All Forum Posts by: Jon Pitcher

Mike,

I don't recommend the series LLC in Oklahoma. The benefits are negligible versus creating multiple LLCs - It only costs a $100 filing fee and $25 annual fee maintain a separate LLC.

I have two issues with series LLCs in Oklahoma. First, I think the series LLC statute is difficult to understand and has some ambiguity in it. Some lawyers I've talked to think you need separate articles of formation for each series - which would negate any savings on filing fees.

The second issue - a benefit of having properties in separate LLCs is privacy. You can set up your LLCs so that there is no public record that ties you to your LLC. So if someone is considering suing you, they can't find out from the county assessor's site that you own multiple properties. With the series LLC, all of your properties will show up in a search for the LLC.

I don't know of any case law in Oklahoma regarding series LLCs, so I can't say for certain if intermingling the funds would be an issue.  But it does seem like an issue that a plaintiff's lawyer would try to use to penetrate the various series entities in a lawsuit.  It sounds like you're basically operating all the series' as one company.

You should get a pretty good bump in appraisal value for all that work.  How big probably depends on what the comps look like.

@Chris Sullens 

In my experience, if you are using conventional financing, the appraisal will be based entirely (or almost entirely) upon the comparable sales in the area. The appraiser may ask to see your lease, but it isn't going to make much difference.  The appraiser will take into account all the work you've done on the property.  If it's just paint and carpet, it's hard for the appraiser to justify a large value increase. I like to provide a comprehensive list showing all the work that has been done on the property since I bought it.

If you are using a portfolio lender with an in-house appraiser, then the appraiser may give some weight to the rent component.

@Nick Bourgeois 

The question here is whether transferring the property is worth the risk and hassle - usually it isn't, in my opinion.

If you manage the property yourself, the LLC isn't providing much liability protection. An injured tenant could just sue you personally for negligence in your management of the property. In Texas, an LLC does have charging order protection, so the LLC could protect your equity in the property from unrelated claims/judgments against you. But if you recently borrowed the money, you probably don't have all that much equity to protect.

The deed transfer itself is simple. All you need to do is file a quitclaim deed in the county where the property is located. But you also need to change your insurance beneficiary, and start paying the mortgage payments from your LLC. The lender does not receive notice directly of the transfer, but it does receive notice of the change of insurance beneficiary.

If you don't want the lender to find out at all, you can use a trust to take advantage of a loophole under federal law. Essentially, you transfer the property to a living trust - this looks to the bank like an estate planning transfer, which they see all the time and does not trigger the due on sale clause. But then you change the beneficiary of the trust to be your LLC. The downside of this strategy is it isn't necessarily bullet-proof, it will cost you some legal fees, and is illegal in at least one state (Michigan).

I have heard of at least one investor having his loan called after transferring to an LLC, although the bank did give him 30 days to transfer it back...

https://www.biggerpockets.com/forums/311/topics/18...

@Taylor Tully

If you purchase the property with the first lien in place, it will trigger the lender's right to call the loan due.  Depending on how your seller holds title, and depending on how flexible he is, there may be a solution for this. 

If you pay off the 2nd lien, the lien holder will grant a lien release - that is a simple issue.

Feel free to reach out this week if you want to discuss some ideas on structuring this.

@Steve Burke

As others here have mentioned, to achieve asset protection and avoid probate, you need both an LLC and a living trust. If the properties are free and clear, you can deed them into an LLC and have your sister be the sole member of the LLC in her capacity as trustee of your living trust. If the properties have loans on them, it's a little more complicated because of the "due on sale" clause in the mortgage. Either way, consult an attorney. Trust preparation is not a DIY project.

I'm not in Austin but I am licensed in Texas and can help you with LLC formation, lease contracts and estate planning.

@Rhett Tullis

It's between Bryant and Sunnylane, north of 44th.  You know that market better than I do, but $850 is in line with two other houses I have in the area.  I have seen rents creeping up in the last couple of years in that area, and fewer abandoned properties.

@Andrew Acuna

Most likely an LLC is the appropriate structure for you. Your Operating Agreement (in Texas it's called a Company Agreement) is where you lay out all the terms of your "partnership." These provisions are among the most critical:

1.  Elect a manager (or two managers) to run the company on a day-to-day basis.  Typically the manager has the power to sign contracts on behalf of the company.

2. Determine which decisions will require member consent. Big decisions should require a majority member vote or written consent (unanimous in the case of a 2-member LLC). Examples would be decisions to purchase a property, borrow money against a property, sell a property, etc.

3. Determine how and to whom a member is allowed to sell his/her membership interest. Does it trigger a right of first refusal in the other members? You don't want to allow the members to sell their interests without approval.

4. Provisions to determine what happens when a member wants out of the deal. You should have some kind of forced buy/sell mechanism so that you don't have to resort to litigation to split up the business.  You also need to plan for a member's death, or divorce.  You don't want to end up with the other member's heirs or ex-wife as your business partner.

I always recommend using an attorney for multi-member LLCs.  I have seen more than one lawsuit that could have been avoided by hiring an attorney to spend a few hours drafting a solid operating agreement.

@Gilbert Tirado

I do recommend an LLC for managing the properties of others (although it isn't required). But I would not pay your LLC a management fee for managing your own properties.