Why I filed for a LLC. Only own 1 property too.

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Why I filed for a LLC. Only own 1 property too.

Cody Barrett
Phoenix, AZ · Member since 2015 · 345 posts · 138 votes

One popular question on BP is the question of "should I file for a LLC" or "Do I need one?"

I definitely do not have that answer because everyones intentions, needs, and goals are different. 

But... I decided to file for one because of what I plan on doing with real estate. I think a lot of that decision goes into what you want out of this business and what your lawyer recommends. After speaking with my lawyer and telling her of my goals (short and longterm) we concluded that a single member LLC will do the trick for now. I only own 1 property at this point but I am working hard to grow and make that next investment asap. So eventually I will have a few properties and if assets from 1 property becomes under fire, I don't want my other properties to come under fire. So eventually I would assume series LLC's will be used to keep me safe. Again that is down the road but it also doesn't mean I shouldn't prepare a solid foundation to build off from when that moment comes. It is also not very expensive for me to file for one, which helps...

Again.. This post doesn't have any proper information in it for one to decide what is best for their business or themselves personally.  But I always enjoyed reading other people's experiences and why they decided to do something with their business so I figured I'd throw an experience out there. 

Good luck!

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Account Closed
Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes
10y
Originally posted by @Gloria Mirza:

To protect your properties you would need to have one LLC per rental.

I disagree. You can have multiple rental properties per LLC, just spread them out nicely. I also suggest getting an umbrella insurance as well. If properties are paid off, you can also register one LLC to be the "Bank", i.e. you are the Bank essentially. Then mortgage those paid off properties by that same Bank. If someone was to sue you, and they got into your LLC, the Bank (you) needs to be paid first, then whatever is left (almost nothing) goes to the winning party.

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  • Ryan Moore
    Rental Property Investor · Phoenix, AZ · Member since 2015 · 224 posts · 50 votes
    10y
    I'm in the same boat. I currently have one rental property and I do not want some issue with that one property to affect my future plans. Let alone affect my current personal home and my family.
    0Reply
  • Gloria Mirza
    Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
    10y

    To protect your properties you would need to have one LLC per rental. Right now with one rental that's fine, but as you grow you would need more LLC's. If you have all rentals in one LLC a lawsuit could force you to sell all properties. Here in California it cost something like $500 per LLC, umbrella insurance would be a cheaper bet.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    hmm; When I Foreign Filed my Nevada LLC in California, it cost me $800/yr

    Guess I got cheated!

    1Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    10y
    For what it's with let me tell you guys what just recently happened to a friend of mine. One of his tenants slipped and fell. The tenant most likely would have been ok but since a chunk of the cinder block wall on the owners property had some how broken, the tenant hit his head on the cinder block on the way down. This happened last week and the tenant is still in the hospital. Fortunately for the owner (who I saw today) he's treated his tenants well. They don't want to sue him( I'm sure the tenant can still change their mind) as of now. But he doesn't not have his property protected by an LLC or in a trust. If this tenant wants to sue him, he is up the creek with no paddle. As for feeling ripped off because you filed your LLC in Nevada- I'd rather spend the extra money because Nevada LLC laws offers way more protection that California. I've heard and read that Delaware is even better than Nevada. Just my 2 cents guys... Best of luck to you all.
    1Reply
  • Sean O'Gorman
    Investor · Menomonee Falls, WI · Member since 2014 · 54 posts · 16 votes
    10y

    I personally went the umbrella insurance route to start. My concern with the multiple LLCs whether as regular LLCs or in the Master/Series LLC setup, is the formalities that need to be followed in order to protect all your LLCs (i.e. ensuring no one can pierce the corporate veil). One slip up and the structure fails. That means no commingling funds, accurate record keeping including receipts and expenses for each LLC, and not using funds in any account as a personal piggy bank.

    There is a really good podcast #109 with Scott Smith that is well worth a listen.

    0Reply
  • Charissa Mood
    Wholesaler · Oak View, CA · Member since 2016 · 19 posts · 5 votes
    10y
    Originally posted by @Jeff B.:

    hmm; When I Foreign Filed my Nevada LLC in California, it cost me $800/yr

    Guess I got cheated!

    I don't think you got cheated, I too filed my LLC in Nevada but we will benefit a lot more from the tax break and Nevada DOES NOT disclose your name, so you would be personally protected a little better. I think it was a genius move...but I'm new to this too so we'll see.

    0Reply
  • Mike Wire
    Investor · Woodbury, NY · Member since 2015 · 15 posts · 7 votes
    10y
    Can anyone speak to the scalability of have hundreds of properties and putting each in its own llc? It doesn't sound like a realistic solution. I personally like the umbrella approach.
    2Reply
  • Account Closed
    Las Vegas, NV · Member since 2015 · 16 posts · 8 votes
    10y

    Does anybody have any experience with opening a series LLC for multiple property holdings?

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Charissa Mood:
    Originally posted by @Jeff B.:

    hmm; When I Foreign Filed my Nevada LLC in California, it cost me $800/yr

    Guess I got cheated!

    I don't think you got cheated, I too filed my LLC in Nevada but we will benefit a lot more from the tax break and Nevada DOES NOT disclose your name, so you would be personally protected a little better. I think it was a genius move...but I'm new to this too so we'll see.

     :GRIN:  Sorry - - look it up, it is public, both NV&CA

    Every year, the LLC must file a list of members, and the name of the controlling entity (eg an S-Corp) or the Controlling member.

    Search the Sec of State site for the entity name.

    "protection" is not aka 'hidden', but rather isolation of the Entity from the individual per se

    0Reply
  • Charissa Mood
    Wholesaler · Oak View, CA · Member since 2016 · 19 posts · 5 votes
    10y

    Thanks! I'm honestly not even sure what your clarifying-LOL! I am sure you're probably right 

    I hired an asset protection group to set me up and pretty much just did what they said  I couldn't really explain the why, I thought I had a pretty good idea of what they explained but apparently not. I still trust their advice...for whatever reason. 

    Thanks for clarifying  

    0Reply
  • Account Closed
    Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes
    10y
    Originally posted by @Gloria Mirza:

    To protect your properties you would need to have one LLC per rental.

    I disagree. You can have multiple rental properties per LLC, just spread them out nicely. I also suggest getting an umbrella insurance as well. If properties are paid off, you can also register one LLC to be the "Bank", i.e. you are the Bank essentially. Then mortgage those paid off properties by that same Bank. If someone was to sue you, and they got into your LLC, the Bank (you) needs to be paid first, then whatever is left (almost nothing) goes to the winning party.

    3Reply
  • Justin R.
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y
    Charissa Mood Is your rental property in California? If so, note you'll still get to pay the $800 each year. Technically, if any business activity happens in California (including you living here and coordinating business activity), you'll get the privilege of registering your NV LLC in CA ... And paying the $800. Some of those "asset protection groups" are good, I'm sure... But there's a lot that are very questionable. I hope you're working with a good one.
    1Reply
  • Gloria Mirza
    Real Estate Agent · San Jose, CA · Member since 2015 · 172 posts · 66 votes
    10y
    Originally posted by @Account Closed:
    Originally posted by @Gloria Mirza:

    To protect your properties you would need to have one LLC per rental.

    I disagree. You can have multiple rental properties per LLC, just spread them out nicely. I also suggest getting an umbrella insurance as well. If properties are paid off, you can also register one LLC to be the "Bank", i.e. you are the Bank essentially. Then mortgage those paid off properties by that same Bank. If someone was to sue you, and they got into your LLC, the Bank (you) needs to be paid first, then whatever is left (almost nothing) goes to the winning party.

    I'm not saying you legally can't have multiple properties per LLC, I'm just saying the more properties you have in an LLC the less benefit you get out of it. If you have two properties in one LLC, then if either one of those properties is involved in a lawsuit then you can lose both properties. With regard to registering the LLC to the "Bank" and you being the bank, that doesn't make much sense to me. If a real bank rents out a property and is found to be negligent then it too could lose a property just like any other owner. The only reason they don't go after real Banks (i.e. your lender) is because they aren't the ones who own the property and they aren't the ones responsible for managing. In the case of a bank owner they would be held liable if they own the property and are responsible for lending it. I'm not an expert in this area and could be wrong, but I'm just saying it doesn't make much sense to me to register yourself as a bank owner.

    0Reply
  • Account Closed
    Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes
    10y

    I've consulted with some of the best asset protection specialists on that :)

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    10y

    I prefer insurance coverage. I also understand that in a LLC a law suite can be filed against all named board members. You will still be held personally libal.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y

    @Cody Barrett how did you get financing with you new LLC? The challenge I run into is having conventional mortgages, I have to list the property in my own name. Just wondering how you got around this.

    0Reply
  • Chad ZabackPro Member
    Contractor · Waconia, MN · Member since 2014 · 33 posts · 5 votes
    10y

    I'd recommend LLC''s for Dummies-

    I have a copy that I refer to a couple times per year. It gives a good outline, covers the lingo and gives examples.

    Talk to an Actual CPA. NOT your best friends uncle that does taxes on the side. I ended up in an expensive mess because of bad advise from that one.

    Talk to an attorney that has experience with LLC and one that knows good and bad things about them.

    I'have gone to a couple different attorneys. Steer clear of the one who disregards your idea and tells you what to do. You are there to learn about the specific options and requirements for a specific question. If you leave with an entirely different game plan, you've not followed through on researching your stratagy. 

    I've learned that there is a lot more to it than filing with the state and then happily skipping down the street as if I will never have an issue.

    Single member llc are not actually protected by the corporate vale. I have had to add a shareholder into one company and set up a separate tax ID#, bank accounts, credit cards, insurance, and file state and federal tax returns. The administrative side of this business costs me several hundred dollars per year even it were sitting idle. 

    Research, Trust but Verify.

    It costs money to open a business. Doing it the wrong way costs even more. I know, been there, done that.

    1Reply
  • Account Closed
    Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes
    10y
    Originally posted by @Joe Splitrock:

    @Cody Barrett how did you get financing with you new LLC? The challenge I run into is having conventional mortgages, I have to list the property in my own name. Just wondering how you got around this.

    Quit Claim it, after closing. Quit claim from your name to your LLC.

    0Reply
  • Cody Barrett
    OP
    Phoenix, AZ · Member since 2015 · 345 posts · 138 votes
    10y

    Hey @Joe Splitrock getting financing to obtain a loan required the LLC to show profits and monthly income for at least a year. So I had to finance it in my name but my lawyer recommends transferring the deed into the LLC's name and when I go to refinance it, transfer ownership to the LLC's name. If I understood her correctly, I will be reaching out to my mortgage banker in a few days to see what exactly they will allow me to do.

     Otherwise what @Account Closed you make a great point about staying on top of absolutely everything.  I have set up a specific bank account, credit card, and tracking system for everything pertaining to that business account.  It is my operating account (rent income/expenses for that property)... I have only 1 property so this will be simple for now.  Once I obtain that bench mark of (multiple properties) then even more strict overwatch of the finances is a must as I will follow my lawyer's advice on structuring each property.  Basically before I purchase a deal I tell them my intentions and then ask how is it best to protect it, and with my CPA, how to get the most out of it.

    Thanks for all the participation everyone! I have learned a few things from the comments above, thanks again!! 

    0Reply
  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
    10y
    Good choice, good for you, and good luck.
    1Reply
  • Edward B.
    Investor · Midlothian, VA · Member since 2015 · 980 posts · 823 votes
    10y

    @Gloria Mirza, he is not saying that you register as a bank owner, he is saying that you lend the money to your LLC from another LLC. It is called equity stripping. Your lien will be in position ahead of any judgment against the LLC that borrowed the money. It discourages lawsuits because there is no equity to be had so the lawsuit is pointless. You certainly will not have to worry about contingency fee lawyers.

    It is a complicated and somewhat expensive strategy that works if set up properly. If set up incorrectly, and discovered, the court will simply set aside your lien. If you own a lot of properties, though, it would be less complicated and expensive than putting every property into a separate LLC. That is simply not practical for most situations.

    1Reply
  • Cody Barrett
    OP
    Phoenix, AZ · Member since 2015 · 345 posts · 138 votes
    10y

    I needed further clarification regarding that post, @Edward B. so thank you for jumping in!! :) Rock solid. 

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y
    Originally posted by @Cody Barrett:

    Hey @Joe Splitrock getting financing to obtain a loan required the LLC to show profits and monthly income for at least a year. So I had to finance it in my name but my lawyer recommends transferring the deed into the LLC's name and when I go to refinance it, transfer ownership to the LLC's name. If I understood her correctly, I will be reaching out to my mortgage banker in a few days to see what exactly they will allow me to do.

     Otherwise what @Account Closed said seems like a valuable option that I will look into. I am very new and still learning but I wanted some solid foundation to stand on going into the adventure. My CPA recommended setting up a LLC as well, so with the cost and from hearing their advice, it was a no brainer.

    @Thomas S.great point and I also bought insurance coverage but I only own the home, the car is in my parents name and I still live with them to save money so I am not sure if an umbrella policy fit my circumstance at this point in time. Down the road, absolutely.  I just have the home to insure but the goal here is to minimize what they can go after down the road when I acquire more.  When I do so I will always ask how to protect this asset compared to the other assets.  

    @Sean O'Gorman you make a great point about staying on top of absolutely everything.  I have set up a specific bank account, credit card, and tracking system for everything pertaining to that business account.  It is my operating account (rent income/expenses for that property)... I have only 1 property so this will be simple for now.  Once I obtain that bench mark of (multiple properties) then even more strict overwatch of the finances is a must as I will follow my lawyer's advice on structuring each property.  Basically before I purchase a deal I tell them my intentions and then ask how is it best to protect it, and with my CPA, how to get the most out of it.

    Thanks for all the participation everyone! I have learned a few things from the comments above, thanks again!! 

    So you plan to obtain a non-conventional mortgage when you refinance or is there a way to transfer a conventional mortgage into an LLC. I had always heard you could not do this. I would be interested to hear what your bank is able to offer after you talk to them.

    0Reply
  • Cody Barrett
    OP
    Phoenix, AZ · Member since 2015 · 345 posts · 138 votes
    10y

    I am not 100% sure quite yet, when I first spoke with the mortgage banker before I obtained a pre approval, she stated that to have the loan be in the LLC it would have to show the ability to finance it. Like I had to personally with a w2 etc.. So when I go to refinance it down the road, if I understood her correctly, my LLC will have show the yearly cashflow/income and reserves needed to have the mortgage be financed by it. It is a smaller local bank..

    I didn't get too in-depth with her about financing properties using LLC's because it wasn't an option for me as I barely got approved for investor financing. I was so focussed on showing that I could finance it, let alone a business of mine that didn't even exist yet.

    This really came to my attention when my lawyer asked me what my bank would allow for as far as getting the property out of my name. She was confident they would allow for the Deed to be transferred but anything else required me talking to the institution. I had so many other questions that day for her too because I am so new that a lot of the information washed over me. So I will reach out to my lawyer after I speak with the banker. Interesting stuff though. Did you listen podcast109 on LLC's @Joe Splitrock ?

    0Reply
  • David Polcari
    Lender · Austin, TX · Member since 2016 · 9 posts · 2 votes
    10y
    I encourage everyone investing in Texas to research the Series LLC's. I'm not a lawyer or an expert by any means but I've done some research and so far they seem like a win win for anyone investing in real estate. The way I understand it, a Series LLC in Texas gives you the benefit of dividing assets and their liabilities into different sub-LLC's, or series, while only having to deal with the start up costs of one official LLC. If I'm missing something please feel free to reply and expand on my comment, because like I said I'm not lawyer or expert!
    0Reply
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