$5500-$6500 for setting up a Holding Co+LLC - Thoughts?

Starting Out
9yFollow

$5500-$6500 for setting up a Holding Co+LLC - Thoughts?

Raj I.
Duluth, GA · Member since 2017 · 33 posts · 3 votes

Thanks for reading this post.

I understand that setting up an LLC is not required in RE, and if anything it can be a pain to file returns depending on how you set up your LLC's.

However, I am looking at a couple of properties in 'war zone' areas and out of state rentals and since I have a decent net worth, asset protection is something I have to do.

On Youtube, I found 2 really good Attorneys who have detailed the how and why. I called one of their offices and the quote was for $5500. Here's what you get for it:

1. Holding Company (NV)

2. LLC in home state

3. Potential trust in VA

4. On-call support.

I know BP'ers are prudent and minimalists and I know that you are chomping at the bits saying WHAT!!! Before you proceed to roast me, can you please educate me on how did you get your trust/llc started? If you are in Atlanta, I would love to buy you dinner or meet for scotch/beers and see if we could partner up.

0Reply
92 views

Most Popular Reply

Jonathan Safa
Rental Property Investor · Temecula, CA · Member since 2016 · 151 posts · 63 votes
9y

To be honest, I don't see the need of setting up an LLC through an attorney these days. Sure there are legal questions to be answered, but with a resource like Bigger Pockets, I feel navigating these waters is a breeze! Setting up an LLC should cost you no more than $1,000 through a company like Legalzoom, which will walk you through pretty much every step of the way.

Firstly, finding attorneys on Youtube might not be the best idea. Calling your State Bar office may prove to aide better in finding a suitable attorney than searching on Youtube. 

I set up a Holding company through Legalzoom and a bit of private research and have found the process to be relatively painless, including filing at the end of year. 

Best of luck to you, though! And remember to take advantage of this great space we are on... Bigger Pockets. 

2Reply
See this reply in the discussion

26 Replies

Jump to latestLatest
  • Raj I.
    OP
    Duluth, GA · Member since 2017 · 33 posts · 3 votes
    9y

    PS - This could be a whole new topic, but have you:

    1. Loaned $ to your LLC

    2. Make a 'cash' offer

    3. LLC loans you the $ and puts a lien on the property

    4. Re-fi it after seasoning

    5. Repeat 

    Is this worth doing?

    0Reply
  • Jonathan Safa
    Rental Property Investor · Temecula, CA · Member since 2016 · 151 posts · 63 votes
    9y

    To be honest, I don't see the need of setting up an LLC through an attorney these days. Sure there are legal questions to be answered, but with a resource like Bigger Pockets, I feel navigating these waters is a breeze! Setting up an LLC should cost you no more than $1,000 through a company like Legalzoom, which will walk you through pretty much every step of the way.

    Firstly, finding attorneys on Youtube might not be the best idea. Calling your State Bar office may prove to aide better in finding a suitable attorney than searching on Youtube. 

    I set up a Holding company through Legalzoom and a bit of private research and have found the process to be relatively painless, including filing at the end of year. 

    Best of luck to you, though! And remember to take advantage of this great space we are on... Bigger Pockets. 

    2Reply
  • Raj I.
    OP
    Duluth, GA · Member since 2017 · 33 posts · 3 votes
    9y

    Thank you so much Jonathan. I will be checking out LZ..5500 seemed way too high. I'll also check on recommendations in BP for credible lawyers in my city. Have a great evening!

    0Reply
  • Marvin McTaw
    Rental Property Investor · Atlanta, GA · Member since 2014 · 807 posts · 274 votes
    9y

    @Raj I. in many regards you get what you pay for but at the same time, $5,500 sounds excessive. You could set up all three of those entities (not that you have to or even need to) using a service like LegalZoom for significantly less (and have some form of advice with it as well. All that being said, if you are in Atlanta, I'm not entirely sure why you feel the need to invest out of state? The Atlanta metro area and Macon are actually some of the best markets for rentals in the country. If you focus on off market opportunities, I'm sure you can find something closer to you (e.g. Norcross, Snellville, Duluth, Lawrenceville, etc.). 

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    9y

    I agree with @Jonathan Safa about sourcing your attorney on youtube.  No way.  Call some title co's.  See who they recommend for entities and also who for seller-financing notes and DofTs while your at it.

    In general, you'll want the LLC to be the owner, not the lender. LLCs are best for passive income. Interest from lending is not passive. When I lend, I do it through my ROTH. Taxes on interest are an animal of their own.

    My attorney drafted my Op Agreement for my LLC (cookie-cutter style) and my Articles for my S-corp (for mgt, wholesales, royalties, consulting) for less than $1000. Those are the keys to a strong entity. If you don't have unrelated partners the op agreement doesn't have to be so ironclad.

    You didn't say if it will be a single-member SMLLC or multi, maybe with family?  Mine is multi with my wife and boys. Either way, you can do the filing with the sec's of state on your own, but a good attorney that does this everyday will draft strong operating docs.    

    2Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Have you researched the need for a LLC outside of BPs to determine actual chance of needing the protection.

    0Reply
  • Jonathan Frazier
    Realtor · Douglasville, GA · Member since 2016 · 44 posts · 17 votes
    9y

    My attorney sets them up for $800 for me.  I would do it myself but I like the added privacy of having a registered agent.  If you do it yourself it shouldn't cost you more than $200.

    1Reply
  • Raj I.
    OP
    Duluth, GA · Member since 2017 · 33 posts · 3 votes
    9y

    @Marvin - Thank you. I am planning of getting an Umbrella insurance for the time being.

    Reason for looking outside of Atl is because we'd like to retire in Hawaii and I would like my tenants to help pay it off. It would also 'hopefully' count as a business trip when I go to check on the property with some preplanning.

    @Steve - Thanks for your suggestion. Entity will just have my wife and I. 

    @Greg - Main reason is to keep my business expenses separate and for protection against valid and frivolous lawsuits. I'm researching Series LLC as well.

    @Jonathan - I got the same price from a local CPA but he told me that I really don't need it. He said that unless I do something complicated like set up a Holding Company in NV/WY or a Trust in VA and then a LLC in GA it really wouldn't offer inside and outside protection. Also getting a loan will be painful.

    Bottom line is that I just need to go close on some homes and then worry about this at a future date :) Thank you all!

    0Reply
  • Loren Clive
    Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
    9y

    @Raj I. Setting up a LLC is $70 in Hawaii, no attorney required. I recently paid a local Harvard-educated attorney under $2200 to set up a trust for estate planning purposes.

    So my gut is you're getting overcharged. Keep it simple. I like your idea of umbrella insurance.

    1Reply
  • John Laabs
    Chanhassen, MN · Member since 2017 · 8 posts · 2 votes
    9y

    Raj,

    The biggest thing about setting up an LLC in any state outside of your home state is the Registered Agent, this is where ALL legal documents will go if there are any (e.g., being sued) that have to be delivered to a person. Some states require that the RA, be an address (not PO Box) within the state that the LLC (or other legal entity) is registered in. That is why some of the "services" out there for creating a legal entity in a state charge so much because they end up acting on your behalf of receiving mail and forwarding onto you.

    If you are creating the legal entity in the state that you live, I have found that you can do it for whatever the state registration fee is, some elbow grease and internet time on the Secretary of State (that you live in or where you plan to create the entity). I have registered both a Corporation (taxed as an S Corp) and a LLC member managed (taxed as a partnership, since there are 2 of us in my buinsess) in my home state of Minnesota for the filing fee of $150 each.

    By the way, in most states you need to renew your business entity on a yearly basis to keep using it.  In my state that is just going on-line with the Secretary of State's office and clicking a button or two to renew (no money), but some states require a yearly renewal fee as well.

    1Reply
  • Scott S.
    Investor · Minnetonka, MN · Member since 2016 · 123 posts · 86 votes
    9y

    I agree with the other coments that the price is too expensive.

    Recently I came across Northwest Registered Agent and am planning to go through them for my next entity creation. They only charge $100 over the filing fees for whatever state I wish to form in.

    As @John Laabs mentioned, there is a need for a registered agent presence in each state.

    Northwest will operate as my registered agent for just $125/yr (they are in all states and Puerto Rico, if I recall correctly). I don't want to put my name/address on registered agent forms to be publicly available. All mail/etc. that comes to my business (at their RA address) will be scanned in so I can get the mail online the same day.

    Has anyone else had any luck with such a service?

    0Reply
  • Account Closed
    New York City, NY · Member since 2017 · 12 posts · 1 vote
    9y

    I file in Delaware, i filed the registered agent and form. It was less then $300 and really easy. I got the Ein for free from the IRS and opened a bank account. Citi bank and chase only require an EIN for a business account. The file you can do yourself if your competent. I would rather spend the $ on the lawyer doing a lease agreement or OA.

    I would 100% do a multi member LLC. As far as your registered agent google your state, then registered agent I found two that work well in Delaware & Florida.

    Legal Zoon will charge you $130 for RA you can find your own for $50 and not have them pocket the $80.

    1Reply
  • Kenneth Dai
    Investor · Fairhaven, MA · Member since 2016 · 100 posts · 88 votes
    9y
    I was quoted $1000 for forming holding company, $800 for each other LLC. Included the LLC filing paperwork, plus operating agreement, setting up first shareholder minutes, paperwork stuff. I agree that setting up an LLC is pretty easy through state websites. The part I want legal help with is all the other pieces to make the LLC 'stick'. To me, there is some value in paying an expert to get all the pieces done right and go thorough the ropes on what to do to maintain the protections offered by an LLC. Not sure it's worth $5500 up front, though.
    1Reply
  • David Moore
    Investor · Crystal, MN · Member since 2013 · 486 posts · 277 votes
    9y

    @Raj I.

    When I started out in RE investing, I got an LLC, and my local lawyer charged me something like 2K. H was a real estate attorney Now, that was too high...I've learned since. But the language he used really set up my model well. Since then I've found Real Estate attorney's who can do it for half that.

    I'd have an attorney of some sort do it.

    1Reply
  • Bill E.
    Pittsburgh, PA · Member since 2016 · 126 posts · 18 votes
    9y

    Do you guys set up the LLC then later put the property in the LLC, or is this done at the same time?

    1Reply
  • Raj I.
    OP
    Duluth, GA · Member since 2017 · 33 posts · 3 votes
    9y

    Thank you all! I found a local attorney who was very informative and said that a NV Holding company may not be necessary and would charge $750 to set up an LLC in GA.

    10 Years ago, I used to have a chain of stores, and I incorporated every one of them by writing up a simple Articles of Incorporation and going to the Secretary of State and filing it right there. It took  about $100-$125 I think. However since this is RE and I wanted to take special precautions.

    @Bill - The Attorney I spoke to on Friday said that if you are getting a mortgage, then you set up the LLC first and put that LLC name in the title during closing. (watch out for due on sale. Low risk, but still)

    If you own it outright, then he said you can deed it to the LLC. I am thinking of setting up an LLC, then 'loaning' funds in that LLC and then doing an all cash transaction through the LLC.

    0Reply
  • Raj I.
    OP
    Duluth, GA · Member since 2017 · 33 posts · 3 votes
    9y

    @Account Closed

    Hi John - This is what makes me think, if I should set up a holding company in NV/WY, and then open up LLC's in GA which would say 123 Main St and point to the Holding Company. I don't know if this would avoid 'piercing the corporate veil' because I may still need to disclose my assets in GA if sued.

    About point #2., during closing I intend to let my lender know that the LLC is for asset protection and nothing else. I have read somewhere that if they sign off with that knowledge it may not come back to haunt you, but please do advise if you have heard otherwise.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Main reason is to keep my business expenses separate and for protection against valid and frivolous lawsuits. 

    You do not need a LLC for either of those reasons. All you need is separate bank accounts and adequate insurance. A LLC does not provide any greater purpose or protection and will place restrictions on financing in addition to increased annual costs on your business.

    0Reply
  • Raj I.
    OP
    Duluth, GA · Member since 2017 · 33 posts · 3 votes
    9y

    @Account Closed Thank you Greg. I plan to buy foreclosures using all cash and turnkey rentals using a mortgage loan. I thought that it would be a good idea to organize these in separate compartments with LLC's.

    0Reply
  • Account Closed
    New York City, NY · Member since 2017 · 12 posts · 1 vote
    9y

    Kenneth, 

    If you want it to ¨stick¨ a common idea is you set up your property management company and then your llc leases will be signed with your property management company. Your management company will never have any money, but be paid a % for a management fee for each property it manages. The management company should be a multimember LLC, that is what I have seen everyone miss so far. It help the bullet proof process, each member, if possible should live in another state.

    Another company can also be the ¨second¨member say a limited partnership because I think there is stuff with the voting rights that makes that beneficial, but this would need to be tailored to each persons sisuation.

    An idea I have been told if you do good business you will not have to worry about a suit, but there is no harm in planning for a rainy day. Just make sure it does not take all of your money because you can literally keep changing and setting up company structures for ever as your grow. 

    Not sure if you guys look into non recourse IRA loans, but the non recourse part will allow a lender to lend funds to an self directed retirement account, and since the loan is non recourse they have no problem lending to an llc, theorfor you don't have to worry about all that due on sale stuff, the down side is you wont realize the tax benfits right away. But again it is case specific.

    0Reply
  • Account Closed
    New York City, NY · Member since 2017 · 12 posts · 1 vote
    9y

    I got one of my multi families properties to confirm it in a e mail. I held onto that e mail for dear life lol. 

    But ideally I want to move more into non recourse loans so it's not an issue. 

    0Reply
  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    9y

    @Raj I., $5,500 seems pretty high to me. I think you do need an LLC and possibly one more layer of protection mostly because you are buying in a high risk area of real estate. I think it is best to have an attorney do the paperwork to make sure you get the best bylaws etc you can. It is VERY easy to create your own LLC and is very inexpensive in most states. The big thing is to understand how to operate and maintain it. The LLC will fail to protect you if you do not keep the corporate formalities in place. Take the time to read up on legal entities so you understand them better. I myself just one a single corporation for my ownership, and I actually have a few units in my personal name, which is a long story unrelated to this topic. It sounds like you are for the most part getting good advice here. Best of luck on your endeavors.

    1Reply
  • Account Closed
    New York City, NY · Member since 2017 · 12 posts · 1 vote
    9y

    Some of those formalities are annual reports, meeting minutes, separate records, I am considering just going with umbrella insurance it is less of a hassle and then have my ¨property management company¨sign the lease contracts. Tenants will pay xyz corp, they take their mgt fee and then pay me.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free