All Forum Posts by: Luis Alvarez

Hi @Alon A. I had a post/comment on a very similar thread elsewhere, but to add on the points above:

Yes, you would have to register the TX LLC in FL as a "foreign entity" because it will be conducting business in FL (through owning the FL property). This is something, that while is required, states vary in enforcing it...which by no means I would ever recommend folks not do it, just something for you to keep in mind.

Secondly, and perhaps more impactful, by having a business (rental property) in FL, you want to avail yourself to the laws and protections of that state. In other words, you should have a FL LLC own a FL property. This will avoid any conflicting laws and statutes between trying to use TX law (if you have the FL property in the TX LLC) rather than FL law. In case of an action, a FL court can very well not acknowledge the LLC because of conflicts...this is not to say that it will happen, but we would take it from a much cleaner approach and having things stay within states as they should.

The bottom line, I would definitely not have the FL property (or any rental property for that matter) under my personal name so putting the FL property in a FL LLC (that is properly formed and maintained) is how I would approach it.

I hope that helps, let us know if you have further questions.

This does not constitute legal advice, it is just my opinion of a hypothetical situation.

@Joe Ciccarelli you've used the magic words that all of us with JDs love...it depends. :)  I'm not sure if these deals that you're referring to are flips or long-term holds, in either case we typically set up individuals/separate LLCs for each.  And here's why:

In the case of flips: opening an LLC and then closing it upon the sale of the rehabbed property closes the loop on you (and your partners) as operators and can isolate any future claims (think foundation, mold, framing, etc) that can come back and bite you. Yes, just closing it won't absolve liability if you (and your partners) acted negligently, but it can isolate it to the activity of that single entity.

In the case of LT holds: I refer to the term "don't put all your eggs in one basket", but take a more prudent approach, which is to isolate the activity (and liability exposure) of one property to the next. And yes, I know, a few people may say "well if you only have $10k equity in a $100k property you can put more than one property in a LLC"...the issue there is that: 1) You won't always have reduced equity on properties (think HELOCs/re-appraisals), and 2) depending on the jurisdiction, a judgment can attach to an LLC holding multiple properties and wait you out. Trust me when I say that good plaintiff (suing) attorneys don't take a case unless they've got a good feeling they'll be able to collect.

Hope that helps!

@Catherine Javier you can, but it doesn't necessarily mean that it would be recommended.

For one, as @Wayne Brooks pointed out, you would have to register the FL LLC in WA as a "foreign entity" because it will be conducting business in WA (through owning the WA property). This is something, that while is required, states vary in enforcing it...which by no means I would ever recommend folks not do it, just something for you and your husband to keep in mind.

Secondly, and perhaps more impactful, by having a business (rental property) in WA, you want to avail yourself to the laws and protections of that state. In other words, you should have a WA LLC own a WA property. This will avoid any conflicting laws and statutes between trying to use FL law (if you have the WA property in the FL LLC) rather than WA law. In case of an action, a WA court can very well not acknowledge the LLC because of conflicts...this is not to say that it will happen, but we would take it from a much cleaner approach and having things stay within states as they should.

The bottom line, I would definitely not have the WA property (or any rental property for that matter) under my and my spouse's personal names. So putting the WA property in the FL LLC is better than your current situation, but putting the WA property into a (properly formed and maintained) WA LLC is how I would approach it.

Hope that helps?

To Linda's point, if you're looking to determine whether to put your rentals straight into an LLC or an S-Corp (traditionally formed), then from an asset protection standpoint, this is typically not recommended. For various reasons, but the primary being that a corporation (whether it's a S-Corp or C-Corp) is owned through shares that are issued initially and more (typically) can be issued for future stakes in the corporation. Whereas, an LLC has ownership interests based on the member(s) that own the LLC in varying percentages. Transfer of ownership interests becomes a burden as well. Ultimately, the question that needs to be asked is: 1) are you asking about forming a Corporation from the outset and electing it to be an S-Corp? Or 2) putting title into an LLC which is then treated as an S-Corp?

If it's the second question, you would want to determine (with a real estate specific CPA) if the LLC (which would own your property) should be treated as an S-Corp (for tax purposes only).

There's always legal and tax considerations, and sometimes they clash, but not always. An LLC can give you the flexibility to hold legal title to a property, while utilizing the S-Corp tax treatment (if justified, as others mentioned above).

@Tam Nguyen I would start off by saying you've got a good solid foundation on how your structure should begin to be built out (I have a very similar structure), so good on you!

For my sake, I'm going to use "Holdings LLC" (for ABC), "CA LLC" (for XYZ), "OOS 1 LLC" (for Subsidiary A), and so on...

I would keep Holdings LLC as anonymous as possible, which I believe is your intent, since that is where all subsidiary LLCs land and adds another layer between you and the rentals. Then I would choose the "business name" you want to operate under, in other words, the name you will want to put out into the public, and perhaps brand and have recognized amongst tenants and vendors with whom you may conduct business. Let's say it's "Sunny Acres Properties". You then file a DBA for each corresponding LLC, in each state (but more specifically County) where each respective property is located. Counties tend to oversee DBA filings, but this depends. ("It Depends" is something we use daily in the legal industry :)) This does 2 things: 1) keeps your true operating/holding company anonymous, and 2) puts your operating name ("Sunny Acres" for this example) out to there as the way you represent yourself to the public. The reasoning behind a separate DBA for each LLC is because each state and county may have different guidelines to filing, and you will want to be on the up and up in each jurisdiction in which your properties are conducting business.

So Holdings LLC would not have a DBA, but let's say CA LLC is in San Diego County, I would get a DBA for CA LLC out of San Diego County. Then a DBA, using the same DBA name used in CA LLC, for OOS LLC (let's say that's in El Paso County, Colorado) out of El Paso County in Colorado. And so on...

I have a legal/asset protection background, so I'm not sure what (if any) tax implications this would pose, but I have a similar set up for one of my out of state LLCs and there was no impact. You should confer with a qualified, experienced CPA (familiar with each respective state) as to any effects.

Does that help?

Hi Sunny,

Having an asset protection background, I've seen these similar scenarios come up and have  worked with some to iron out such concerns. DM me and maybe I can provide some more insight to your situation.

Ah, okay gotcha. Yeah, typically that's one consideration when talking to clients about "how many properties to put in an LLC". To your point, if you have low equity, you may feel more comfortable with not having 1 LLC to each property, but in that scenario, you still have all your properties separated from your personal name. Keep in mind that, depending on the jurisdiction, creditors/plaintiff attorneys can find a way to satisfy a judgment by garnishing wages, seizing a bank accounts/tax refunds, and/or ultimately placing a lien against the debtor's property and waiting it out.

Get the loan under your names. Establish LLC to then transfer title for the property for limited liability. I know, I know...many will say "but the due on sale clause"...there are ways around this when being done for estate planning/asset protection purposes. Message me if you have more specific q's. :)

Hi @Triston Blodgett, to give you my 2 cents:

I started with an LLC and landlord insurance/umbrella policy. I would definitely not ever have a rental property in my personal name. I understand there's a lot out there about LLC v Umbrella, etc., etc. The truth is, they should not be mutually exclusive...it's not a matter of this or that...they serve different functions and I personally suggest both. I may be biased because law degree, working in estate planning/asset protection, etc. But there's nothing like peace of mind. I'm not sure what you're referring to when you say "leverage" as a way of asset protection (in "sticking to insurance and leverage").

To your second issue, I'm no tax expert, but I do know (from personal experience) that a multi member LLC does not only have to be treated as a corporation for tax purposes. The beautiful thing about an LLC is the hybrid ability to be treated as best suits you (for taxes). It can be treated as a partnership or an s-corp (different than a c-corp). And if you are making the revenue to justify an s-corp election (think north of $50k) then you have a good problem...there are tons of advantages using an s-corp. BUT, it needs to make sense to do so because it costs more. Every investor should aspire to get to S-corp level IMO.

Does that help?

@Bobby Cy I would not have a rental property in my living trust.  I have my properties in LLCs, and then through holding companies/mgt., the interest in the entities are owned by my trust.  If you disclose that you are making this transfer to your lender, they will likely not understand what you are doing and may just outright say you can't do this, or direct you to the "due on sale" clause.  Also, depending on how long you've had the loan, keep in mind that your "lender" now may just be a loan servicer...which further increases the chance they will not understand that you are doing this for estate planning/asset protection purposes.  I have made these transfers for my properties and have not had any issues, but this is my personal thoughts on this.  I'm not providing you any specific legal advice, but this has been my experience and I come from estate planning/asset protection legal background.  If you have any questions, you can message me and maybe I can help.