All Forum Posts by: Scott Smith

@Brett Loetz, The Series LLC is a great method to hold and separate investments so the risks are not commingled. A shell company is another great strategy to isolate all property management and public facing operations, to keep the visible parts of your rental businesses separate from your investments. While the series LLC can be multiplied to separately cover each investment, the structure simplifies the pass through properties of the business and can be tailored to individual ownership and management.

@Lauren V., A few states offer Series LLC's that have been attractive to investors with multi-state properties.  You can  use registered agents for your out of state LLC's. Hope this gives you some more options.

@Carlos C., I have seen investors use the Wyoming LLC as a shell company to to all transactions and property management for series LLC structures which own the properties. This use separates risk, since the public facing LLC collects and passes payments to the holding LLCs. Series LLCs are great structures to hold investments, and can be structured for anonymity to lower the potential for litigation.  The shell company has no real equity, so plaintiffs settle for insurance awards.  A CPA can explain payments, but generally the investment companies have property management agreements with the shell company to pay all taxes, insurance and operational expenses.  Enjoy investing!

@Carson Belknap, I will attach a graphic I think does a good job of showing some of the elements you would like in place for an asset protection structure.  Generally I recommend keeping operations separate from investment properties, since there is risk in leasing and property management that should not endanger your investments.  Not knowing the State you live or operate in, my favorite investment structure is the series LLC which has a parent-child structure and have infinite scalability, offering creative solutions for investors.

@Phil B., Here are a few reasons for forming a LLC in Wyoming:

• No state taxes
• Asset protection and limited liability
• Members nor Managers are not listed with the state
• Best asset protection laws
• No citizenship requirements
• Perpetual life
• Transferability of ownership
• Ability to build credit & raise capital
• Number of owners is unlimited
• Lower startup costs- with Registered Agents of Wyoming LLC, the cost of forming an LLC is affordable.

I have formed many LLCs in Wyoming, generally operating LLCs. Series LLC are generally seen as a better structure to hold investments, since they have a parent-child structure and have infinite scalability, offering creative solutions for investors. I listed states that offer these in this article: https://www.biggerpockets.com/blog/best-states-forming-llcs.

Generally, I prefer the Series LLC. It was first created in 1996 in Delaware, over two decades ago.

Understanding the Series LLC is a great starting point for understanding DSTs. Both use a parent-child structure and have infinite scalability, offering creative solutions for investors.

California investors have special concerns because of the state's laws and tax regulations. While a Series LLC presents an ideal solution for investors in every other state, it would incur an $800 franchise tax at the very least.

The Delaware Statutory Trust is a great alternative, because it offers a similar level of protection to the Series LLC while also avoiding this tax burden. The state views DSTs as estate planning tools, which do not have to meet the same requirements as corporations or LLCs. Any investor who is doing business in California may be subject to state taxes.

One thing to watch when using trusts in addition to their protection afforded, is revocability. The DST is revocable which helps in adjusting for business conditions, where some trusts are irrevocable. That being said, it is best to look at the individual goals of the investor to decide whether to use a DST or LLC.

@Kara Courtney, you may be interested in this article that identifies a strategy that avoids some of the $800 per LLC tax imposed by California. You need a LLC to do the operational portion of your business for liability protection, but you can own each investment in a series trust that can reduce the complexity of owning real estate in separate LLC's.

@Timothy Lyons, want to help you with some background on the legal advice if you don't take my opinion as legal advice! The personal purchase and transfer to LLC is a tested method that works. If there is a question with your particular lender, then a transfer to a land trust is protected by the St. Germain Act, and allows you to transfer to the LLC.

Since this is your first investment, the LLC allows you to separate your personal net worth from the business. You know the value of both, so if you have a lot of money to protect then take as many actions as you can to lower liability, separate business and investment activity, and isolate investments.  If you are just starting out, purchasing the property using the best personal financing you can and transferring it to the LLC is a great financial decision with liability protection.

@Manuel J Hernandez, the LLC formation is my speciality and depending on the number of properties you wish to buy, I would suggest using a strategy to reduce California taxes if the best protection is more than one entity in California.

@Steven Destine, looks like you have advice on this topic so I don't want to pile on.  I did post an article about the LLC lending problem that provides a strategy to accomplish this.  Check out my other Bigger Pockets articles if any of this makes sense.