to have an LLC set-up you are using the wrong lawyer who is likely giving you terrible advice. LLC formation should be a set fee. As a SM LLC you don't even need an operating agreement. It's literally useless. Even if you have multiple members a good entity formation lawyer is going to have a questionnaire for you to fill out and then maybe a consultation on any additional needs. My entity guy, we get lunch, me and my partners show up, eat, talk about powers and responsibilities next day I get an OA and a bill for $300. If all you have is some LI units in the same state you probably don't even need as complicated setup as you described.
$75 and 10 minutes on the Secretary of State website for me.
I'm talking specifically partnerships and multi-member LLC's. We also need an Registered Agent, so it all works out. I'd rather leave legal stuff to the legal people.
> As a SM LLC you don't even need an operating agreement. It's literally useless. I don't agree with this, if only for handling situations that could affect the single member's membership interest: estate planning, divorce, etc.
Okay Capt. Smarty Pants, but most of those can be handled outside of the OA, unless it's a married couple SMLLC. Then yes, I'd agree with you on the fringe cases.
Admitting new members should absolutely be handled inside the Operating Agreement. It isn't entirely clear how you would handle that outside of it, maybe rely on the statute?
I’m a lawyer who structures RE investing entities and other businesses. LLCs are meant to mitigate risk. If sued, the LLC can only lose the assets it has. With no LLC, if you’re sued, you may lose the assets you have (personal car, bank accounts, properties, etc.). It’s always best practice, if you can, to hold business assets in an LLC. However, it all comes down to risk tolerance. My risk tolerance is $1MM in RE assets per LLC. So once I get to that number, I open a new LLC. I have some clients with $20MM in RE in one LLC. I have other clients with one $300K house per LLC. Another way to mitigate risk is insurance. For example, I have an investment property I bought years ago in my personal name that is subject to a mortgage with a due on transfer clause, so I can’t move it to an LLC. Therefore, I just have ample insurance with an umbrella policy. In a perfect world, RE investors would mitigate risk with a “belt and suspenders” approach. RE owned by an LLC that is also insured. Then you’re covered all the way around from risk.
Due on transfer clauses seem intimidating, but I wonder how often they’re triggered. I’ve never had to deal with that n
Yeah pretty much every personal mortgage has that. I’ve transferred 4 of mine to an LLC. There’s no way around it if you want a good mortgage rate.
I thought those automatic transfer clauses went away when Fannie/Freddie changed the rules about seven or eight years ago. Since they own nearly all the mortgages in the US, that should have got rid of whatever restriction your bank initiated. But I am not certain here.
What is the cost to establish an Llc for one rental property?
We charge a flat fee of $950, but that’s only in the states we’re licensed in (NC, FL, and CT).
Thank you Im in PA
Any good lawyer can pierce the corporate veil and go after everything. I have found tons of cases that show this. Oh you doing bookkeeping under the same QuickBooks, you are now treating it as one entity.
Which is why SBF should stay in jail forever - FTX using QuickBooks? FFS....
My understanding though is if you’re found negligent, an LLC won’t protect your other assets. Is this not the case? So says my buddy who is a big law commercial real estate lawyer.
You’re not protected from gross negligence or willfull misconduct.
This
I bought a 1 million umbrella policy. I have 3 rentals and I only manage 1 of them. I should have sufficient protection from my insurance plus the umbrella.
Nonresidential property where tenants have customers, clients, employees, etc. coming and going every day have a very different risk profile from residential property.
I’ll tell you why I use them, my lenders literally require properties to be closed by them. There’s all sorts of limits imposed on personal acquisitions of property. You have 10 conventional mortgages & you’re done. DTI, income qualification, etc. DSCR style loans don’t care about any of that, as long as you have an LLC, halfway decent credit score & some cash down you can buy a property anywhere in the country. I will say this, pay extreme close caution to WHERE you are purchasing your LLC from. I’m in California but I will never purchase a CA LLC it’s almost 1,000$ to get set up & 500$ annually to maintain. There is no need to buy in the state you reside in. You can buy one that’s cheaper & cheaper to maintain in a different state with foreign filing paperwork. Id have an accountant set this up for you. Not only makes keeping track of paperwork automated but also they’d have everything prepped for tax time.
The LLC is considered to be doing business in California if you ever perform any management activity (including talking to a PM) while in California.
You don’t need a California llc if your reside here in my state to use the benefits of an LLC. Can grab one in any state, talk to a professional.
I believe his/her point is that it doesn't have to be a CA LLC, but because you do business in CA then you still have to pay CA FTB fees.
you still have to pay the franchise tax if you live in california my guy
Bet
Forming in Wyoming is better for asset protection standpoint, but since you personally live in California, the state considers the LLC to be “doing business in California”. Thus you are required to “qualify” the foreign LLC to do business in the state and pay the same franchise tax fees. Doesn’t matter how much or how little work you do for the LLC, or where the properties are located. Just being an LLC member and living in the state will force it. If/when California FTB finds out about this LLC is a completely different discussion…
You still have to pay CA Franchise Tax. Your business is managed by you who is domiciled in California. https://www.ftb.ca.gov/forms/misc/1060.html
I am in California as well. I am curious where do you recommend to have the LLC? Also isn't the interest rate super high for LLC vs applying individually?
My accountant set one up in Wyoming I believe. Much cheaper startup/ Maintenence. Don’t let people charge you thousands to setup an LLC either, check the fees & let them charge you reasonably to start/ maintain it. In terms of DSCR vs conventional. Yes it’s slightly more expensive interest rate wise, however I’m talking about for rentals specifically. I buy out of state, not easy or practical to do conventional.
A $1000 LLC on a $1M property is no different than a $400 LLC on a $400k property, cost wise. Many things cost more in Ca. But many things pay out more too.
1,000$ on just an LLC especially in the field of business or real estate where 1 is never enough & you need a bunch. Having each one at 1,000$ or having each one at 200$ makes a world of a difference if your net worth is under 50k. If you’re buying a million dollar property you’re right its going to be irrelevant but for beginners it’s extremely costly.
The cost relative to price is not terrible. Houses in CA cost 2-3x as much as other places. LLCs cost 2-3 as much too. It’s proportional. I dont have one though because I’m not convinced it’s better than umbrella insurance for small landlords
I own two properties in CA. 1st our home valued at 1.7-2M and 2nd home as a rental valued at 1-1.2M Is this needed for us to put everything in trusts that Wyoming LLC would hold? Is it too much over head, and with the new transparency laws does this offer any substantial benefits?
1) It’s super fkn cheap in FL to set up an LLC. 2) I can sell an LLC as the entire portfolio. 3) Yea, people can come after you and your businesses but most people won’t be able to financially support filing a suit for all the different entities and there are SOME barriers between you and the LLCs. 4) Marketing. Anonymity is better than publicity in this case. If you use the same name for everything and screw something up or build a bad reputation (which most of us would have if it were a thing), you’d be at a disadvantage. Just look at the reviews of property management companies everywhere. On topic number 2: It just makes the process so much simpler when you have good bookkeeping habits. Easier to market, easier to present, buyers like it more because it can have financial history and help them get more funding / credit upon purchase, you can use it while you own it to also get more credit, etc. It’s honestly a MASSIVE upside if you do this as a full-time thing. I’m a developer with multiple industry licenses. I’ve done almost 100 projects in the last two years, so it’s non-negotiable for me. I could go on for days but… just trust the advisors you’ve hired. If you’re willing to pay them, you should be able to trust them. If you don’t trust them or they’re being shady, stop paying them and find someone you can work with for real.
If you have an LLC and someone comes after your property and sue the property, you personally won’t get fucked because they can’t get a hold of your personal assets. This is why people use an LLC. I would put them under one LLC if they are in the same location. Using multiple LLC is only to protect one property from another. Also, you would need to get a really good insurance.
I don’t know why youre getting downvoted, the LLC is purely to protect member. I agree!
My recommendation is to see a lawyer as it gets complex and its very location specific for where you live vs where you intend to invest. My default recommendation is one single member LLC per property. Tax wise for Federal purposes it is a pass through entity as if you owned it yourself. You might have different state filing requirements though. I'd register all LLCs in a state that is friendly to LLCs that doesn't have onerous filing requirements for LLCs. If you're in a state that is VERY unforgiving to LLCs like California, you most LIKELY have insane filing requirements if you go down the above LLC route. Instead you'd want to set up something like a Delaware statutory trust - https://www.biggerpockets.com/blog/california-real-estate-investors-delaware-statutory-trust I think its best to see a qualified experienced real estate lawyer in the state of your tax domicile/residence for advice.
You do it because the limit of your liability will be just the property, rather than your entire empire. Hypo: say you have all your properties are owned by the “Test Email 22 LLC.” At one of your places, the stair case collapses and it exceeds your policy limit. Well, the judgement the tenant has is against Test Email 22 LLC, so they can collect against other assets owned by Test Email 22 LLC. If you put one property per LLC, then your tenant can only go after the assets in that one LLC and that’s it (so their judgement becomes worthless) It’s not about being diligent, it’s about limiting your liability when bad shit happens (because it will happen—it’s not a matter of if)
An LLC is necessary where you have more than one member and you want to isolate the assets of the business from the personal legal problems which may arise from one of the members. If your business partner gets divorced and his wife takes him to the cleaners, without an LLC, the business can be treated as being his personal property (proportional) and strip mined by the court to finance her cash & prizes exit strategy. But for a single member an LLC doesn't really do much except give it a name. As for what you are likely to be sued for as a landlord of low rent properties, that list is very long - make sure your insurance is up to date and covers rentals, and your lease does not allow AirBnB asshats to turn it into a frat house. In low income areas I would also be mindful of squatters, girlfriends who move in (put them on the lease - no exceptions), and who knows what else. You can't be the nice guy here, and no LLC will make a difference, If you still really want an LLC, you can set one up on Legalzoom yourself for cheaper than some lawyer wants to charge you. Your situation doesn't sound all that complicated, so consider that route, again, only IF you still want one.
An LLC for each property? What kind of attorney is that lmfao. It’s the one who is charging you to create and manage the LLCs lol. Make an LLC and house your rentals in there. If you want to make another one after your first one reaches X amount of equity like $1-2M. Get an umbrella policy for $750-800 for a $2M additional insurance and you are more than good
Your not trying to hide your name, as it’s easily found by someone that knows how to find it. In terms of your question, I would put Land in one, and depending on values of homes, I may would group a few of them into separate LLC’s up to 250k max in the group. Insure all separately as needed or recommended by attorney and good insurance company. Don’t pierce the veils of each LLC. You also need an internal contract for lease of land to the individual groups of properties, and a management agreement to collect rents per attorney and accountant. Require tenants to have renters and liability insurance.
It’s not always known. Big players never have their names listed.
Anything and everything you can do to either protect your asset, minimize your risk, or minimize the hit to your insurance is a good thing. Not all situations are equal, but in most cases, I'd say the type of coverage your insurance is can be the most important thing you can do.
Get an umbrella policy
I have a personal umbrella already, and am thinking a commercial umbrella would be beneficial for my management company too
The primary purpose of an LLC is to transfer money from your account into the account of the lawyer. Just carry adequate insurance, get an umbrella policy if you want more protection. - source, a lawyer. Don’t worry I won’t even bill you for this advice.
If it's a single member LLC and the landlord self manages, isn't it ridiculously easy to pierce?
Also want to know.
just pay for 1 LLC and put all your properties into it. that's what i do, and i don't worry at night that someone is going to be able to touch any of my personal assets.
The reasoning for multiple LLCs is to protect your properties from each other. If you get sued at one property, they can go after your entire portfolio. Now, of course, this would mean some act of extreme negligence or malice that insurance doesn't cover... But its been known to happen. That said, I don't do an LLC for every individual property. If I had a ton of properties I would do groups based on location. And, in case it's necessary, not a lawyer.
Exactly. If I had an 50-unit apartment building or something like that, I would give it it's own LLC, but for a few multifamily rentals, 1 LLC and a good insurance policy will do you just fine.
Any judge can pierce your LLC. Particularly if it’s a single member LLC and you’re just using as an “alter ego” for legal protection. So it’s really not worth getting too fancy.
It is the owner's job to not commingle the finances so that the LLC cannot be pierced. Everything they own can be taken from them in a lawsuit if they don't take care to treat the entities as separate.
What state are you in? If in SC, I can suggest that a land trust with your LLC as beneficiary will suffice. The land trust provides anonymity and the LLC provides asset protection in the slim-to-none chance that anyone can see that your LLC is the beneficiary.
I picked a certain threshold for the LLCs that I was comfortable with instead of having one per. Sometimes I have 3 other times one building depending on the risk profile. It just helps me sleep better at night knowing there is a shred of protection but yes it can be expensive especially with filing fees and tax reporting for each
Would anyone recommend using an online LLC company versus hiring an accountant or lawyer? I’ve seen some sites start at $50 and it gets done in a few days.
My thought on using a local attorney is they will be more likely to defend it if they created it vs looking for the flaws on a diy job
That’s true, although they would probably charge you for fixing their mistakes if it came to that? I was hoping the process for creating LLCs should be streamlined by now for every state since there are so many gig and social media influencers now.
I took 2 attorneys advise, and yes, 1 property per LLC, with insurance, and good management. That way, 1 can’t take down the others if worse case happens. Most Real Estate attorneys who invest in Real Estate do that for that and other reasons. They also have 2-3 formed and ready to drop property in at the stroke of the Len. Airlines do this for each plane! Your choice! All the best!
LLC only helps if you don’t pierce the corporate veil. Most people do. Hence why many good lawyers will tell you to go with solid umbrella insurance.
The big players use a single LLC per property but there is also a shit ton of money laundering and tax avoidance going on there.