All Forum Posts by: Clint Coons

@Dzenan Catic

When you place a property into an LLC, that means you will deed it into the LLC. For example, if you have set up Snuggles LLC, then you will complete a deed where you are the Grantor, and Snuggles LLC is the Grantee. When selecting the proper deed from always use a Grant, Warranty, etc. but not a Quit Claim. The Quit Claim deed can void your title policy. A client of mine had 125k frozen on a sale because of a missed encumbrance, and his title refused to cover because he used a Quit Claim deed to place the property into an LLC.

After the property is in the LLC, you should transfer over insurance, taxes, utilities, etc. to the LLC. The mortgage will not transfer, so don't bother trying.

Collecting rents can be done through the LLC that owns the property or a separate management entity you create just for this purpose. With two properties, it probably makes more sense to have the LLC collect the rents at this point then grow into the other strategy. Do not have the rents collected by the holding LLC. This runs the risk you will be treated as a common enterprise and jeopardize your separate asset protection benefits of the LLCs.

Before you decide on an entity, you should determine where you plan to invest, your investment strategy, I.e., fix and flip, rental, etc., and how you plan to purchase (cash, private financing, conventional loan).  A mistake that many investors make is setting up an entity that may not be appropriate for their individual investing strategy.  Entities are essential and should be set up only after you have an investing plan.

@Afsheen S.. One of the main benefits in using the WY LLC is providing anonymity for your state-specific LLC. To set up your state-specific LLC with anonymity you must structure the sate specific LLC as member-managed. On the other hand, if the state-specific LLC does not disclose the managers or members then you do as you described.

@Afsheen S. That is great US Bank did not request a local address. You must have found the key person. Working with banks can be frustrating. I have had clients in CA walk into the same BofA branch and opening a WY LLC account depended on who they're working with at the bank.

In general working with banks for WY LLCs it is hit and miss with institutions.  I tell people to first find a business banker before attempting to open the account.  The first guy who runs out from behind a desk when you enter the bank carrying a bowl of candy is not the guy you want to deal with.  Ask when you can schedule a time with their Business Banker.  This person typically handles multiple branches so you typically need to set an appointment.  You can use your WY address but many want a local address to come preparers to provide a local address.  Giving the bank a local address will not impair your anonymity (unless you use your home address and they print it on your checks).  Keep in mind this is general advice and anyone can have a different experience.  

@Mike Jones You do not need to add the officer position. I just provided that information as a point of reference for the future when putting together your operating agreements. The reason I use the technique is to avoid the convoluted signing process when using a member managed LLC. As to your question about how do you sign with a member managed LLC this is how it is typically handled:

First Base LLC

___________________

By Clint Coons manager of Home Plate LLC as its member manager

Keep in mind this is only one way to sign and others are acceptable.

@Mike Jones Either way works for the EIN but opening the bank account can prove more challenging with an out of state LLC. As @Mike S. stated, you will need to bring your documents with you to the bank.  Here is the catch - do not try and use your out of state business address when attempting to open an account locally.  For example, when we set up a Wyoming Holding LLC, our clients are provided a Wyoming business address, but when they try and open a bank account in their home state for the Wyoming LLC, the bank will refuse the out of state address.  Your local bank will want a local address.  So be prepared with a local address when you go in.  I also recommend banking with one national bank for all of your business entities and personal and keep at least one community bank on the side (lender backup bank).

When you ask about signing on behalf of the special purpose state LLC, this can get confusing when using a member-managed setup back to the holding LLC. You should consider setting up your special-purpose state LLC with officer positions and appoint yourself as president. The officer position provides you apparent authority over the entity but will not disclose your information on the secretary of state.

Generally, the intent of the property management licensing laws is to protect the owner from unscrupulous individuals mishandling tenant deposits, keeping rents, dealing with tenants, etc.  The law protects you.  With that being said, you can self manage your own residential real estate.  I have never come across an issue with someone using an entity to self manage their own property.  States have exemptions for this e.g., owners of the entity can manage the property, use a power of attorney to appoint a third party to execute on entity's behalf, etc..  For PA see Title 49 35.202.  If you are concerned about it, you can always give the management entity a fractional ownership interest in the entity owning the real estate, and you are probably covered under an exemption.  Here is a site with links to all 50 states:  https://www.allpropertymanagement.com/resources/property-management-laws/

@Jerry W.

@Eamonn McElroy

Larry,

Your point is well taken.  My comments were made about qualifying the S-Corporation as a T or B for purposes of real estate. Section 1411(c)(2) the tax applies to a passive activity under 469 or the business of trading financial instruments or commodities. Reg 1.1411-4(b)(2)(i) defines a trade or business described in § 1.1411-5(a)(1) should be made at the owner level and not the entity level. I missed this and was instead recalling 1.1411-4(b)(2)(ii) that applies at the entity level. I was too confident in my memory and should have paused and looked back into 1411 rather than proceeded with the assumption.

Eamonn, I owe you an apology for not looking into your points in greater detail. I am sure you spent time away from preparing returns to engage in the discussion to wit I should have recognized my error much sooner. If you kindly send me your address, I would like to ship you something to enjoy after the stress of tax season has abated.

@Mike S.. Typically I will use a FL land trust to a FL LLC that is held by a WY LLC for anonymity. Assume you have 3 properties then we would set up 3 land trusts to one FL LLC held by one WY LLC (some clients opt for 3 FL LLCs all held by the same WY LLC).

The property manager will handle the eviction but if you do not have a PM then it would be the Trustee (assuming you did not limit the trustee's powers in the trust document).  I do not know if the trustee must hire an attorney.

@Courtney Wenzel There are several reasons to use a land trust, e.g., anonymity of ownership, avoid doc stamps with encumbered real estate, avoid personal judgment liens from attaching to the real estate, buying at auction, keeping transfers private. Here are some differences between a land trust and LLC:

Land Trust

Anonymity - if the land trust is set up with a nominee trustee, then title to real estate can be held privately.  Privacy - a land trust is not recorded, so a third party can not discover the parties to the trust.  Transfer taxes - encumbered property transferred into a land trust is exempt from doc stamps.  Asset protection - the beneficiaries of a land trust are not liable for judgments against the trust; however, judgments against a beneficiary can be levied against the assets of a land trust.

LLC

Anonymity - if title is taken in the name of a FL LLC, a third party can discover who is associated with the LLC by looking up the member/manager information on sunbiz.org. However, if the FL LLC is set up with a WY LLC (or other LLC that does not disclose the identity of its member/mangers), then anonymity can be achieved. Privacy - information about the members/managers of a FL LLC is disclosed on sunbiz.org because of required public filings.  Again, this can be avoided if using a holding LLC as discussed previously.  Transfer taxes - encumbered property transferred into a FL LLC is not exempt from doc stamps. Asset protection - members of an LLC are protected from claims against the LLC.  If a FL LLC has only one member, then a judgment against a member can be levied against the ownership interest of the LLC, i.e., you can lose your LLC.  If the FL LLC has two or more members, then a member is protected from levies against the LLC ownership because of "charging orders."  

I know this is very brief, but if you want to learn more, you can view my youtube channel real estate asset protection for several videos on this subject.