What kind of LLC do most owners have for their multiple properties in Washington DC?

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What kind of LLC do most owners have for their multiple properties in Washington DC?

Account Closed
Boise, ID · Member since 2014 · 41 posts · 1 vote
Hello I am just new to this forum since yesterday. I was pretty excited to have found this site and I believe all information shared in this forum is truly beneficial for all real estate investors. I just wanted to see if any RE investors from Washington DC can help answer my question. Do you recommend setting up a separate a LLC for each property or do you use a series LLC (the parent company with each series for each property)? From my understanding, Washington DC is not one of the states that offer series LLC. However, I was told I could use Series LLC from one of the states (say Delaware) that offer them for my future properties in DC. But there's one issue that I think was brought up somewhere in the forum that having Series LLC from other state would not let me register with the DC? Can someone elaborate on that? How can that issue be addressed? Also, I heard from my friend that the best way to do this is to acquire LLCs thru Wyoming as they are often RE business friendly and very cheap compared to other states. Again, the concern is that with LLCs from other state, how am I able to work it out through DC that way? Will they accept my LLCs from Wyoming for my DC properties? Any insights or advices based on your knowledge and experience would be greatly appreciated. I am new to all of this and hope to be one of you seasoned investors. Kindly regards, Arthur
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Arlan Potter
Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes
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I am not from your state but I recommend that you not have any LLCs until you get 112 properties. or 85 properties, whichever comes first.

LLCs are not necessary to start investing in RE. An unneeded complexity until you need layers of complexity. Later.

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  • Jordan H.
    Investor · Washington, DC · Member since 2014 · 34 posts · 11 votes
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    @Account Closed 

    I recently read a great book on the subject. Check out my comments on it in this thread: http://www.biggerpockets.com/forums/12/topics/157283-do-i-need-nevada-based-llc

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  • Arlan Potter
    Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes
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    I am not from your state but I recommend that you not have any LLCs until you get 112 properties. or 85 properties, whichever comes first.

    LLCs are not necessary to start investing in RE. An unneeded complexity until you need layers of complexity. Later.

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  • Account Closed
    OP
    Boise, ID · Member since 2014 · 41 posts · 1 vote
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    Jordan H. Thank you for your comment. I have read your comment in the link you provided. I understand that it's best to set up an entity myself instead of having someone to create it for me. I think I will agree with that. However you stated: "He also mentions Nevada LLCs as a sales product of the unscrupulous". It sounds like Nevada LLC isn't recommended, is that correct? If so, may I ask why he thinks that way? What about Wyoming? Delaware? Did the author mention anything about the use of Series LLC? Again, thanks for your comment.
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  • Account Closed
    OP
    Boise, ID · Member since 2014 · 41 posts · 1 vote
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    Arlan Potter thank you for your comment. Well, I think LLC is definitely necessary, especially people with high net worth. They will need LLC if they want to protect their personal assets against any potential lawsuits. I could agree LLC may not be necessary if their net worth isn't as high as $100k? What are your thoughts? Thank you.
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  • Arlan Potter
    Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes
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    $100,000 net worth is not high. You can never totally protect yourself against "any potential lawsuit". Having an LLC will not protect you if you are criminal, or negligent. Insurance will protect you against whatever might happen. Unless you are grossly negligent.

    I am looking at creating a single member LLC Trust, for our multi family units, not totally because of lawsuit protection, but because they are highly leveraged and our SFRS have a ton of equity, and I am setting them up for future charitable gifting.

    I just think an investor needs to invest a lot and hold a boatload of properties before they need to think so much about asset protection. And even then, good insurance is probably all most ever need.

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  • Jerry W.Pro Member
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    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
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    @Account Closed  welcome to BP.  I will respectfully disagree with a portion of what has been posted.  First forming some type of company for real estate investing is not really necessary on your first property or two.  Good insurance is a must.  Eventually though as your business grows you need to form a company.  If you go into any form of joint venture with another you ABSOLUTELY need to form a company.  Partnerships without a company structure make you 100% liable for acts of your partner.  It would be malpractice in my opinion to advise someone in a joint venture not to have a company formed.  The type of company  formed varies on what you intend to do.  LLCs are nice for buy and hold, I think a Sub S is better for a flipping business.  Currently my rentals are owned in a sub S corp.  That is another story.  I believe there are many tax benefits to having real estate in a company instead of your personal name.  I sold my truck to my company and will buy insurance, make repairs, buy fuel, etc through the company.  I loaned my company the money to buy it.  I get interest on that money at passive income levels, instead of earned income levels.  Corporations do protect you from some forms of liability generally, but not from liability from personal acts.  If you hire a licensed plumber and he screws up the venting off your furnace and someone dies from carbon monoxide poisoning they can sue the company, but the corporate veil will likely protect you from liability.  If you have a corporation but work on the furnace yourself and someone dies from carbon monoxide poisoning you will be personally liable.

        You also must observe the corporate formalities or the corporate veil may be pierced and you may become personally liable.  Having someone educated set up your corporation and explain how to keep the corporate formalities in place is much more valuable than the $200 you save from creating your own company.  Get educated on those requirements.

        As to where to form your company, it is usually best to form it in the state where you will be doing business.  You must register a foreign company in the different state anyway that you do business in.  A long talk with your accountant before you form a corporation is a must.  You should also talk to a knowledgeable real estate attorney as well.  

        Good luck in your investing bud.

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  • Account Closed
    OP
    Boise, ID · Member since 2014 · 41 posts · 1 vote
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    Arlan Potter Jerry W. Thanks both for your comments. Your comments really helped. However, I am sorry but can you clarify what type of insurance did you mean when stating a good insurance is a must to obtain for each property? Did you mean to recommend getting a general liability insurance besides the homeowner's insurance or will homeowner's insurance alone be sufficient? I know you would probably say it depends... What do you both use for your properties? Again, thanks for your help.
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  • Jerry W.Pro Member
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    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
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    I use a regular policy with high liability, usually 500K then a umbrella after that.

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  • Arlan Potter
    Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes
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  • Jordan H.
    Investor · Washington, DC · Member since 2014 · 34 posts · 11 votes
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    @Account Closed 

    The author's dislike for Nevada LLCs has nothing to do with the entity. He just views Nevada, or Delaware, or any state's LLC as someone selling false hopes. He outlines the following scenario:

    You live in Tennessee, and form a Nevada LLC to hold your Tennessee properties. If your Tennessee tenant sues you, he/she will not do so in a Nevada court where judges are familiar with that state's LLC protections. Instead your tenant will sue in a Tennessee court. The author says if a judge sees a suit in his Tennessee court involving a Tennessee tenant and landlord, he/she has no obligation or motive to consider Nevada's LLC rules. The judge's role isn't to identify potential assets of the landlord, but rather decide if you are liable in the lawsuit. If the Tennessee judge rules for your tenant, the tenant now has a legally binding judgement against you. Though I forgot the exact mechanism in which this can occur, the author says the tenant can simply take the Tennessee judgement to Nevada, where it must be honored by reciprocity.

    His argument isn't against LLC's of certain states, just that they don't provide the amazing level of asset protection that some suggest. I hope I paraphrased his concerns about out of state LLC well. The explanation made perfect sense, so any flaws in the logic are due to my incorrectly remembering the details.

    He speaks highly of series LLC's. But he cautions that there are few legal precedents involving series LLC's so they may not stand up in court as well as they do in theory. One of my conclusions after reading the book was that I would only consider an out of state LLC to obtain a series LLC if it was not available in my state, but not to gain additional asset protection by incorporating in a specific state.

    As others have said, the author mentions the choice between an LLC or S corp can depend on your activities (buy and hold vs flipping).

    I found this book at my library. I am a long way from setting up an entity to handle REI activities, but I plan to purchase a copy when the time comes.

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