All Forum Posts by: Scott Smith

My experience is that investors feel that "good insurance" is the dollar amount or overall umbrella.  When the claims come in, the investor begins to understand that the fine print often protects the insurer from many of the claims that are experienced.  That is why in my article I say that it is a false choice, each protects from common situations that real estate investment is exposed to.  https://www.biggerpockets.com/blog/insurance-asset-protection

I recommend both.

Case Law:

The Series LLC is an actual LLC and that means the same LLC case law will generally apply regarding liability shields and piercing the corporate veil. Nobody has ever even tried to challenge a Series LLC per say, and all the attacks people leverage against Series LLC's are the same attacks one would use against multiple LLC's. The Series LLC is just a continuation of existing LLC statute and law. When a state legislature enacts a Series LLC, they are not creating an entirely new statute, they are just adding another clause to their existing LLC statute. So for example, they would just be adding a section to the existing statute that permits serializing assets into individual compartments. The rest of the LLC statute stays the same.

In regards to Series LLCs and states that recognize them or not, the issue comes down to each specific state recognizing the "internal liability shield." Not if they have a Series LLC to create in that state or not--an investor in any state can form a Series LLC in a different state if he or she wants one. Every state has an internal liability shield for LLCs and that is what is analyzed in every state: the LLC Internal liability shield of the state you're being sued in.

There is a misconception that the Series LLC is a new entity. It is not. It was first created in 1996 in Delaware, over two decades ago. While the Traditional LLC is more established, it is not much “older.” The Traditional LLC first became available in Wyoming in 1977, but most other states did not follow suit until the 1990s. The next state was Delaware, which enacted LLC legislation in 1995, followed by California in 1994/5. It was not until 1996 that all states had an LLC option. The same year, the Series LLC was statutorily created. So it’s interesting how people quickly fall in love with the Traditional LLC thinking it’s been around forever. But the reality is that after the creation of the LLC in most states, the Series LLC immediately came into the game. Just one year after California codified the traditional LLC.

I hope this quick timeline of the Series LLC’s history helps dispel the misconception of the “novelty” of the Series LLC

Hit the wrong key, sorry!  The article is https://www.biggerpockets.com/blog/california-real-estate-investors-delaware-statutory-trust

Robert,

California has franchise taxes for LLC's that tend to make each of your scenarios higher cost. I have seen another strategy that works well for California Investors that is not a DIY, but reduces your operating costs. You can check it out on an article

Jasons' reasons for owning the properties in an LLC are right on, and there are a few more that could have benefits. Other strategies include splitting the assets from the operations, and to create and maintain privacy. https://www.biggerpockets.com/blog/pillars-asset-protection-real-estate-investors

Several States now offer series LLC's that simplify the paperwork and work to create and maintain each entity, and maintain separation of assets more flexibly.  You can check out some added benefits of the series structure at: https://www.biggerpockets.com/blog/the-traditional-llc-vs-the-series-llc-which-is-better-for-real-estate-investors

Joseph, your a man of action! I liked Jim's reactions, and have a few Bigger Pockets articles that could help you with questions relative to the LLC questions. https://www.biggerpockets.com/blog/contributors/scottsmith-2

I would expect some of our other investors can help with the real estate side of it!

There are a variety of articles at https://www.biggerpockets.com/blog/contributors/scottsmith-2 that can help with some of your questions.  I realize that getting the most bang for your bucks is important when you are starting out investing, and that is why Bigger Pockets is helpful to develop your knowledge before committing to ongoing professional expense you may be comfortable doing yourself.  I hope these may help you understand what you need and the direction you can take to keep your cash flow positive! 

Cory, looks like alot of great feedback on your planning for investing across state lines.  I posted a blog to summarize some additional ideas in line with this discussion that may help you organize your thoughts on this:  https://www.biggerpockets.com/blog/investing-real-estate-state-lines

Again, great discussion!

I think the question of whether you can get a no personal guarantee loan for a Land Trust will always be lender specific. 

The following links for Freddie Mac show how they lend to Land Trusts:

http://www.freddiemac.com/singlefamily/land_trust_mortgages_faq.html#2

The best strategy that i have seen is to have the beneficiary of the land trust be the (series) LLC. The investor then has the opportunity to structure the LLC to provide additional protections related to anonymity, separation of assets, and identification of amounts of interest. In addition, operating agreements and property management agreements are tools to ensure the operation of the LLC goes according to plan and doesn't get caught up in conflict as can be the case with improperly structured agreements.

Sorry this doesn't answer your specific question since more facts are needed, but the land trust is a solid strategy that is used in asset protection and understood in the lending community. It not only protects the owner of the assets, but lenders since it protects from unwanted litigation.

Regards,

-Scott

Hi Quinton, reading your post with some interest. Not sure your reasons to start an LLC, but the intention to improve your business credit score made me wonder whether you hope to get a loan with the new LLC. Generally, lenders avoid loans to new LLC's or charge higher rates than the investor can get personally. I will link you to an article that explains a strategy to protect your investment while getting your best financing rates.

https://www.biggerpockets.com/blog/llc-lending-problem

Again, forgive me if I misunderstood your question and I wish you the best with your investments.