All Forum Posts by: Scott Smith

The DST strategy is less popular, so there are many less people offering it as a service. The initial setup will cost more to establish, the protection is on par with the Series LLC, and you will end up saving money in the long run. For new investors it may nor be worth the up front costs, but it is an option I feel all CA investors should know about. Even if you aren't comfortable setting up the DST now, as you grow you will definitely want to try incorporate it into your asset protection plan in the future as you grow. Some investors who are just starting have significant personal asset to protect, others start from scratch. Ultimately you want to set up a strategy that fits your personal needs and will grow with you in the future.

 You would be able to use anonymous trusts to own properties. When you are dealing with entities I generally lean toward using an agent trust to own my LLCs or Series LLCs. Would depend on the goals you are trying to achieve.

You can either operate them all through the parent Series LLC and through a single EIN and bank account; however, you can also choose to separate a child series from the parent Series LLC (in case you want to file one as an S Corp, for instance.) It can be pretty flexible depending on how you establish the entity.

I lean toward Texas LLCs for their low annual costs and maintenance requirements, but there are several great options. In the end I tend to just weigh the pros/cons of each option for the investments in question then choose the best protection with the lowest expenses for the situation.

I know a few people have mentioned this in the thread already, but each child series within a Series LLC would still be regarded an entity doing business and the franchise tax would be attached to it. The only strategy I see investors using successfully to work around the CA franchise tax is to utilize a Delaware Statutory Trust, which is considered a disregarded entity. Investors who include the DST in their strategy, whether they or their investments are based in CA, do not have to pay the tax thanks to the status of the Trust. This article explains more of the tax benefits for the DST in California.

The downside of the DST is that it is harder to create and will often cost more than establishing a Series LLC. However, for those investing out of California, it generally pays for itself within 2-3 years (if not earlier) depending on how many assets the investors have.

Just another option I see many CA investors moving toward, since the franchise tax is so abysmal in that state. Best of luck to you and your partners as you all move forward!

It really comes down to what you are looking to get out of your entity and whether you want to keep up with the annual requirements of the LLC personally or just pay the provider to take care of it all for you. One of the main things I would encourage investors to do is get a strong understanding of how asset protection fits into real estate investing, and from there to invest the appropriate amount of time/money into protecting their assets - each investor has a different level of risk tolerance. There are a lot of investors on the forums who go overboard and create expensive/elaborate plans for a very small portfolio, while on the flip side (pun intended) there are major investors who still own everything in their own name and one bad lawsuit could sink them.

You can go the DIY route for an LLC and all you will need to really worry about is the annual filing fees and requirements that the state you operate in demands, then keeping up with operating it properly. This is a great resource to review the fees intrinsically involved in forming and operating an LLC. This will require a lot of homework on your part to ensure you both form and operate the LLC correctly, there are many DIY LLCs out there that are no good because people don't do enough homework. 

If you do decide to use a provider or attorney to set up an entity for you I would really encourage you to ask around and shop a bit. There are a few basic questions you should screen past them all, and after that you can get a feel for what they offer. Ask them about whether they can provide anonymity on public record, assist you will establishing operating companies and if their entities will roll into any future estate planning if the need arises. You generally get what you pay for, as long as you filter out the random scams, and so if there is a higher price from one provider ask what they offer that is different than their cheaper counterparts.

In regards to how you will want to file the entity (S-Corp) - it would depend on what type of investment you are running. This article covers some of the basic differences between the more commonly used entities.

Hope this helps. Best of luck to you moving forward!

It sounds like you have a pretty good working knowledge of the Series LLC and have come up with a pretty good strategy. The main issues I would see are (1) you running into the foreign filing fees because assets are across state lines of their LLC, (2) the strategy you wrote about wouldn't inherently offer anonymity and (3) There may be better states to form the Series LLC in other than Delaware. I don't know all the details of your situation, but I hope this gives you a little direction in how to explore further. Also, feel free to reply with any more questions you may have. You can also refer to this article, which discusses the Series LLC in a bit more detail.

I would recommend a Warranty Deed, as opposed to a Quit Claim Deed, in order for the investor to maintain Title Insurance. Most Title Insurance companies will cease to offer insurance if a Quit Claim Deed is used for the transfer as the Quit Claim Deed offers no warranties as to clean title.

I would recommend a Warranty Deed, as opposed to a Quit Claim Deed, in order for the investor to maintain Title Insurance. Most Title Insurance companies will cease to offer insurance if a Quit Claim Deed is used for the transfer as the Quit Claim Deed offers no warranties as to clean title.

Every county requires a Warranty Deed to be signed by the Grantor (the Investor) and either witnessed, notarized, or both. Therefore, the investor will need the Warranty Deed in order to execute and record.  

The fees to record a Warranty Deed will vary from county to county. To check recording fees, simply visit the website maintained by the County Clerk (Registry of Deeds, Recorder of Deeds, Clerk of Court, etc) and locate the Recording Fees information.

Most counties require additional ancillary documents/forms to be sent in with the Warranty Deed in order for a successful recordation. The documents/forms will vary county by county. The required documents/forms can be found on the website maintained by the County Clerk (Registry of Deeds, Recorder of Deeds, Clerk of Court, etc). Examples include: Transfer affidavits, Preliminary Change of Ownership Reports, Transfer Tax affidavits, etc.

Many people hire an attorney to do this for them. I have found the process of executing property transfers to be one of the more time consuming aspects of my time spent working with real estate investors, mainly because of these additional county specific requirements. I would encourage you to have a professional do it the first time for you, and after that you can trying and DIY once you know the county requirements and have another document to refer to.

 Sorry for the delay, I have been pretty busy this week and didn't get a chance to check back. Transferring a property into a Land Trust does not require you to inform the lender of the transfer since you still own the property, you are just placing it in an estate planning entity. The conversation can make some lenders back off if it isn't worded correctly, but I have had the conversation many times in the past without issue.

Direct transfers into a SLLC would be dependent on a few things, since the laws regarding the transfer of a Fannie/Freddie loan are changing. I would recommend chatting with an attorney regarding your specific situation. I lean toward using the Land Trust because it allows anonymity and it's utility in respect to future estate planning

With the changes in law you should be able to transfer the property into the LLC after the purchase is complete, but I would encourage you to talk with an attorney and have them review your situation specifically. In the past this type of transfer could trigger the Due on Sale Clause; however, recent laws are making this type of transfer possible. Prior to these changes investors would purchase a property into their personal name and transfer them into Land Trusts, then assign them to the LLCs for the protection - still a viable option. 

With it being your first property I would recommend finding an experienced investor and/or attorney to work with. If you don't form and operate the LLC correctly it will not actually provide you the protection you expect. Minimally I encourage people who DIY their entities to have an attorney review the paperwork and advice them on proper operation requirements.

As far as living in the unit - you would just need to be sure to operate the property in the capacity outlined in the agreement. The main issue I see investors run into is when they try move out early and try renting all their units out - it's a tempting proposition but will get them in trouble with their lenders. 

In the past it was safest to purchase a property in your personal name for the conventional loan and then to utilize a land trust to protect the assets under an LLC. Property > Land Trust > LLC. The reason is that the Fannie/Freddie lenders could use the Due on Sale Clause to recall a note for a direct transfer into an LLC. The laws are changing regarding this for purchases and LLC created over the last couple years, so the middle step of the Land Trust is not longer required to avoid the Due on Sale Clause - as long as they dont change the laws again.

Land trusts were used for a long time in this capacity and have not been altered, so I personally still utilize them to avoid all the changes that keep happening with those loans. On top of that you can introduce anonymity with the Land Trust and remove your name from public record entirely for the property, which is a useful trick. It also rolls into your future estate planning, so there are some benefits beyond that.

Just depends which method you want to go. Probably overkill on the explanation, but since the strategy involved changes every few years it can be nice  to understand why they operate the way they do now. Can be useful to get an attorney involved to walk you through the process, if you have not done it yourself in the past. It can be straightforward, but if you don't form or operate the entity properly you actually aren't protecting yourself and just end up introducing more work.