Is my Entity Structure overkill ?

[Satyajeet Dodia]

I need some guidance since i have got diff opinions from diff CPAs on my situation. 

I have three LTRs (in TX) owned by a TX Series LLC. The TX LLC is owned by a WY LLC (as per advice/plan I had received from Anderson Business Advisors).

I have one STR in TX and one LTR in NC that are personally owned.

I have a C-Corp (no assets) as the Prop Manager  to manage leasing and rental collection for all 4 LTRs. This was created as part of same plan from ABA. As I understood that allowed me to have an extra layer of liability protection.  No Employees in the c-corp, just officers.

What should be the simplest entity structure? Do I need to re-structure? I do intend to acquire more LTRs in TX over next 2-3 years.

[Jonathan Greene]

The answer is almost always yes and no whenever you see that question. Yes, meaning that with your current portfolio and activity this is way overdone and likely unnecessary. No, meaning that if you had professional support it's likely they helped you set the table for later.

This much structure with five properties can be overload and proper planning.

[Chris Seveney]

Quote from @Satyajeet Dodia:

I need some guidance since i have got diff opinions from diff CPAs on my situation. 

I have three LTRs (in TX) owned by a TX Series LLC. The TX LLC is owned by a WY LLC (as per advice/plan I had received from Anderson Business Advisors).

I have one STR in TX and one LTR in NC that are personally owned.

I have a C-Corp (no assets) as the Prop Manager  to manage leasing and rental collection for all 4 LTRs. This was created as part of same plan from ABA. As I understood that allowed me to have an extra layer of liability protection.  No Employees in the c-corp, just officers.

What should be the simplest entity structure? Do I need to re-structure? I do intend to acquire more LTRs in TX over next 2-3 years.

 How much are you spending on tax filings, anderson advisors, banking and checking accounts per year?

Then how much cash flow are you getting from your rentals. 

This right there will answer your question.  

PS: I know billionaires with less complex structures.

[Bruce Woodruff]

Waaaay too much, lol it must be exhausting running all of those unnecessary companies.

Question - did the Business Advisors set up all of these entities and how much did they charge you to set them up?

[Stuart Udis]

@Satyajeet Dodia You are the latest to pay for their alarmist asset protection service provider's holiday vacations and children's college funds. As others have already noted this is completely overkill. You would have been perfectly fine with a TX LLC given that's where the properties are located. No need for a Wyoming LLC. The property management LLC's are the latest gimmick these alarmists use to drive up their revenues at their clients expense. Deed holders whether an entity or individual almost always get named as defendants. Period.

Your structure does nothing but provide plaintiff's attorneys additional defendants to add to claims which only complicates litigation. This is the reality but very few who seek out these services take the time to ask why and how these entity structures help.

[Basit Siddiqi]

You should have ran this question as Anderson Business Advisors was suggesting this set-up.

The set-up is also difficult to understand that you likely have to engage your attorney everyyear with questions that you have where they would be billing you.

I like the slogan regarding keeping it simple.

[Anthony Dupre]

@Chris Seveney

Would you mind sharing a high-level overview of the structure your billionaire friends have set up? This would help us benchmark and explore simpler alternatives while understanding how complex the structure mentioned above truly is.

I assume they are not actively managing their business? How do they maintain their anonymity?

Thanks so much, and wishing you a Happy Thanksgiving!

[Benjamin Aaker]

At the end of the day, you won't be able to hide who you are even with this complex structure. Keep it simple is great advice. Don't do anything criminal or negligent. Having an or multiple LLCs helps keep the finances separate should you have a loss. Also make sure you have quality insurance with an umbrella policy. I recommend that for those who are moving to serious investing. Those starting out, your own name is good enough.

[Satyajeet Dodia]

Quote from @Bruce Woodruff:

Waaaay too much, lol it must be exhausting running all of those unnecessary companies.

Question - did the Business Advisors set up all of these entities and how much did they charge you to set them up?

I set up the entities using diff companies and paid about $1000 for all three (I got minimal boilerplate operating agreements). ABA cost was about $5500 that included comprehensive operating agreements for all three and subscription to their portal.

[Stuart Udis]

@Anthony Dupre Why are you so concerned with anonymity? Most billion dollar portfolio holders have there assets listed on their company website or are out there promoting their business through their assets one way or another. I previously worked for a company that fell under this category. These companies and their leadership/owners don't care about anonymity because they understand how to properly operate their business i.e. avoid negligent activity while utilizing contract management systems ensuring all vendors are vetted with appropriate licensing and insurance and contracts with  indemnification are in place. If you do those things consistently and carry appropriate types and amounts of insurance you are going to be protected. 

While most who post about asset protection on BiggerPockets are focused on how to remain anonymous and how to prepare for conflict and liability, the billionaires are out there proactively preventing the liability events from occurring in the first place. It's a completely different mindset. Ironically, when the liability event occurs, those who are actively running their business the correct way are far better prepared to handle the liability event quicker and more cost effectively than the individual who has the complexed  asset protection structure but uses unlicensed workers without insurance, fails sign contracts with indemnification and operates their business negligently. Most spend too much of their time and resources on the set up and completely ignore the day to day responsibilities and/or cut corners and costs where greater attention and resources should be spent. 

 Comparing your structure to that of the billion dollar portfolio entity structures is a waste of your time and will do you no good for the avg. BiggerPockets forum reader. Their entity structures are most greatly influenced by business development, venue for securities related laws and taxes, none of which are relevant.

[Chris Seveney]

Quote from @Anthony Dupre:

@Chris Seveney

Would you mind sharing a high-level overview of the structure your billionaire friends have set up? This would help us benchmark and explore simpler alternatives while understanding how complex the structure mentioned above truly is.

I assume they are not actively managing their business? How do they maintain their anonymity?

Thanks so much, and wishing you a Happy Thanksgiving!

Yes they actively manage their business (they have an employee). They are a LLC because its commercial properties. For example 123 main st is a $300M office building that is one LLC. They have 5 multifamily buildings that are 1200 units under another LLC.

 They do not have any anonymity - why? there is no such thing and people think they are a lot more important than they really are. Unless you are super famous on TV and a celebrity you do not need anything. Best way to avoid anonimity is not post yourself all over the TV or youtube etc. 

Let me ask you this question, could you pick any of the following walking down the street:

Andrew Florance, Carrie Wheeler, Bruce Flatt, Robert Reffkin, David Nunes...

Put it this way, if you cannot afford a full-time attorney on your payroll, you do not need to have a complex legal structure. 

[Anthony Dupre]

@Chris Seveney @Stuart Udis

Thank you so much for the clarity and clear explanation—it makes perfect sense.

I’d appreciate your help in understanding business structures now. Assuming you're buying 2–3 multifamily homes per year in several different states, I understand the need for LLCs for protection. But how would you structure that?

Would it be one property per LLC? Or would you set up a parent LLC to hold all the individual LLCs in different states? If so, what's the purpose of that holding company, assuming anonymity is not a priority?

Additionally:

• Is there a specific state where it makes more sense to establish the holding company (now that anonymity in states like WY or DE isn’t the focus)?
• Are there any tax or management benefits to this approach?
• Or is it as straightforward as buying the multifamily property, putting it under an LLC, and then registering that LLC in your state as well?
  Any books, blog, etc where you would recommend starting to learn about these business structure etc, that are not written with the only purpose to sell you something ?

Thanks so much to everyone for all the helpful information—I really appreciate it!

[Chris Seveney]

Quote from @Anthony Dupre:

@Chris Seveney @Stuart Udis

Thank you so much for the clarity and clear explanation—it makes perfect sense.

I’d appreciate your help in understanding business structures now. Assuming you're buying 2–3 multifamily homes per year in several different states, I understand the need for LLCs for protection. But how would you structure that?

Would it be one property per LLC? Or would you set up a parent LLC to hold all the individual LLCs in different states? If so, what's the purpose of that holding company, assuming anonymity is not a priority?

Additionally:

• Is there a specific state where it makes more sense to establish the holding company (now that anonymity in states like WY or DE isn’t the focus)?
• Are there any tax or management benefits to this approach?
• Or is it as straightforward as buying the multifamily property, putting it under an LLC, and then registering that LLC in your state as well?
  Any books, blog, etc where you would recommend starting to learn about these business structure etc, that are not written with the only purpose to sell you something ?

Thanks so much to everyone for all the helpful information—I really appreciate it!

you mention you have four properties. I would have no more than one LLC for those properties. I could posibly see having a second for the STR vs LTR and keeping STR in one over the other. one asset for one LLC really only applies to commercial not single family

[Anthony Dupre]

Planing on starting buying my first multiplex -6-8 unit  and another one every 6 month 

[Satyajeet Dodia]

Quote from @Stuart Udis:

@Satyajeet Dodia You are the latest to pay for their alarmist asset protection service provider's holiday vacations and children's college funds. As others have already noted this is completely overkill. You would have been perfectly fine with a TX LLC given that's where the properties are located. No need for a Wyoming LLC. The property management LLC's are the latest gimmick these alarmists use to drive up their revenues at their clients expense. Deed holders whether an entity or individual almost always get named as defendants. Period.

Your structure does nothing but provide plaintiff's attorneys additional defendants to add to claims which only complicates litigation. This is the reality but very few who seek out these services take the time to ask why and how these entity structures help.

Thank you Stuart.  I was given to understand that tenants/tenant lawyers can only sue someone they have done business with. If there was no contract/business/transaction between tenant and deed owner can deed owner still be sued?

Assuming yes, then I dont need the WY LLC. Given my situation what do I have to do? Do I just 'sell' interest in the TX LLC to myself (on personal basis) and then dissolve the WY LLC ?

[Stuart Udis]

@Satyajeet Dodia  Who signed your lease if not the deed holder and no a contractual relationships is not necessary to be sued. If you fail to remove icy conditions from the sidewalk after a winter storm and your neighbor slips and falls while walking their dog do you really believe they cannot sue whomever is the property owner because there is no contract? Same fact pattern but its your tenant who slips and falls instead..... what prevents the tenant from naming the property owner as a defendant in the lawsuit? Tenant's guest? Absolutely nothing. Deed holder is almost always named because its the easiest party to find...deed's are recorded and public.

It also sounds like the Wyoming LLC is the deed holder and the transactional costs associated with re-titling the real estate is likely going to be more expensive than continuing to maintain the Wyoming LLC. This is the unfortunate reality of most who over pay for asset protection, they don't have a clear understanding of what they are paying for and how the structures actually protect them.

[Stetson Oates]

I'm not an attorney so this is not legal advice!!!! IMO You should never own a rental property in your name. They need to be owned by a different entity, such as an LLC. Most of you will have equity in your real estate holdings. I see these threads come up from time to time and no one mentions the lawsuit we are all most likely to have filed against us if our cars are titled in our personal name, the auto accident. It's the most dangerous thing we do everyday, we carry liability insurance through our personal auto policy. When that's not enough they go after personal assets, if your rental is in your personal name it's targeted. If it's in an LLCs name it s protected if maintained correctly. In most states there is protection in your primary home through the homestead exemption, your investment properties must be in a separate entity. Also please look at your personal auto insurance and determine if you have enough liability protection, then get a personal umbrella as well. If doing an LLC for your rentals, get insurance to cover the rentals and a GL policy. Then get a business umbrella policy. Again I'm not an attorney, this is just what makes the most sense for me.

 

[Satyajeet Dodia]

Quote from @Stuart Udis:

@Satyajeet Dodia  Who signed your lease if not the deed holder and no a contractual relationships is not necessary to be sued. If you fail to remove icy conditions from the sidewalk after a winter storm and your neighbor slips and falls while walking their dog do you really believe they cannot sue whomever is the property owner because there is no contract? Same fact pattern but its your tenant who slips and falls instead..... what prevents the tenant from naming the property owner as a defendant in the lawsuit? Tenant's guest? Absolutely nothing. Deed holder is almost always named because its the easiest party to find...deed's are recorded and public.

It also sounds like the Wyoming LLC is the deed holder and the transactional costs associated with re-titling the real estate is likely going to be more expensive than continuing to maintain the Wyoming LLC. This is the unfortunate reality of most who over pay for asset protection, they don't have a clear understanding of what they are paying for and how the structures actually protect them.

@Stuart Udis

 ok, That makes sense, Sigh!

The TX properties are owned by the TX LLC. The WY LLC is the member (owner) of the TX LLC. In that case there is no re-titling needed, but what do I need to do remove WY LLC from the picture?

[Bruce Woodruff]

Quote from @Stetson Oates:

I'm not an attorney so this is not legal advice!!!! IMO You should never own a rental property in your name. They need to be owned by a different entity, such as an LLC. Most of you will have equity in your real estate holdings. I see these threads come up from time to time and no one mentions the lawsuit we are all most likely to have filed against us if our cars are titled in our personal name, the auto accident. It's the most dangerous thing we do everyday, we carry liability insurance through our personal auto policy. When that's not enough they go after personal assets, if your rental is in your personal name it's targeted. If it's in an LLCs name it s protected if maintained correctly. In most states there is protection in your primary home through the homestead exemption, your investment properties must be in a separate entity. Also please look at your personal auto insurance and determine if you have enough liability protection, then get a personal umbrella as well. If doing an LLC for your rentals, get insurance to cover the rentals and a GL policy. Then get a business umbrella policy. Again I'm not an attorney, this is just what makes the most sense for me.

 

IMHO, you are also over-thinking this whole thing. I've had several LLC's and S-Corps in the past and they are relatively easy to pierce. Everyone just relax and make sure you have adequate insurance, it'll be ok.....

[Stetson Oates]

Quote from @Bruce Woodruff:

Quote from @Stetson Oates:

I'm not an attorney so this is not legal advice!!!! IMO You should never own a rental property in your name. They need to be owned by a different entity, such as an LLC. Most of you will have equity in your real estate holdings. I see these threads come up from time to time and no one mentions the lawsuit we are all most likely to have filed against us if our cars are titled in our personal name, the auto accident. It's the most dangerous thing we do everyday, we carry liability insurance through our personal auto policy. When that's not enough they go after personal assets, if your rental is in your personal name it's targeted. If it's in an LLCs name it s protected if maintained correctly. In most states there is protection in your primary home through the homestead exemption, your investment properties must be in a separate entity. Also please look at your personal auto insurance and determine if you have enough liability protection, then get a personal umbrella as well. If doing an LLC for your rentals, get insurance to cover the rentals and a GL policy. Then get a business umbrella policy. Again I'm not an attorney, this is just what makes the most sense for me.

 

IMHO, you are also over-thinking this whole thing. I've had several LLC's and S-Corps in the past and they are relatively easy to pierce. Everyone just relax and make sure you have adequate insurance, it'll be ok.....

I wish I could take that advice.  Real Estate isn’t litigious most of the time. A lot of other industries, including one  I’m in, are VERY litigious.  It’s just like anything else, either prepare or don’t. Nothing is 100%, including insurance, who will do everything possible to deny your claim.

[Nathan Gesner]

Quote from @Stetson Oates:

The vast majority of disputes are over security deposits and the most a landlord could lose is 3x the deposit amount.

Slip-and-fall or other major lawsuits almost never happen. When they do, they are typically covered by insurance and settled outside of court.

The odds of a landlord being sued for a large enough amount that it eats up their insurance, the equity in the investment, and their personal assets is almost non-existent. The only time you see that is when the landlord is truly negligent.

[Marcus Auerbach]

Quote from @Bruce Woodruff:

Quote from @Stetson Oates:

I'm not an attorney so this is not legal advice!!!! IMO You should never own a rental property in your name. They need to be owned by a different entity, such as an LLC. Most of you will have equity in your real estate holdings. I see these threads come up from time to time and no one mentions the lawsuit we are all most likely to have filed against us if our cars are titled in our personal name, the auto accident. It's the most dangerous thing we do everyday, we carry liability insurance through our personal auto policy. When that's not enough they go after personal assets, if your rental is in your personal name it's targeted. If it's in an LLCs name it s protected if maintained correctly. In most states there is protection in your primary home through the homestead exemption, your investment properties must be in a separate entity. Also please look at your personal auto insurance and determine if you have enough liability protection, then get a personal umbrella as well. If doing an LLC for your rentals, get insurance to cover the rentals and a GL policy. Then get a business umbrella policy. Again I'm not an attorney, this is just what makes the most sense for me.

 

IMHO, you are also over-thinking this whole thing. I've had several LLC's and S-Corps in the past and they are relatively easy to pierce. Everyone just relax and make sure you have adequate insurance, it'll be ok.....

I agree, LLC overkill. You have a lot of people here on BP who have been in the biz for decades and also know a lot of other landlords. Bad news travels fast.

I asked the question once on BP if anyone ever got saved by their LLC and the post had I think 60+ comments, but no real good textbook story to support the case for protection through entities.

[Stetson Oates]

Quote from @Nathan Gesner:

The vast majority of disputes are over security deposits and the most a landlord could lose is 3x the deposit amount.

Slip-and-fall or other major lawsuits almost never happen. When they do, they are typically covered by insurance and settled outside of court.

The odds of a landlord being sued for a large enough amount that it eats up their insurance, the equity in the investment, and their personal assets is almost non-existent. The only time you see that is when the landlord is truly negligent.

Yeah you’re fairly safe as a landlord.  I don’t think you’re safe if you hold the assets in your personal name. The assets are venerable if you do something out side of real estate or land lording.  For example, your 16 year old rear ends a family of 4.  Your investment properties are in jeopardy. Your investment properties insurance policies will not protect you in that example. Will an LLC protect you? Yes it can.  If anything else, it acts as a deterrent, it’s just another hoop for an attorney to jump through.

[Nathan Gesner]

Quote from @Stetson Oates:

People constantly create these fear-mongering hypotheticals: "What if you fall asleep at the wheel of a bulldozer and run over a family of sixteen watching Home Alone 3 in their den?"

The reality is that insurance will cover your 16-year-old's accident. How often is an individual successfully sued for an amount that exceeds their insurance coverage? Compare that number to the odds of being struck by lightning, and then act accordingly.

[Stetson Oates]

Nathan,  I get you are frustrated with this topic. If you are comfortable with your structure that’s great! To answer your question, “it depends on how much money/net worth you have.”  Insurance will cover you to your limits. If someone is hurt and needs ongoing care, you better bet they will file over limits.  If your comfortable with that risk than I wouldn’t worry about it. I definitely wouldn’t get worked up.