All Forum Posts by: Sean Morrison

$13k for three LLCs seems high, but $1500 per LLC is not. Were you getting eight LLCs created? LLC formation can get quite complex depending on how you're structured and how many partners you have.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

I usually tell my clients that they can do a single-member LLC holding one SFH property on their own. It's not complicated. However, if you need something more than that (multiple properties, even one partner, asset protection, holding company, etc) then an attorney needs to change it.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

LLC's can be powerful tools for asset protection, but the first line of defense is always insurance. Get an umbrella policy if you're concerned. The power of the LLC is its ability to separate valuable assets from risky liabilities. If trying to avoid the CA taxes, read up on Delaware Statutory Trusts. There is a lot of confusion and bad information on the net and in these forums about trusts from people who fundamentally do not understand them and their limitations. Don't do anything without sitting down with an asset protection attorney.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

A REIT is a very complicated structure with a ton of regulations. For example, you must have at least 100 investors, no five of which can own more than 50% of the shares. And 90% of its income must be paid in distributions each year. Typically, REITs are reserved for going public, and as has been mentioned, doing an IPO is incredibly expensive. If the goal is to do one deal, even with 60 doors, a syndication is a much simpler process. Talk to a syndication attorney about how this could be structured to attract investors.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

My rule is that you need an attorney once there is a partner involved, especially if there are more than two. There are millions of ways of structuring this, and it all depends on what you agree to do. For example, it could be 33/33/33%. Or maybe the working members earn equity over time through a vesting agreement (there are tax implications here). Or the equity partner actually provided a loan, and it will be paid back. And how do you enforce the work? And what happens when one of you wants out, doesn't show up to work anymore, dies, retires, etc?

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

As a general rule, real estate holding LLCs should be created in the same state as the property. While some states have better protections for LLCs than others, when it comes to real estate courts only want to recognize local protections. In addition, the cost to create a new LLC is the same to register an old LLC, but now you also get two LLCs (and the asset protection protections that provides). Of course, the new LLC could be a subsidiary of the old one.

This sounds like a question for a Japanese CPA. 

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

This is more a question of risk tolerance and strategies for mitigating a certain level of risk. It's much debated on BiggerPockets how many LLCs are needed. It depends on you, your risk tolerance, and the value of your assets. The LLC can limit liability to just the assets within that LLC. If the assets of the LLC include three properties, then a judgment from one property could collect by foreclosing the other properties. But if they are in separate LLCs, the liabilities of one LLC can't go against the assets of another. It's more complicated than that, but that's the basics. Of course, insurance is the first line of defense.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

This sounds like a syndication. A typical structure would be a two LLC model. One is the "management" LLC, which the sponsors run. This LLC finds the property, buys it, fixes it, gets renters, etc. It puts the deal together. Then there is an "investment" LLC which actually owns the property. The sponsors and the investors all get a part of the investment LLC. If the sponsors do other deals, that can be done with the management LLC, but each deal would typically have a new investment LLC. [note I am not getting into series LLCs here]

However, once a deal has passive investors, then as mentioned, the SEC regulations kick in. This means regulatory exemptions, restrictions on who can invest, rules on advertising, and more. It's complicated and an attorney needs to be involved.

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

Just something else to consider. If the property is not owned by the LLC, the LLC does not provide any liability protection.