LLC Creation Advice

[Andrew Burrell]

Hey BP community,

I am an investor with two single family properties in Northwest Arkansas. I currently have these homes in my personal name, but have been debating whether or not to create an LLC for these rentals.

I am in no rush to do this, and I have heard the argument both ways on leaving them in my personal name vs forming an entity, so I am looking for any advice the community may have. I do look to grow beyond two properties, but not necessarily at a rapid pace.

Finally, if I were to do this, what are the proper steps in forming an LLC and then transferring them into that entity? I've seen different things out there regarding best practices.

I would appreciate any advice on this.
Thank you!

[Nathan Gesner]

Quote from @Andrew Burrell:

You can usually set up an LLC yourself or use an online company that is inexpensive. I created multiple LLCs using a registered agent company for $200 each. That includes all the required state filings, Tax ID, documents for opening a bank account, etc. Most importantly, the registered agent is listed on the documents, so my personal name doesn't appear anywhere and I can't be traced.

I registered the LLCs and then filed a Quit Claim Deed to transfer the property from my personal name to the LLC. My wife went to the county, asked for instructions, and then typed them up herself. It was simple and cheap.

However, it still takes time and money to set up and maintain the LLCs. You may be better off just paying for an umbrella insurance policy each year. It depends on who you are, what you are trying to accomplish, and how litigious your market is.

[Stuart Udis]

@Nathan Gesner You say you can't be traced but do you have mortgages on your properties? Can't someone review any recorded instruments associated with your properties and see who signed on behalf of the LLC? Can't they also review the deed in which you transfer title from your name to the LLC for a nominal amount which similarly is a recorded instrument and is a telltale sign the owner has changed in title only? Also, if a claim were to be filed won't the identity of the member(s) be determined through the discovery process? I've never heard of an instance where a registered agent sits in for a deposition or answers interrogatories…. I believe it's important to clarify your comment. Is it more difficult to trace you as the owner? Perhaps. But yes, you can still be traced.

Also, how does this anonymity strategy prevent a claim from being filed in the event a liability event were to exist? It doesn't. I believe it's important to address these two items separately: First, there are still ways to find out the identify of the member(s) behind the LLC and secondly these anonymity strategies do not actually shield liability because claims are still brought regardless of whether the members of the LLC are identifiable. It's important to clarify these two items because there are people who pursue these strategies with unreasonable expectations of anonymity and liability protection.

I do however agree with you that there’s no one size fits all approach and depending on the type of business that’s operated and location, the correct strategy may vary. 

[David C.]

@Stuart Udis

Any reason a title holding trust (with trustee other than oneself) and LLC as beneficiary wouldn't give anonymity and limited liability? Of course, if title is held in your personal name before transfer to trust there is a trail, and similarly with the mortgage. But if property is originally purchased in trust, and mortgage, if any, signed by trustee, there is anonymity and limited liability as far as I can tell.

If a claim is filed all this will eventually come out. And insurance is still required.

I’m not suggesting this as the go-to strategy, simply trying to better understand. I happen to agree with most of the folks on this board that this kind of structure is overkill.

Also, understand there can be issues getting a mortgage with an institutional lender and potential problems getting title insurance.

[Nathan Gesner]

Quote from @Stuart Udis:

I probably post several times a week about LLCs. My position has always been that they are unnecessary for most investors and don't provide as much protection as people think. In this particular thread, I only answered his "how" question.

[Stuart Udis]

@Nathan Gesner I understand and agree with the majority of what you wrote. However anonymity for some reason is one of the most obsessed over subjects in these forums and also what I believe to be the most misunderstood. As a result money spent on trying to achieve anonymity is probably the largest unnecessary expense new investors incur and when they hear someone like yourself with 26,000+ posts and impressive credentials share that you can't be traced, that's something forum readers will latch onto. I was merely clarifying that particular statement. 

[Nathan Gesner]

Quote from @Stuart Udis:

Below is a cut/paste response from me in 2023. I have shared this hundreds of times over the last 5+ years. I am usually pretty clear that anonymity is not possible. 

https://www.biggerpockets.com/forums/12/topics/1098937-wyomi...

[Stuart Udis]

@Nathan Gesner Not trying to pick a fight here…you’ve posted 26,000 times I don’t care to go back through your posts to find one in 2023 that’s consistent with what we both agree on….that 100% anonymity is not achievable.  I never got the impression your remarks in this thread were ever intended to mislead or convince real estate investors they can reach 100% anonymity but you know as well as me that many who review these forums interpret everything they read as indisputable fact and I was merely clarifying that one section of your post which could trip some folks up. 

[Nathan Gesner]

Quote from @Stuart Udis:

That post is just one of hundreds, shared as an example. I spend an inordinate amount of time trying to fight against the tide of YouTube gurus that encourage brand-new investors to set up an LLC before even buying their first home. That response is a cut/paste because I got tired of writing fresh responses multiple times every week.

I appreciate you pointing out the error and helping me beat the horse to death. If you come across my cut/paste LLC response (as shared in the link above) and have advice on how I can improve it, I'm all ears.

[Andrew Burrell]

Thank you guys for the replies! Very helpful.