All Forum Posts by: Greg Boots

Actually we can have a single member LLC where the manager is not the individual. Regardless of whether the manager of the LLC is an individual member or an outside party the LLC does not create unlimited liability exposure for the manager.

The purpose of the LLC is to create limited liability exposure for the manager. One of the main problems that people had with limited partnerships was the unlimited exposure when serving as a general partner. It was this limit on liability that really helped LLCs take off.

If we are dealing with a case of gross negligence, fraud, etc. then no entity is going to provide protection for that party.
I agree that insurance is an important component when we are looking at harms arising from slip and falls, etc. However, the main problem that people are starting to experience with insurance is when we have environmental claims that will almost always be excluded from coverage. In such instances the LLC is the only way a property owner would be able to shelter them selves from personal liability exposure.

Dave, I respectfully disagree.
There are two different liability exposures that we are looking to shield up from when you use an LLC. The first deals with outside liability exposure. In this instance an injury occurs by the member of the LLC that is unrelated to the activity of the LLC. Whether or not the single member LLC will be respected against a judgment creditor will be a matter of state law, there are several states that offer a charging order as the sole remedy even if the LLC is a single member LLC.
Regardless of whether the state offers charging order protection of outside liability exposure, all states respect the separate character of the LLC for inside exposure. Inside liability exposure occurs when an injury occurs in relation to an asset that is owned within the LLC. An LLC really is a container for liability exposure. Provided that the LLC has a proper operating agreement, it is current with its state filings, it has its own accounts, we are not dealing with fraud or gross negligence, and the LLC has been diligent in conducting its activities as a separate and distinct business it is extremely difficult for the plaintiff to pierce the liability veil of the LLC and hold the member personally liable for the harm.
Regardless of whether the state offers charging order protection of outside liability exposure, all states respect the separate character of the LLC for inside exposure. Inside liabilty exposure occurs when an injury occurs in relation to an asset that is owned within the LLC. An LLC really is a container for liablity exposure. Provided that the LLC has a proper operating agreement, it is current with its state filings, it has its own accounts, we are not dealing with fraud or gross negligence, and the LLC has been diligent in conducting its activities as a separate and distinct business it is extremely difficult for the plaintiff to pierce the liability veil of the LLC and hold the member personally liable for the harm.

I agree with Richard, it is very important to establish a relationship with your lender. With the larger banks it is very difficult to get the bank to consent on initially titling the residential property in the LLC even when you personally guarantee the loan.
For the property that you currently own personally, deeding the property directly into the LLC will be treated as a capital contribution.
You should check with your county to see if there is going to be any transfer taxes. In most instances there will not if you are the sole owner of the property and the sole member in the LLC.

Will and Ryan,

Thanks it's good to be here. I'm enjoying in getting to participate in the forums.

Whether you use an "S" corporation or a "C" corporation for wholesaling is really based upon many factors.
I will generally look at these issues when I am deciding which corporation would be best for my client: Is the client in a high tax bracket?; Is the main source of income coming from wholesaling properties?; Does the client have rentals?; How important are tax free fringe benefits to the client?; Does the client have a lot of real estate educational expenses?
Generally, if you are in a low tax bracket, you are not concerned about tax free fringe benefits, and wholesaling properties is your main investment revenue source then an "S" corporation is typically preferable. However, if you are looking for the best tax free fringe benefits, reimbursements for education expenses and you are managing other investment properties then a "C" corporation may be preferable.
There's not a one size fits all approach to proper planning.

Unfortunately, unless we are dealing with subdivision of raw land, the dealer test is an intent based test in the eyes of the IRS.
The main factor that the IRS would look at is whether the intent was to aquire the property and sell it for a profit within a 12 month period. In an audit this puts you in a defensive position to rebut the presumption that you intended to sell within 12 months.
Therefore, the IRS has the ability to classify you as a dealer on one transaction.

Generally, you want to handle your rehabbing and wholesalling transactions in a corporation in order to avoid getting classified as a dealer by the IRS,
For long term holds (anything greater than 12 months) an LLC is typically the preferred entity.

A land trust is a grantor trust that allows you to assign your beneficial interest. It is the assignment of the beneficial interest to the LLC that provides the asset protection.

A land trust can provide anonymity if you use a third party trustee to be listed on title. A land trust alone will not provide asset protection, it must be used in conjunction with an entity like an LLC.

Greg

Sniper,

If you are looking for anonymity on the deed filing it probably wouldn't make much sense to use your wife. If anonymity is not a concern go ahead and list her if she is willing to sign off on the transaction. It is important to remember that the land trust by itself won't provide any type of asset protection.

Greg

If the transaction is simply a transfer of beneficial interest you are correct that the transaction would not be classified as a transfer of real property. The transfer of beneficial interest would be treated as a personal property transaction and not technically a flip.