All Forum Posts by: Megan Templeton

@Asiah Patton

I would recommend Royal Legal Solutions. They are a one stop shop in all 50 states with lots of experience with entity structuring for investors, estate planning, tax planning, etc. They use many types of trusts and are familiar with how to set up your business entity to connect to your estate plan to ensure it all works and flows together.

Thanks,

-Megan

Hi there! @Michol Ston

The first place a real estate attorney is useful is entity formation - for entity formation, you have a few options: you can work with a document provider like Legal Zoom, do it yourself through forms on the Secretary of State website, or go through a traditional law firm. I recommend going the law firm route. Trying to do the forms yourself the first time could be confusing and you may not be aware of all the wording needed in the operating agreement, the annual compliance costs/requirements/etc. Using a document provider like Legal Zoom may work in some cases but the docs are templatized and not set up to be individual to your business or scale well. You also wont have a team to guide you as your biz grows or how to stay compliant. I recommend a traditional law firm so you have an advisor from the start and as you grow, they can customize your set up, and help tackle any issues that come up as you go. A good real estate attorney can also help with advising on deals, reviewing contracts, etc so you will feel more comfortable not only in liability protection but you will have someone who can help identify contract gaps, tax benefits you need to capture, etc.

Thanks,

-Megan

Hello @Tina Chau

I would recommend the properties be in separate LLCs that are all owned by a master LLC, which is then owned by an anonymous trust. Alternatively you could structure it so that separate childs series of a series LLC or DST own the properties. Both the series LLC and DST will allow you to create unlimited child series underneath the parent entity so they will scale with you as you grow your business and eliminate the need for multiple traditional LLCs which would require multiple filings, fees, etc so would be costly and time consuming. Series LLCs and DSTS benefit from one state filing and one fee so they are cost efficient and streamlined. They also help with operations as you can run them with one bank account and one set of books (if you manage the books properly by designating funds to each property). I would recommend Royal Legal Solutions. They are a one stop shop in all 50 states with lots of experience with with these types of setups.

Thanks,

-Megan

Hi there! @Josh Edelson

As you mentioned, the issue you will run into with an LLC while being a CA resident is that you will have to pay the yearly $800 franchise tax. The Delaware Statutory Trust (DST) is a great option to avoid the franchise fee - its is a business trust that provide operates similarly to a series LLC. You will be able to set up the DST with a one time filing fee and paperwork with DE and then will be able to create unlimited child trusts underneath the parent DST (child DSTs do not require any additional filing fees or state paperwork). By using the DST you can save on costs but also have a structure that is scalable as you will be able to put one property into each child trust so you have liability compartmentalization. DSTs can also be useful for 1031s and other assets. It also helps streamline operations by allowing you to use one bank account, on set of records, etc.

Thanks,

-Megan

Hi there! @Brent T Galbreath

A real estate attorney can help with many parts of your real estate business - setting up your real estate entities, advising on the best paths for your business operationally and in some cases tax wise, assist with document prep for closings, contracts, etc, and assisting in the event of a lawsuit. Many real estate attorneys have one or two niches the specialize in (ex: closing attorney vs evication attorney) so its important to identify what your needs are and ask the right questions of the attorney. A few questions I would recommend are: 1. How long have you been practicing law? 2.What are your specialties within real estate law? 3. Do you work with a team - who will be my point of contact? 4.How many clients have you helped that were similar to mine? 4. Do you have references? 5. What is your fee structure and billing process? 6. What is your communication style and timeline 7. Are there any areas in my business you anticipate you cant help with? 8. Do you have referral partners like CPAs you trust and consult with? 9. Are you an investor yourself? 10. What do you see as the most important piece of my business right now? Deal breakers would be things like they don't specialize in the type of deals you will be working with, the structures they have used have been challenged frequently and not held up (i.e. their track history is mixed), or they aren't properly licensed. I would recommend Royal Legal Solutions. They are a one stop shop in al 50 states with lots of experience with FL properties.

Thanks,

-Megan

Hi there! For properties with a loan, you will need to work with your lender on moving the property to ensure you dont trigger the due on sale clause. There is an exception, the St Germain Act, that can be used to transfer some properties (less than 4 unit properties) that have a loan but it has certain components you would need to be sure to follow. The components include things like making sure it is structured using a trust and ensuring the type of loan you have is subject to this exeception. It can be an easy transition but you will need to do your due diligence on the above first.

Hi there! The issue you will run into with an LLC while being a CA resident is that you will have to pay the yearly $800 franchise tax. I would recommend using a Deleware Statutory Trust (DST). A DST will allow you to create unlimited child series underneath the parent entity so it will scale with you as you grow your business and eliminate the need for multiple traditional LLCs which would require multiple filings, fees, etc so would be costly and time consuming. DSTS benefit from one state filing and one fee so they are cost efficient and streamlined. They also help with operations as you can run them with one bank account and one set of books (if you manage the books properly by designating funds to each property). DSTs can be complicated to form so I would recommend an attorney. If you decide to go the LLC route, I would still use an attorney. For entity formation, you have a few options: you can work with a document provider like Legal Zoom, do it yourself through forms on the Secretary of State website, or go through a traditional law firm. I recommend going the law firm route. Trying to do the forms yourself the first time could be confusing and you may not be aware of all the wording needed in the operting agreement, the annual compliance costs/requirements/etc. Using a document provider like Legal Zoom may work in some cases but the docs are templatized and not set up to be individual to your business or scale well. You also wont have a team to guide you as your biz grows or how to stay compliant. I recommend a traditional law firm so you have an advisor from the start and as you grow, they can customize your set up, and help tackle any issues that come up as you go. A good real estate attorney can also help with advising on deals, reviewing contracts, etc so you will feel more comfortable not only in liability protetion but you will have someone who can help identify contract gaps, tax benefits you need to capture, etc.

You don't necessarily have to have one, but I would recommend the properties be in separate LLCs or separate childs series of a series LLC or DST) to minimize liability. Compartmenalization is key to avoid comingling liability with multiple assets. Both the series LLC and DST will allow you to create unlimited child series underneath the parent entity so they will scale with you as you grow your business and eliminate the need for multiple traditional LLCs which would require multiple filings, fees, etc so would be costly and time consuming. Series LLCs and DSTS benefit from one state filing and one fee so they are cost efficient and streamlined. They also help with operations as you can run them with one bank account and one set of books (if you manage the books properly by designating funds to each property).

Hi there! Ultimately, I would recommend both. A good way to think about it is that insurance is a good secondary layer of defense but with a proper entity, a lawsuit would never get past your first layer. Insurance is a business so ultimately adjusters are going to look for ways to deny pay outs in certain situations. I wouldnt chance your asset protection to loopholes. If you ad in an entity with your insurance plan, you will have multiple layers of protection.The issue you will run into with an LLC while being a CA resident is that you will have to pay the yearly $800 franchise tax. The Deleware Statutory Trust (DST) is a great option to avoid the franchise fee - its is a business trust that provide operates similarly to a series LLC. You will be able to set up the DST with a one time filing fee and paperwork with DE and then will be able to create unlimited child trusts underneath the parent DST (child DSTs do not require any additional filing fees or state paperwork). By using the DST you can save on costs but also have a structure that is scalable as you will be able to put one property into each child trust so you have liability compartmentalization. DSTs can also be useful for 1031s and other assets. It also helps streamline operations by allowing you to use one bank account, on set of records, etc.

An LLC is a great choice for note investing - since your portfolio will be nationwide, I would recommend an LLC in the state you reside in most likely - this can vary though dependent on where you live. For example, CA isnt LLC friendly so you would want to look into another state like TX where the fees and compliance requirements are straightforward.