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Brandon Lashmet
  • santa ana, ca
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Rental Property Business Structures + Asset Protection

Brandon Lashmet
  • santa ana, ca
Posted May 16 2023, 19:52

Below is the current situation and I would like to get perspectives on the best way to protect a new rental property purchase.

Current Setup:

CA LLC 1 (1 long term rental property)

CA LLC 2 (1 long term rental property)

CA LLC 3 (1 short term rental property)

CA SCORP 1 (Real Estate Business)

New Addition:

4-unit multifamily rental property in Rochester, New York

I've read so many debates about LLCs vs Umbrella Policies for asset protection and not even sure that the annual CA LLC fees are worth it ($800 per year, per LLC).

What's the best way to handle asset protection for the new 4-unit? Merge with an existing LLC, create a new one, maybe just purchase an umbrella policy?

One option that was recommended was to create a Wyoming land trust and\or LLC for better anonymity, but I don't know too much about that.

Any advice appreciated and let me know if any additional information is needed to better advise.

Thank you :)

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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
ModeratorReplied May 17 2023, 04:17
Quote from @Brandon Lashmet:

$800 a year to maintain, plus the initial time and cost of setting them up, plus separate bank accounts, etc.

People set up an LLC to separate business assets and protect their private property from a lawsuit. How many Landlords do you know that have been sued for such an amount that insurance didn't cover it, they lost all the equity in their investment property, and then they lost private property? I'll wait right here while you generate that list...

Done? Is it blank? Of course it is.

Insurance companies are in the business of making money, not paying it out. They cover you for $350,000 or $500,000 because they know they'll never pay that out. Even if you were sued for $1 million, it's likely going to be settled out of court for a much smaller amount unless you were egregiously evil or blatantly violating the law.

Don't make your life so complicated. You can put all the properties under one LLC (or no LLC) and buy an umbrella insurance policy of $2 million and things will be easier and cheaper and still protected.

  • Property Manager Wyoming (#12599)

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Larry Turowski
  • Flipper/Rehabber
  • Rochester, NY
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Larry Turowski
  • Flipper/Rehabber
  • Rochester, NY
Replied May 18 2023, 06:28

@Nathan Gesner gave you the perfect answer. If you got sued for $1M and only had $500k it is not as if the insurance company is just going to pay out and you’re on the hook for the other $500k. They’ll fight tooth and nail to pay as little as possible, if anything at all. This is the one time we like how cheap insurance companies are. That $1M lawsuit, if there is any legitimacy to it, will probably get settled for $100k. 

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Brandon Lashmet
  • santa ana, ca
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Brandon Lashmet
  • santa ana, ca
Replied May 21 2023, 14:41
Quote from @Nathan Gesner:
Quote from @Brandon Lashmet:

$800 a year to maintain, plus the initial time and cost of setting them up, plus separate bank accounts, etc.

People set up an LLC to separate business assets and protect their private property from a lawsuit. How many Landlords do you know that have been sued for such an amount that insurance didn't cover it, they lost all the equity in their investment property, and then they lost private property? I'll wait right here while you generate that list...

Done? Is it blank? Of course it is.

Insurance companies are in the business of making money, not paying it out. They cover you for $350,000 or $500,000 because they know they'll never pay that out. Even if you were sued for $1 million, it's likely going to be settled out of court for a much smaller amount unless you were egregiously evil or blatantly violating the law.

Don't make your life so complicated. You can put all the properties under one LLC (or no LLC) and buy an umbrella insurance policy of $2 million and things will be easier and cheaper and still protected.

Thank you for the reply, very helpful.

Just to confirm, you would suggest:

1. Either consolidate all properties under 1 CA LLC (and dissolve the rest) or dissolve all LLCs.

2. Purchase an umbrella policy to cover all properties.

Do we miss out on any tax benefits by dissolving\consolidating the LLCs?
Will consolidating work even though 1 property is in New York?

I'm thinking that there are many nuances for this situation since:

1. The properties are in different states.

2. The tax strategies might be complicated since there is the option for the SCORP to "manage" the LLCs.

3. The properties are different rental types (e.g., short vs. long).

4. LLCs can be opened in different states (CA vs. New York)

5. One option would be to leave the existing LLCs as they are and implement a new strategy going forward.

6. Separate bank accounts help visibility into each properties specific performance.

Can you shed any light on the above? :)

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Brandon Lashmet
  • santa ana, ca
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Brandon Lashmet
  • santa ana, ca
Replied May 21 2023, 14:43
Quote from @Larry Turowski:

@Nathan Gesner gave you the perfect answer. If you got sued for $1M and only had $500k it is not as if the insurance company is just going to pay out and you’re on the hook for the other $500k. They’ll fight tooth and nail to pay as little as possible, if anything at all. This is the one time we like how cheap insurance companies are. That $1M lawsuit, if there is any legitimacy to it, will probably get settled for $100k. 


 I appreciate the answer and that is how I am leaning in general (e.g., stop opening new LLCs and use umbrella policies), but I'm not sold yet given the nuances.

1. The properties are in different states.

2. The tax strategies might be complicated since there is the option for the SCORP to "manage" the LLCs.

3. The properties are different rental types (e.g., short vs. long).

4. LLCs can be opened in different states (CA vs. New York)

5. One option would be to leave the existing LLCs as they are and implement a new strategy going forward.

6. Separate bank accounts help visibility into each properties specific performance.

What do you think?

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Luis Alvarez
  • Real Estate Consultant
  • Colorado Springs, CO
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Luis Alvarez
  • Real Estate Consultant
  • Colorado Springs, CO
Replied Jun 1 2023, 21:38

Hi Brandon, coming from a former CA born-and-bred resident (and where I began my legal career in) I would respectfully provide you with a different perspective.

Yes, you can just use an umbrella policy, but keep in mind that most umbrella policies only pay out when the underlying policy on the property has already agreed to cover the claim. (Because let's be honest very few people actually read the entire policy document, and of those even fewer people actually understand the legalese in those clauses...) Now, yes, those insurance companies of the underlying policies will fight tooth and nail not to pay, but YOU are the first party they're going to fight. They will use a clause in their policy to deny your claim because you were negligent, should have known better to address an issue, etc.(higher standard for property owners)...think seismic and asbestos cases in CA. The CA Civil Courts system is riddled with these. Not to say that you would purposely act in such ways to create hazards, but many times the owners just don't know what they don't know. Remember: an LLC limits liability, insurance ONLY pays for it once you've already been found liable.

To your numbered points:

1. Different properties in different states should be in LLCs formed in those relevant states because this is how you will avail yourself to the laws/jurisdiction of that state. A CA court is not going to recognize a NY LLC in their court.

2. An LLC provides the most flexibility in tax planning, but sounds like you already know this and as long as you have a solid CPA that knows nuanced structures and keeps up with case law, you should be good.

3. Doesn't really affect the entity choice, but, because of different types of activities (active vs. passive) more the reason to split out different breeds of potential liability sources whilst also making tax planning easier so things aren't mixed.

4. Yes, LLCs can be opened in diff states, and they should when you have properties in diff states.

5. You certainly can leave things the way they are (since it sounds like you have a good foundation so far). It just depends on what future aspirations are.

6. Not only does separate bank accounts help to measure metrics clearly, but most importantly you should never use one account for your different properties. Yes, I know there are plenty of folks that do it, and have done it for many years, etc., etc...but this is the easiest way for a judge/jury to collapse any appearance of you having a separate business entity and seeing straight through it and making all your assets open to liability. Commingling funds is a freebie to a litigating attorney on the other side. 

To close, IMO an $800 annual fee in CA is my price of admission for owning property in CA. As tenant friendly as it is, I would sleep well at night knowing that a well-structured (and maintained) asset protection plan is not going to potentially be the cause why my investments trajectory hit a snag.

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Nathan Frost
  • Rental Property Investor
  • Wichita Falls, TX
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Nathan Frost
  • Rental Property Investor
  • Wichita Falls, TX
Replied Jul 6 2023, 11:13
Quote from @Nathan Gesner:
Quote from @Brandon Lashmet:

$800 a year to maintain, plus the initial time and cost of setting them up, plus separate bank accounts, etc.

People set up an LLC to separate business assets and protect their private property from a lawsuit. How many Landlords do you know that have been sued for such an amount that insurance didn't cover it, they lost all the equity in their investment property, and then they lost private property? I'll wait right here while you generate that list...

Done? Is it blank? Of course it is.

Insurance companies are in the business of making money, not paying it out. They cover you for $350,000 or $500,000 because they know they'll never pay that out. Even if you were sued for $1 million, it's likely going to be settled out of court for a much smaller amount unless you were egregiously evil or blatantly violating the law.

Don't make your life so complicated. You can put all the properties under one LLC (or no LLC) and buy an umbrella insurance policy of $2 million and things will be easier and cheaper and still protected.


 But an Umbrella only kicks in if meet the requirements.  Seems like a waist of money if don't have your rentals at a higher premium.  I really don't want to raise all my coverages for this.

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Brandon Lashmet
  • santa ana, ca
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Brandon Lashmet
  • santa ana, ca
Replied Aug 18 2023, 12:34
Quote from @Luis Alvarez:

Hi Brandon, coming from a former CA born-and-bred resident (and where I began my legal career in) I would respectfully provide you with a different perspective...


Sorry for the late response here, just noticed this post.

Thank you so much for the detailed reply, much appreciated. I agree with all of it but would like clarity on one point.


Would it be considered comingling if all rental income initially flowed through separate bank accounts (each owned by their respective LLCs) for tracking purposes, then did a separate transfer into a consolidated account to take advantage of high interest?

This way all of the metrics can be cleanly seen in the original accounts as well as how much is transferred out to the consolidated account.

Thanks for the help :)

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Luis Alvarez
  • Real Estate Consultant
  • Colorado Springs, CO
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Luis Alvarez
  • Real Estate Consultant
  • Colorado Springs, CO
Replied Sep 1 2023, 21:31

@Brandon Lashmet It sounds like you'll have the parent holding company own underlying entities, in that case, no, as long as it's done clean and you keep records of profits/revenues being distributed "up" to the parent holding co. this would not be comingling because the parent holding co. is simply a vested investor in the underlying companies that are kicking dividends/distributions.