All Forum Posts by: Jason Marino

Hi Mike,

I will try to reply to your questions from a legal point of view. What you have described in your post is a Hub and spoke structure. It is a fairly common structure for a Holding Company. The spoke LLCs each hold an asset in order to compartmentalize the liability of these assets. These spokes are then owned by a Hub LLC. The Hub LLC is usually from an anonymity friendly and asset protection friendly State. When created in the right way, this structure can provide better anonymity and better asset protection than a single LLC. If you do not currently have any assets and have no plans in the near future to buy assets, than this structure is not something that you will be able to use.

Hi Jack,

I agree with the replies above that note that the LLC should be from Illinois or registered to do business in Illinois as a foreign entity. These are the best options if you are doing business or in a grey area where you may be doing business in another State. Not having an LLC from that State or registered to do business in that State can lead to fines, and, worse than that, if the LLC is involved in a lawsuit, it may be disregarded as it did not comply with the State's requirements to be able to do business in the State.

Hi Robyn,

What you are speaking about is a Hub and spoke structure. This is a common structure for real estate investors that have multiple assets. The rationale for this structure is to try and isolate all of the assets into different compartments for limited liability purposes. This can help avoid a lawsuit that involves a single asset extending to other assets that are not part of the lawsuit. With respect to a Wyoming LLC, many people use Wyoming for a Hub LLC or in situations where the LLC not doing business in any specific State. Wyoming LLCs offer very good asset protection and have better anonymity than other States as well. The structure that you spoke about is not something that every real estate investor needs. A structure is unique to your situation and your goals. It should be created with these considerations. Without additional context, it is not possible to say in detail what you need or what is recommended for your specific situation. This would be a good conversation to have with an attorney.

Hi Jason,

I generally agree with the posts above in relation to simple structures versus more complicated structures. An LLC, when created the right way, can provide you with anonymity and limited liability protection. For a risk averse investor, these benefits are very helpful and balance the negatives of having an LLC. The downside to an LLC is that it has an initial cost and a maintenance cost. The cost to start can vary based on whether you create the entity yourself or have assistance from an attorney. The maintenance cost is something that is continuous, usually paid on an annual basis. This could include doing filings at the Secretary of State and maintaining a registered agent. You will additionally need to keep a separate bank account and a separate book of business for the LLC.

Hi Rick,

I will try to reply to your post on the legal side. You could use either option and have a similar result if everything is created the right way. A single LLC for all of you is going to need a more detailed Operating Agreement than if you each have your own LLCs, since there will be a 3rd party that is a part owner of the entity. You will need to address things like ownership, payment, responsibilites, dispute resolution, and resignation in a single document. The benefits of having a single LLC would be that you only have a single maintenance cost and a single registered agent, rather than having this cost 2 times (once for your LLC and once for your Sister-in-Law's LLC).
   

Hi Trevor,

If the LLC will own property in Tennessee, hire contractors, and do other business in the State, the best options are to either form a Tennessee LLC or form an LLC in another State and register that LLC to do business in Tennessee. The things that this LLC will be doing will likely be considered doing business in Tennessee, and the most risk averse option will mean having a Tennessee LLC or registering a foreign LLC to do business in the State. Not doing this can lead to fines, or, even worse, if the LLC is involved in a lawsuit, it can be disregarded because it is not registered to do business in the State.

Hi Corey,

What you are referring to sounds like a Hub and spoke model. This would involve creating spoke LLCs that own an asset or multiple assets. These spoke LLCs would then be owned by a Hub LLC. This is a fairly common asset protection structure that investors use to hold assets. I have not seen many investors that use the Hub LLC in a role as the Manager of the properties. The way that this is handled is usually with a separate Operating Company. This company would only be contractually linked to your Hub LLC and would interact with tenants and contractors. This helps to isolate the liability of the interactions in the Operating Company.

Hi Sri,

I agree with the posts above. 3 Weeks should be enough time to create an LLC, get an EIN, and create an Operating Agreement for the LLC. The timeline will depend, to some degree, on what State you are forming the LLC in. The Secretary of State in some States can approve the LLC within a day, and in other States, this process can take a Week. Based on that, getting started now would be the best option.

Hi Christopher,

What you are describing is a Hub and spoke structure. The Wyoming LLC is the Hub and the other LLCs owned by the Wyoming LLC are the spokes. This is a commonly used asset protection method that provides separation of the assets and anonymity. Usually, the Holding Company should remain anonymous, and you woud not want to be associated with it. The common way of being associated with the business would be to create an Operating Company that interacts with tenants and contractors on behalf of the Holding Company. This Operating Company would be publically facing, but it would not own the properties. You are accurate in suggesting that insurance and an asset protection structure is the most risk averse way of organizing everything.

Hi Monish,

It is possible that the adjustment of the insurance from your name to the LLC will draw the attention of the lender. If this happens, there are can be a few different options. They may not do anything. They could contact you to see what has happened. A lender may allow the transfer if you are able to provide documentation that you remain the owner by way of the LLC. The lender may alternatively require that the property be moved back into your name under the threat of foreclosure. From my experience, none of this occurs immediately, and time will be provided to make the transfer back into your name.