LLC Operating Agreement

Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes

Does anyone have a good LLC operating agreement for an LLC that holds rental property? I am going to open LLCs and put each property in its own LLC with each LLC having its own bank account. I have some LLCs now and have somewhat generic operating agreements , but as I am retired from my job and have more time , I want to set things up better. "Springing Member" clause would be smething good to have. Does anyone have any other things they would recommend to have in there? Also any good resources on where to get a well written one? Any good stories about how the LLC protection went in a lawsuit would be interesting to hear also. Thanks in advance for any input

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Jack C. Cheng

Real Estate Broker · Madison, WI · Member since 2022 · 14 posts · 9 votes

@Scott Mclaren I actually went through the same thing as I was growing my rental portfolio. I had properties all in individual LLCs and the paperwork, renewals, and accounting just became overwhelming. Now I batch the properties into LLCs based on risk, value and location. I still have a bunch of LLCs, but it's a manageable amount. As far as the OA, I would strongly recommend investing in a proper, attorney drafted OA. That will save you a lot of headache down the road and offer the proper protection to your assets. Happy to answer any questions or share my experiences if you like.

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Francis Jonas Helstab
Member since 2021 · 10 posts · 5 votes
4y
Hi Scott,
I have a friend that is a real estate agent that has several investment properties that he puts in individual LLC's. I could set up an introduction for you if your interested. He's a great resource. Let me know if that is something you would be open to. I hope you have a great day and happy hunting!
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Scott Mclaren
OP
Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
4y
That would be great. I sent you a PM
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
4y
I highly recommend against one LLC for property
You are going to spend a fortune on fees and wait till you get the bill from your cpa.
Are you a single member or multi member LLC? That has an impact on your operating agreement but in either situation I have the attorney draft the OA
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Account Closed
Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
4y
Quote from @Scott Mclaren:

Does anyone have a good LLC operating agreement for an LLC that holds rental property? I am going to open LLCs and put each property in its own LLC with each LLC having its own bank account. I have some LLCs now and have somewhat generic operating agreements , but as I am retired from my job and have more time , I want to set things up better. "Springing Member" clause would be smething good to have. Does anyone have any other things they would recommend to have in there? Also any good resources on where to get a well written one? Any good stories about how the LLC protection went in a lawsuit would be interesting to hear also. Thanks in advance for any input

The value of an Operating Agreement, done correctly for you, is that it protects you when you get sued. In Arizona I'd recommend Keyt Law in Phoenix.
By the way, a "generic" Operating Agreement will get you "generic" results in a lawsuit. It's kind of like taking a friend's dental xrays to a random dentist to have your teeth worked on. It may be cheap, but boy does it hurt and the outcome ain't pretty.
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Jack C. Cheng
Real Estate Broker · Madison, WI · Member since 2022 · 14 posts · 9 votes
4y
@Scott Mclaren I actually went through the same thing as I was growing my rental portfolio. I had properties all in individual LLCs and the paperwork, renewals, and accounting just became overwhelming. Now I batch the properties into LLCs based on risk, value and location. I still have a bunch of LLCs, but it's a manageable amount. As far as the OA, I would strongly recommend investing in a proper, attorney drafted OA. That will save you a lot of headache down the road and offer the proper protection to your assets. Happy to answer any questions or share my experiences if you like.
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William Anderson
Rental Property Investor · Mississippi Gulf Coast · Member since 2022 · 206 posts · 168 votes
4y
Don't use a hand-me-down LLC agreement. While they can be similar, an attorney will craft yours using state-specific language. Every state has a statement or terms that vary including typical citations of specific state statutes that authorize LLCs. You can have one written by an attorney and then use it as a model for others. To reduce my legal expenses, I modify the agreement and send it as a word file with changes to my attorney for review.

If the property is in California, be sure to create a CA LLC, it's expensive but the alternative is to register as a foreign entity and pay the same fee. If you do neither, you can not bring a suit in a CA court.

FYI, in most states and perhaps all states, if you have a court appearance against any of your LLCs you need an attorney. You are not the LLC and unless you are a lawyer, you will not be able to defend your LLC as the LLC has the same standing as a person.
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Scott Mclaren
OP
Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
4y
Quote from @Chris Seveney:

I highly recommend against one LLC for property
You are going to spend a fortune on fees and wait till you get the bill from your cpa.
Are you a single member or multi member LLC? That has an impact on your operating agreement but in either situation I have the attorney draft the OA

Fee wise, the 2 states I am in have no annual fees and I have registered agents that don't charge me anything. As for taxes, the LLCs are disregarded for taxes , so I just give the schedule E info to the accountant for my personal return.
I have had some properties grouped into LLCs for years , but now based on some asset protection attorneys , they should be in separate LLCs for the best protection. This will include separate bank accounts for each but it shouldn't be too much to deal with.
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Scott Mclaren
OP
Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
4y
Quote from @Francis Jonas Helstab:

Hi Scott,
I have a friend that is a real estate agent that has several investment properties that he puts in individual LLC's. I could set up an introduction for you if your interested. He's a great resource. Let me know if that is something you would be open to. I hope you have a great day and happy hunting!

That would be great! Could you DM me his contact info?
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Scott Mclaren
OP
Investor · Gilbert, AZ · Member since 2015 · 96 posts · 46 votes
4y
Quote from @William Anderson:

Don't use a hand-me-down LLC agreement. While they can be similar, an attorney will craft yours using state-specific language. Every state has a statement or terms that vary including typical citations of specific state statutes that authorize LLCs. You can have one written by an attorney and then use it as a model for others. To reduce my legal expenses, I modify the agreement and send it as a word file with changes to my attorney for review.

If the property is in California, be sure to create a CA LLC, it's expensive but the alternative is to register as a foreign entity and pay the same fee. If you do neither, you can not bring a suit in a CA court.

FYI, in most states and perhaps all states, if you have a court appearance against any of your LLCs you need an attorney. You are not the LLC and unless you are a lawyer, you will not be able to defend your LLC as the LLC has the same standing as a person.

Thank you William. All good info. Yes I want one good OA for each state that I can modify for each LLC .
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Nathaniel Dodson
Attorney · Dallas, TX · Member since 2021 · 15 posts · 4 votes
4y
If you are a sole member, getting a simple single member operating agreement form works just fine. From a tax perspective, it's a disregarded entity and no separate tax filing from your personal tax return may be required. If you expect to have partners or investors, make sure that you speak with competent legal counsel to make sure your operating agreement works.
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