Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
Hi everyone. I am getting ready to close on property number 6. As an intro, my five other properties are all SFH. This one is a four family. Up to this point I have not had an LLC, I have just carried are large umbrella insurance policy. I think it is the time that I set up the LLC for this property and start moving in a direction that will separate and protect my assets individually, to the maximum extent possible.
I am looking for recommendations as to whether to use an attorney to set up the LLC or set one up myself online. Someone suggested corporation.com as one option for a website that I can set it up myself. If the answer is do it myself online, I would love to hear of other online companies that provide the service to do so.
I will be posting the story of my multi-family in success stories after the closing in a couple of weeks!! Thank you all in advance for your suggestions and feedback.
My group's tax and legal expert is a partner in a good size law firm. They have a department in their office with a sign on the wall: "We Fix (Do-It-Yourself) Entities" (LLCs, S-Corps, etc.)
You say you're not currently using an entity structure and have an umbrella policy. Translation: "I'm standing here naked carrying a REALLY thick towel and hoping for the best."
A business entity alone is not enough to protect you well. You need a multi-layer strategy such that even if a veil is pierced at one level there is another layer of protection behind it.
Asset protection is NOT the place to cut corners - you WILL lose, BIG time! Every dollar you avoid investing puts your entire business at risk. Every dollar you invest in asset protection reaps many times its value in protection, security and peace of mind.
I can connect you with my group's tax and legal expert, if you want. Connect with me and we can talk.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice." - DJ Benedict
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
10y
incnow.com is what I have used. Extremely simple set up and not expensive.
I had my own articles of organization that I got from a college professor that taught law at my school. You might need a lawyer or a template of these documents.
Attorney · Bettendorf, IA · Member since 2015 · 106 posts · 47 votes
10y
Kevin Hunter
Filing the actually paperwork is pretty easy. An attorney will probably be able to help you draft the operating agreement, which can help long term.
Are you currently managing the properties yourself? I don't see much case law in my jurisdictions, a LLC for self managed properties probably won't do much good.
We are all always at risk regardless of how effective (or not) our defenses turn out to be. The point is that with an easily pierced corporate veil (DIY entity, for example) and only a single layer of protection you're just as vulnerable as the naked man with the umbrella policy hoping for the best, if not more so.
The "gasoline on the fire" is holding properties in your own name. Suers look for people like that because they know their victim's defenses are weak and easily defeated. Shysters drool over such cases and often spend the big payday before it even happens. Someone who "controls everything and owns nothing" appears broke and to be a waste of time as lawsuit target. Even the shysters balk at such taking on lawsuits.
The problem, Michael, is that you're thinking like a consumer instead of an entrepreneur.
Asset protection doesn't cost - lack of it costs.
What's the better use of your time and resources? Getting a law degree or hiring an attorney? Getting an agent's license or using an agent when you need to? Dealing with tenants and toilets or hiring a property manager?
Consumers think they can "get rich" by not spending. Entrepreneurs KNOW that they build wealth by creating income and protecting their assets and income streams.
The examples you're looking for can be found here in the forums. I've seen them. Not sure what the best search terms would be, though. Perhaps, "sued", "lawsuit", "plaintiff" or other legal-type keywords. "Tenant" might produce too many false hits.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice." - DJ Benedict
Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
10y
@Matt Holmer, I manage two of the properties myself and the other four utilize property managers. Why don't you think an LLC for self-managed properties will do much good?
I am not licensed in your jurisdiction, so this should not be considered legal advise.
Whether or not an LLC would offer protection is always going to be case by case basis. If you are going to perform the property management personally (like I do), the LLC might not shield you from personal liability for issues you directly contributed to.
For example, a tenant might sue the LLC as the owner, but also you personally because you were the person who was allegedly negligent in failing to fix something (i.e. slippery sidewalk, loose stair rail, etc.).
Now, if you have partners, and LLC is a must for tax purposes. If you continue to grow and eventually turn the properties over to management, then an LLC is a great idea. Regardless, I carry adequate liability insurance (approximately $2 million per property).
Professional · Sammamish, WA · Member since 2016 · 34 posts · 15 votes
10y
llcs are crearions of the state, so the rulea vary wildly. In some states like WA you dont have to have an operating agreement, so 250 to the state puts you in business. An operating agreement drafted by a lawyer is key if there is anything the least bit unique. Otheewise you will be subject to the state's default rules which may ne good or not.
Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
10y
update, I had the closing attorney set up an LLC for me at closing. It cost $525 and is done. I will include this amount as part of my initial investment for my ROI calculations and the $50 annual operating costs as part of my income property analysis. Thanks for all of the great feedback.
Attorney · Fort Worth, TX · Member since 2015 · 372 posts · 176 votes
10y
Have a lawyer do it. In TX, many DIY or CPA formed LLCs I see lack certain liability protections. Lawyers shouldn't practice tax (unless they're tax attorneys), and CPAs shouldn't practice law unless they are also a lawyer.
Just because you could do surgery on yourself doesn't mean you should.
Rental Property Investor · MD · Member since 2018 · 15 posts · 10 votes
7y
I have been tossing this self LLC or attorney set up LLC question around for awhile and after doing much googling, reading on the internet and here as well it seems like if it's even a question of protection later down the line that it may be worth just having a Lawyer/Attorney do it. Anyone have any particular types of lawyers to look for? Maybe a certain title or specialty? I know I don't want a divorce attorney lol. Thanks again everyone.