What business structure do YOU use and why?

[Caleb Mclamb]

Hello BP, 

I am currently building a business model and researching types of organizational structures and their implications to real estate, the question is what business structure do you use and why? LLC, C-Corp, S-Corp, Sole Proprietorship just to name a few.

Im reading a book on the tax advantages of a C-Corp but it states they don't apply to real estate without going into much further detail. What structure has the most tax advantages while protecting its owners and allowing for the use of investors? 

Thank you for any input

Caleb Mclamb

[Eric Fernwood]

Hello Caleb,

Before I attempt to answer your question, you need to know two things:

• I am not an attorney and am in no way qualified to give legal advice. You will need to talk to competent authorities before you do anything.
• I am a Realtor in Las Vegas and my practice is almost exclusively remote investors and most of my clients use either LLCs or LLCs in combination with what is called a Nevada Asset Protection Trust to protect their assets. 

The structure that the attorneys I have listened to advocate the following legal structure:

Some people I know who do not even own real estate (or any assets in Nevada) use the Nevada Asset Protection Trust to protect non-real estate assets due to the security it provides. Currently, 15 other states offer similar trusts. (I will provide links to further reading later.) Once you establish the trust you create what is called a Series LLC inside the Nevada Asset Protection Trust. A series LLC is no more difficult or expensive to set up than a standard LLC but with the Series LLC you can create more LLCs (one asset per LLC) at will at no additional cost or effort. Whether the assets are located in Nevada or other states does not matter. The only catch is that you need an agent that is a resident of Nevada. I am the agent for several of my clients. Once you read about the trust, you will see that the trust agent does nothing other than receive any legal notices sent to the trust.

Another approach I occasionally hear recommended is to just get a large umbrella policy and forget LLCs or an asset trust all together. However, I have heard more than a few attorneys state that umbrella policies have the opposite effect of what is intended. One even called umbrella policies a "lawsuit magnet". As she explained it, if you go to an attorney wanting to file a lawsuit against someone, the first thing your attorney will do is contact the defendant's attorney and find out if the defendant has sufficient assets to make it worthwhile and how hard it will be to get at those assets. If your attorney sees unprotected assets (like real estate) and a large umbrella insurance policy, the attorney knows that he is going to make a lot of money in fees. However, if your attorney sees a multilayered defense like a Nevada Asset Protection Trust enclosing a Series LLC (one asset per LLC) they will know that the assets will be so hard to get at that it will not be worth the effort thus ending the lawsuit before it starts.

Below are some links for further investigation. 

• Forbes article on Nevada Asset Protection Trust
• Another good source of information on the Nevada Asset Protection Trust
• Series LLC Article
• Nevada Series LLC Article

I hope the above helps.