All Forum Posts by: Weston Couch

@Preston Smedley Hey Preston, without going deep, those don't seem like good terms. Have they informed you of the $800 you'd have to pay to maintain each one of those LLC's in CA annually?

@Aaron Moayed Hey Aaron, I gotta agree with Scott Smith and Ryan Ingram. Using them both is hands down better than one or the other in terms of reducing risk. I think it helps to think of both insurance and LLC's as components of a complete asset protection structure, as opposed to exclusive alternatives where getting once cancels the need for the other.

@Brady Boyer Hi Brady, what are your feelings about a registered agent?

@Vernon Kittrells Hi Vernon, I work with a group that creates a lot of LLC's for asset protection. I gotta agree with Ashish, I think the structure that's right for you depends heavily on your situation and long-term goals. What does your current portfolio look like? What do you want to do with it over the next 5-10 years?

@Abha O. Hi Mukund, I work with a group that frequently sets up Series LLC's. Did you have any questions about them or are you just looking for references?

@Eric Quintanilla Hi Eric, I work with a group that often deals with these questions. When I sit down with clients, I always discuss (1) their personal assets, and (2) what their current investments portfolio and other business ventures are before discussing (3) their future goals. Each of these variables will dramatically change the advice I give the individual asking me this question. Generally though, I break it down into the "five pillars" of protecting your assets.

The first pillar is avoiding unnecessary and risky activities (don't drink and drive, insurance generally won’t cover your poor decisions) and take good care of your investments(maintain your property, etc) - these simple steps will help you prevent lawsuits before they even occur.

The second pillar is a good insurance policy as that cover the majority of your exposure. However, insurance is limited because it only protects you from one type of liability: accidents/negligence. Insurance doesn’t protect you from any part of the sale or acquisition of a property (e.x. Somebody wanting to sue for you backing out of a bad deal or accusing you of selling them a property with defects like unknown termite damage). Insurance also doesn’t protect you from misunderstandings, especially those made in writing and email. What happens in these misunderstandings is that something goes wrong either in the sale or after, and then they sue you for some statement you made that they “misunderstood”. That lawsuit is a claim for fraud, and that’s what fraud typically is...a misunderstanding and someone being “injured” and wanting to hold the other responsible for it. Insurance never protects you from these kinds of claims and they happen all the time.

The third pillar applies after you have good insurance You need to protect yourself from what insurance doesn't cover by compartmentalizing your assets. Compartmentalization means that if something happens to one property, people suing can't touch you or the other properties. You should use either LLC's (the old and expensive way) or a Series LLC (the new and more cost/time effective way). No matter where you live or where you own assets, I personally recommend the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely for FREE. If you're interested in using an LLC, this article also further explains the advantages of a Series.

The fourth pillar is somewhat similar - you want to separate your operations from your assets. One company owns everything and does nothing (this is your SLLC a/k/a "asset holding company") and a completely separate company handles all of your operations (this is a traditional LLC a/k/a "operating company") For the operating company which serves as your face to the world and through which you do all your business, you establish a Traditional LLC to carry out the operations of your investments. The operating company takes on all of the liability that would otherwise blow back on you including: paying property management, paying contractors, collecting rent, marketing, etc.

The fifth pillar is owning everything anonymously. If people don't know that you have assets, then they are less likely to sue because there's no use in suing people that qualify for food stamps. This anonymity can be accomplished for free by using land trusts to own your companies as well as the assets. Trusts create this anonymity by removing your name from public record. Even if they can see you used to own a property, when properly transferred it will look like it was sold to investors. If they somehow guess you are the owner though, it still doesn't matter because you would not be the owner. The land trust and the LLC are the owner of the asset/real estate, so even in the scenario that potential litigants guess, they would guess wrong.

Now, of course the application of these pillars can vary, and in your case, since you haven't rented it yet, you're probably fine(though there can be lawsuits that don't source from tenants). But, I know a lot of people still find them useful at your stage. If you're interested in talking about it, feel free to connect with me.

@Ben Daniel @Joe Funari I work with a group that "transfers" land into LLC's for liability protection everyday. We avoid that due on sale concern by actually transferring title to a land trust which is then assigned to the LLC. A transfer to an LLC will trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Despite the note being paid though, the banks tend to still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.

While a transfer directly to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.

This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. That means your name does not appear on public record for that property; your attorney and their address is the only thing that appears. All the while, you always have control and nobody else, not even your attorney, can manage or sell your property except for you.

If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, they don't compromise the anonymity.

If you're interested in knowing more, feel free to connect with me.

@Will Crocker Hi Will, I think I sent you a connect request with a message about this, but the short and sweet answer to that would be that if it's irrevocable, you don't technically own it, so your creditors can't touch it(and the trusts creditors can't touch you), but for a different reason than with an LLC. Of course, that doesn't mean you can't put it in an LLC, and it might be more convenient for you. Are you just aiming to use it as a short-term rental? Do you have long-term real estate investment goals? Those are questions that might help with your decision here.

@Ann B. Hi Ann, welcome to Bigger Pockets! Impressive that you're proactive enough to think about a Series since it's a great choice if you want to grow. As Scott was saying, you can definitely pick a Series LLC in any state that offers one. I think the two biggest factors to consider when it comes to LLC formation choice are cost and filing requirements. I'm happy to help if you'd like to get into more details on how to choose an LLC.

@Jared Smith @Todd Powell There's actually no problem transferring the property "into" an LLC after you buy it. We just transfer the property from our clients to a land trust they create, which in turn is assigned to an LLC of theirs. Since the land trust is a disregarded entity, if avoids any of the due on sale type concerns. Feel free to connect with me if you're interested in more details or resources on the issue.