To LLC or NOT to LLC?

Question

Investors, I am in a quandary. There is a lot of conflicting information and strategies on finance and entities and pass throughs and holding companies that I am getting more confused that educated.

I reside in California, however my investments will be our of market simply for price of entry reasons. It is critical for me to have asset protection in place, and I wanted to ask you all:

"If you had to (got to) do it again from the beginning, how would you set up your structure?"

After reading and listening it seems having some version of an LLC for each property created in the same state as the property, then they all flow into a top level Holding Company.

So, what would you do?

Justin R. · Answer

If you have the assets worth protecting, or a litigious career, then yes. The vast majority of the population spends way too much time worrying about asset protection though when they don't even have the assets to protect; their energy should be used on finding deals.

I am not an attorney, but spent countless hours studying prior to making my asset protection selection. Here are my findings.

1. Do the right thing. Don't be negligent or provide an unsafe situation.

2. Have proper insurance

3. Get an umbrella policy

4. Have some debt on your property

5. If you meet all of these and have assets to protect, then look into an LLC or trust (recommended for CA residents not wanting to pay the $800 annual filing fee PER LLC.) My recommendation is finding an attorney you like and follow their recommendation for your personal situation.

Best of luck!

Ryan Phelps · Answer

Hey @Phil Clark,

I also live in California and invest out of state and I currently do not have an LLC but have good insurance in place. I agree with several of the other replies here about sitting with an attorney, however something to keep in mind, depending on your investment structure, is that most banks will not approve of a loan for a property being bought or kept within an LLC. Banks need to protect their risk, and giving a loan for a property within an LLC gives them no protection.

Now if you have several properties in an LLC with a strong equity position, then some banks may approve of a loan, but all of this may be moot depending on your position.

Best of luck!

Ryan

John Duston · Answer

@Phil Clark

Depends on a number of factors risk tolerance insurance policies assets that say you're protecting. Only way to get a real answer would be to hire lawyer and CPA. Beware that in California llc's cost quite a bit more than other states so advice from someone in another state likely is not applicable to you

Sean Morrison · Answer

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.

Megan Templeton · Answer

Hi @Phil Clark,I recommend the DST. The DST allows you have liability protection, minimization, and tax simplification while avoiding extra fees and operational pieces

Thanks,

-Megan

Brendon Pishny · Answer

@Phil Clark

I feel in your case one LLC is enough. As you grow you may want to split some properties into different LLCs. It’s completely a risk tolerance question.

I also agree that you should just do the tright thing. If you run the properties the right way the chances of you needing asset protection is slim. Hope that helps.

To LLC or NOT to LLC?

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