BiggerPockets

Hi Kyle,

I am by no means an expert on LLC's so I am sure some of our more experienced member will jump in soon.

1. for the properties you can quit claim the deed to the LLC, if you don't have a mortgage this should not be to much of a problem. Yes there is a cost involved, the documents should be registered with your county clerk and they are usually prepared by a attorney/title office that will charge for their services. For the Tax notes I really don't know how/if you can transfer them to your LLC.

2. Your LLC can be named anything you want, just make sure you check so you don't get sued for copyright infringement if you pick something that is close to a well known brand. I would suggest you meet with your attorney/CPA to discuss the most beneficial business structure for your strategy (i.e. how to legally pay the least amount of taxes).

3.Loan will almost certainly have to be personally guaranteed, as far as I know there is no one today that will loan to a new LLC without personal guarantees, there are also some lenders that will not let you hold title with an LLC even if you give them a personal guarantee.

4. If you are going to seek additional funding you should probably have one LLC per project (property), if you don't you will have a nightmare trying to keep the Operating agreement (which is the bible of the LLC) updated to include who does what, who gets paid when, who makes the decisions etc.

Hope this helps as a start, I am sure more experienced investors will chime in soon..

Steve,

I had thought that as well and that is why I had not done anything until this point, but I started reading up on the posts about it and I thought that even if it doesn't really fully protect me, it would at least be another layer of buffer. I am seeing that it may be more difficult to get funding though and I might opt to stick with doing everything as myself for that reason.

With the reporting, tax and other requirements, and the inability to not represent your companies do you still think it is worth it? I am not arguing, just curious.

I think I am going to just keep everything in my name for now. It doesn't really seem worth it to get the llc for me right now. I am keeping it in mind for later on. As I get more properties, I will think about whether it makes sense for me to set it up.

What is the benefit of keeping your properties in your own name? If you doubt the ability of an LLC to protect you from your rentals, what kind of protection do you think you'll have without one?

I just read a story about 2 landlords that several years ago owned adjacent 4-plexes. One was anal, took out a ton of insurance (liability, loss of rent, umbrella, etc.) on his building and held it in an LLC. The other thought all that was a waste of time and money and only purchased the minimum amount of insurance while holding all his properties in his own name. One day a lightning storm burned both buildings to the ground. Nobody died but there were injuries. The anal landlord was completely covered and was able to buy his neighbor's lot, building a brand new modern 8-plex on the land. The other landlord was sued for everything he had, including several other rental properties, and was forced into bankruptcy.

Moral of the story? Insurance first, LLC second. The more walls between your risky rentals and your own assets, the better. Plus, I like the privacy afforded by placing the LLC's name between me and my tenants.

Waiting to get more properties before forming an LLC accomplishes what? The LLC isn't there to protect your rental properties, it's to protect your personal assets such as your residence. Of course, if you don't have any personal assets, except for the rental properties, then, yes, an LLC doesn't have much to protect.

Hi Mandy,

First of all, the name is "Mitch". "Mr. Kronowit" is what my daddy's called. :wink:

Next, I really wish someone with more experience and knowledge, like an attorney (I know you're out there!) would contribute to this post. I'm not comfortable handing out a lot of advice on this topic because all I have to go on is my own 1 year experience owning an LLC and what I've heard from others. That is why I retain the services of an attorney who specializes in asset protection.

Ok, that being said, in an ideal world you would form your LLC, then purchase a property shortly afterwards. After all, there's little use in paying for and maintaining an LLC for years prior to making a purchase, especially in California. Forming an LLC and sitting on it for 2 years or more before making a purchase is NOT going to get your LLC a home loan.

In an ideal world, you would locate and buy a prime piece of investment real estate and take title in your LLC's name at closing. However, with most lenders today afraid of their own shadows and sitting around with a 3' lead pipe up their posteriors, you may have to take title in your own name and transfer it to your LLC after closing.

In an ideal world, the lender would never care that you transferred your property over to an LLC, even if it was for "estate planning" purposes, so we could all be open about it up front. But as it stands now, we rely on the fact they either don't know, don't care, or simply have too many other things to worry about. Hopefully, interest rates stay relatively low so lenders don't begin getting the itch to call all these loans sending us into another real estate meltdown. They wouldn't be THAT stupid, would they? Don't answer that! :roll:

In an ideal world, once the equity in your investment property is over 50% of its value, you would be able to refinance it in the name of your LLC. After all, what idiot would default on all that equity? Don't answer that either! :mrgreen:

My final piece of advice is hold your rental properties, i.e., your PASSIVE investments in an LLC and perform your ACTIVE operations, such as flipping, wholesaling, etc. under your S-Corp. There's plenty of info right here on BP why your real estate empire should be structured this way.

Best of luck and keep in touch.

You can piece the corporate veil if you fail to operate your LLC according to laws. If you lapse at doing this then it can easily be pierced. If you manage your LLC correctly then it can be pierced.

No you do not need to have your LLC before you purchase your first property. I did not. You quit claim deed them into the LLC when the LLC is created.

Keeping everything in your name means that you can have everything you own taken from you if you are sued. That means your house, your car, your savings account and your retirement accounts.

In a an LLC if they get a judmgnet against the LLC then they can only get the company. Not your car, your house, your savings account or your retirement account. You are much better off with an LLC than keeping everything in your own name.

I would say pony up $150 and talk to a good cpa. Better pay that than to lose your own house and car in a lawsuit. That is unless you home and car is worth less than $150 then it that case keep everything in your name since you have nothing to lose.

Jennifer

I would check with a lawyer. This has to do with jurisdiction and venue. I think anyone who wanted to sue you for something you do in CA would have no trouble proving that they can sue you in CA (jurisdiction) and that it is the best place to do so (venue). I am not a lawyer, so I am not positive about this, but I recently took a law class and these issues were some of the first things we discussed.

Yes I DO need a lawyer to cover my butt. But the below is a good read.

From : http://en.wikipedia.org/wiki/Nevada_corporation

A Nevada Corporation is a corporation chartered under the laws of the U.S. state of Nevada.
Nevada, like the state of Delaware (see Delaware corporation), is well known as a corporate haven. Many major corporations are chartered in Nevada, particularly corporations whose headquarters are located in California and other Western states.
The reason for this sort of a choice is that, in general, in the United States, a corporation which operates in more than one state (or country) has a particular state where it is incorporated, to which it is a domestic corporation. In all other states where it operates and has filed papers to be allowed to operate, it is a foreign corporation, and the requirements for corporate governance in the case of a lawsuit do not use the law where the corporation is sued, but instead, the law where the corporation is a domestic corporation. Nevada offers for US citizens or residents certain advantages over Delaware (while most US aliens prefer Delaware over Nevada).

I would check with a lawyer. This has to do with jurisdiction and venue. I think anyone who wanted to sue you for something you do in CA would have no trouble proving that they can sue you in CA (jurisdiction) and that it is the best place to do so (venue). I am not a lawyer, so I am not positive about this, but I recently took a law class and these issues were some of the first things we discussed.