State LLCs go in a WY holding LLC. How does the purchase process look from there?

Question

Hi everyone!

I have set up a holding LLC in WY and plan to put my CA and TX entities within the holding LLC. My question is, how does the process then become for buying properties in your state LLCs? Usually, the title company will require the LLC documents, but now they will show WY LLC and the WY LLC shows a registered agent for discretion. I may be missing something in my question that is a current unknown, but I'm hoping someone will understand what I am asking. TIA!

Stuart Udis · Answer

@Heather Watkins I prefer to see the posts where the investor is merely contemplating taking the steps you've taken rather than instances where they have already spent unnecessary time and expense on entity formation because we as a BP community can at try to steer the investor in the right direction. This goes back to what I've been posting for a while and that's the fact most investors cannot articulate the risks they are protecting against or how these elaborate entity structures will actually protect them and there lies the problem.

In my past professional life I worked as an attorney for a hotel development company that owned over 1B in assets yet as a company we  did not feel the need to utilize entity structures nearly as complexed or  convoluted as what you arranged.  Keep in mind hotels have a lot more moving parts and greater liability exposure yet we as a company still did not implement what you shared.

Where we as operators differed was in our the understanding of the actual risks associated with owning real estate and how to mitigate or protect against them. Furthermore, there was a greater emphasis on preventing the claim or incident from occurring in the first place.

If I were to take a poll of all of the investors who came before you and who  implemented similar entity formation structures I suspect at least 90% fail to utilize the correct insurance depending on the status of their project (vacant, builders risk, property etc.), fail to execute contracts with vendors, use uninsured and unlicensed vendors, fail to be added as additional insured (likely don't even know the difference between being a certificate holder and being added as additional insured).   This is where you should start as a real estate investor. These steps will be fare more helpful in providing the protections you are seeking. The good news...it doesn't seem you have actually purchased real estate in these entities yet. Keep it simple and buy in a an entity in the state where the real estate is located or where you live.

hate to seeing posts like yours where investors have already spent unecessary

Katie Balatbat · Answer

@Heather Watkins

You'll probably hear a lot of opinions from different people as there's really no right or wrong way to structure your holdings.  Question though - why have you decided to create this multiple tiered structure and so much complexity?  Are you aware that CA does not recognize series LLCs and charges $800 for every LLC doing business in the state?  The title company may just want to see operating agreements of the owning entity and the holding entity?  The registered agent generally is just for notice purposes and the manager and/or member will have powers in the LLC, which are the roles that matter much more so.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.