Wyoming LLC formation??
Member since 2022 · 16 posts · 19 votes
Wyoming LLC formation??
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Attorney · Member since 2022 · 160 posts · 186 votes
3yHi Robyn,
What you are speaking about is a Hub and spoke structure. This is a common structure for real estate investors that have multiple assets. The rationale for this structure is to try and isolate all of the assets into different compartments for limited liability purposes. This can help avoid a lawsuit that involves a single asset extending to other assets that are not part of the lawsuit. With respect to a Wyoming LLC, many people use Wyoming for a Hub LLC or in situations where the LLC not doing business in any specific State. Wyoming LLCs offer very good asset protection and have better anonymity than other States as well. The structure that you spoke about is not something that every real estate investor needs. A structure is unique to your situation and your goals. It should be created with these considerations. Without additional context, it is not possible to say in detail what you need or what is recommended for your specific situation. This would be a good conversation to have with an attorney.
20 Replies
- Attorney · Member since 2022 · 160 posts · 186 votes3y
Hi Robyn,
What you are speaking about is a Hub and spoke structure. This is a common structure for real estate investors that have multiple assets. The rationale for this structure is to try and isolate all of the assets into different compartments for limited liability purposes. This can help avoid a lawsuit that involves a single asset extending to other assets that are not part of the lawsuit. With respect to a Wyoming LLC, many people use Wyoming for a Hub LLC or in situations where the LLC not doing business in any specific State. Wyoming LLCs offer very good asset protection and have better anonymity than other States as well. The structure that you spoke about is not something that every real estate investor needs. A structure is unique to your situation and your goals. It should be created with these considerations. Without additional context, it is not possible to say in detail what you need or what is recommended for your specific situation. This would be a good conversation to have with an attorney.
- Member since 2022 · 16 posts · 19 votes3y
Thank you Jason! I have a consultation with a RE attorney here in San Antonio set up for Monday. I will get further clarity on that. Thanks for responding.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Robyn Cerone
Most of these strategies are an o-v-e-r-k-i-l-l
7e investments53 Reviews Think LLC formation is a necessary evil in regards to time and money consumption. If it's your only asset, then you got to as that's your everything to protect. If you have many, you have to cause you could lose it all.
1 WY holding LLC, two child LLCs in each state you operate in. Child 1 LLC owns the property, Child 2 LLC manages the property. They're binded by a management agreement. They are both owned by the Holding company and have an operating agreement between the two.
It's a lot of upfront work and fees, but worth it and I think that for anyone. If you're tight on funds to do it, then you shouldn't participate in investing. You're not cut out to weather any storm. I consider this the cost of doing business. And recommend it for everybody. Why risk it otherwise?
- Developer · San Antonio, TX · Member since 2019 · 177 posts · 81 votes3y
@Account Closed I am in San Antonio and apply similar structure. Let me know if you'd want to discuss
- Member since 2022 · 16 posts · 19 votes3y
Quote from @Naz Hossain:
@Account Closed I am in San Antonio and apply similar structure. Let me know if you'd want to discuss
Thank you Naz, I have moved forward with the Wyoming LLC as my holding company and one Texas LLC for my properties thus far. How long have you been doing real estate? Would love to link up at some point and get your take on our local area.
- Developer · San Antonio, TX · Member since 2019 · 177 posts · 81 votes3y
I have a Texas LLC holding and a moving to have a Wyoming LLC as primary holding that will be incorporated into the the OA. It would seem like me just having a holding company in Texas but almost a phantom holding company
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Account Closed:
As Chris already stated, most of this is complete overkill.
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.
The DIY Landlord Book4.7243 Reviews @Account Closed, just so you know, WY does not have an income tax, and you only have renewal fees here based upon the amount of property you own in WY so the cost will only $50 or $60 a year. Your need for multiple companies should be related to your net worth. The more you have the better it is to be protected.
The absolute best protection is operating things right and having good insurance. Lawsuits do happen, but not as often as you think. Don't get so extravagant that it makes the real estate not profitable. Best of luck
- Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes3y
Quote from @Nathan Gesner:
Quote from @Account Closed:
As Chris already stated, most of this is complete overkill.
An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.
Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.
ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.
LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.
Additional thoughts:
1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.
2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.
3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.
4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.
5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.
If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.Nathan, thanks for covering this. I also talked to someone (Prime Corporate Services) about getting an LLC. They recommended getting a holding company under my trust and renaming the trust without my first and last name (identifying information). Now I have to re-do my trust. And having an LLC for each property. I have 4 properties so not a big deal in my case (until I buy more properties) but if someone had 20 to 50 properties, that sounds like a huge headache. He recommended a Wyoming LLC. I still have to pay the $800 Franchise tax to California for each LLC since I'm doing business here and reside here.
I have 6 investor friends/family members here in the San Francisco Bay Area and none of them have LLCs, which surprised me. Their reasoning was the paperwork and the $800 tax. They own 1 to 4 properties and all purchased umbrella insurance. One of their family members was sued when the tenant learned it was an illegal in-law unit with an unsafe cooktop. This is pretty common here, someone renting out a downstairs room and bathroom (or an ADU in the backyard) that isn't up to code or inspected by the city. The owner was also accepting under the table rent money. The tenant sued for $2 million and got $70,000 in arbitration. Insurance paid out 90% - not sure how that happened with an illegal unit. So the owner didn't lose her $1+ million dollar house.
How often are landlords sued? If if they're sued wouldn't the payout be in the thousands like you mentioned? Are there cases of injured tenants being awarded a large amount in the millions?
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3yI've never found statistics on this, but I've researched it a lot over the years and come to the conclusion that it is extremely rare, but it's also location dependent. If I were in California or certain parts of other coastal states, I would be more cautious than I am in the other 40 states.
The majority of claims against Landlords are security deposit disputes. Even if you lose, you won't lose more than 3x the deposit.
For all other lawsuits, most are thrown out or settled out of court because the Landlord wasn't negligent.
For the rare lawsuit that is large and won by the Tenant, insurance covers it.
I've asked on these boards many times over the last 13 years and haven't found a single investor that lost their house in a lawsuit. The only ones you read about in the paper are (a) Landlords that blatantly violate the law, or (b) Landlords physically assaulting or sexually harassing their Tenants.
The best protection: know and obey the laws, treat your tenants honestly and fairly, and document everything. It's much cheaper than setting up complex layers of protection.The DIY Landlord Book4.7243 Reviews - Member since 2022 · 16 posts · 19 votes3y
Quote from @Jerry W.:
@Account Closed, just so you know, WY does not have an income tax, and you only have renewal fees here based upon the amount of property you own in WY so the cost will only $50 or $60 a year. Your need for multiple companies should be related to your net worth. The more you have the better it is to be protected.
The absolute best protection is operating things right and having good insurance. Lawsuits do happen, but not as often as you think. Don't get so extravagant that it makes the real estate not profitable. Best of luck
Thank you Jerry, that is good advice!
- Investor · San Antonio, TX · Member since 2013 · 213 posts · 182 votes3y
So LLCs have to sides to them asset protection and tax benefits depending on how they're structured. The only reason I know people set up those WY/NV LLCs is for more anonymity. If you plan to buy flips and acquire rentals, then I don't see why you would go through the headaches. I own 14 rentals and run multiple flips at a time, and all of my LLCs are in Texas.
Please keep in mind this is my opinion and not legal advice.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Robyn Cerone
Talk to an attorney as many people go overboard and just cost themselves money and headaches but making things overly complex
7e investments53 Reviews - 3yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
Wyoming can be a great state to form an LLC as it provides charging order protection and business friendly case law. It is also a great state for anonymity.
Talk to an attorney if it is a great state to form it in based on your situation.
I think creating multiple LLC's can be overkill.
Be mindful that each LLC requires their own separate bank account which is another debit card, account number, checkbook that you have to maintain.
You may need to pay multiple costs for LLC Fees, Registered agent fees, etc.
best of luck.
Basit Siddiqi CPA4.880 Reviews - Phoenix, AZ · Member since 2016 · 40 posts · 18 votes3y
Quote from @V.G Jason:
Think LLC formation is a necessary evil in regards to time and money consumption. If it's your only asset, then you got to as that's your everything to protect. If you have many, you have to cause you could lose it all.
1 WY holding LLC, two child LLCs in each state you operate in. Child 1 LLC owns the property, Child 2 LLC manages the property. They're binded by a management agreement. They are both owned by the Holding company and have an operating agreement between the two.
It's a lot of upfront work and fees, but worth it and I think that for anyone. If you're tight on funds to do it, then you shouldn't participate in investing. You're not cut out to weather any storm. I consider this the cost of doing business. And recommend it for everybody. Why risk it otherwise?
Assuming you own the LLC that owns the properties you are going to be PM'ing, would you then need to have a Property Management License in the state of the houses your LLC owns, and your other LLC property manages?
I ask as I am working to Airbnb my personal home's guest house and was told to start a Wyoming property mgmt LLC to run it (Hide the owner) and then put my main residents in a personal residence trust held my a different wyoming LLC. The goal is to have my personal name out of everything a creditor or disgruntle guest could fine. They cant see who actually owns the house or runs the airbnb... Just don't want to have to get my real estate license.
Quote from @Lindsey Keller:
Quote from @V.G Jason:
Think LLC formation is a necessary evil in regards to time and money consumption. If it's your only asset, then you got to as that's your everything to protect. If you have many, you have to cause you could lose it all.
1 WY holding LLC, two child LLCs in each state you operate in. Child 1 LLC owns the property, Child 2 LLC manages the property. They're binded by a management agreement. They are both owned by the Holding company and have an operating agreement between the two.
It's a lot of upfront work and fees, but worth it and I think that for anyone. If you're tight on funds to do it, then you shouldn't participate in investing. You're not cut out to weather any storm. I consider this the cost of doing business. And recommend it for everybody. Why risk it otherwise?
Assuming you own the LLC that owns the properties you are going to be PM'ing, would you then need to have a Property Management License in the state of the houses your LLC owns, and your other LLC property manages?
I ask as I am working to Airbnb my personal home's guest house and was told to start a Wyoming property mgmt LLC to run it (Hide the owner) and then put my main residents in a personal residence trust held my a different wyoming LLC. The goal is to have my personal name out of everything a creditor or disgruntle guest could fine. They cant see who actually owns the house or runs the airbnb... Just don't want to have to get my real estate license.
Every state is different in regards to property management, so it's case by case. But if you're going to create an LLC for protection, I'd say hire a PM. That gives you another layer of liability protection. Honestly, any engagement with tenants is really not worth it. I know it'll cost you, especially for an airbnb, but one slip up there is going to cost you far more.
You can't really ever prevent being sued, but putting as many blocks as possible prior really, really helps. I think the most valuable part of hiring a PM isn't just time, it's the liability of engaging.
- Phoenix, AZ · Member since 2016 · 40 posts · 18 votes3y
Quote from @V.G Jason:
Quote from @Lindsey Keller:
Quote from @V.G Jason:
Think LLC formation is a necessary evil in regards to time and money consumption. If it's your only asset, then you got to as that's your everything to protect. If you have many, you have to cause you could lose it all.
1 WY holding LLC, two child LLCs in each state you operate in. Child 1 LLC owns the property, Child 2 LLC manages the property. They're binded by a management agreement. They are both owned by the Holding company and have an operating agreement between the two.
It's a lot of upfront work and fees, but worth it and I think that for anyone. If you're tight on funds to do it, then you shouldn't participate in investing. You're not cut out to weather any storm. I consider this the cost of doing business. And recommend it for everybody. Why risk it otherwise?
Assuming you own the LLC that owns the properties you are going to be PM'ing, would you then need to have a Property Management License in the state of the houses your LLC owns, and your other LLC property manages?
I ask as I am working to Airbnb my personal home's guest house and was told to start a Wyoming property mgmt LLC to run it (Hide the owner) and then put my main residents in a personal residence trust held my a different wyoming LLC. The goal is to have my personal name out of everything a creditor or disgruntle guest could fine. They cant see who actually owns the house or runs the airbnb... Just don't want to have to get my real estate license.
Every state is different in regards to property management, so it's case by case. But if you're going to create an LLC for protection, I'd say hire a PM. That gives you another layer of liability protection. Honestly, any engagement with tenants is really not worth it. I know it'll cost you, especially for an airbnb, but one slip up there is going to cost you far more.
You can't really ever prevent being sued, but putting as many blocks as possible prior really, really helps. I think the most valuable part of hiring a PM isn't just time, it's the liability of engaging.
For right now, I am only doing my guest house that is 15 feet away from my personal residence. A PM company would make the endeavor not worth it, and we are only renting it out part time for the time being.
Quote from @Lindsey Keller:
Quote from @V.G Jason:
Quote from @Lindsey Keller:
Quote from @V.G Jason:
Think LLC formation is a necessary evil in regards to time and money consumption. If it's your only asset, then you got to as that's your everything to protect. If you have many, you have to cause you could lose it all.
1 WY holding LLC, two child LLCs in each state you operate in. Child 1 LLC owns the property, Child 2 LLC manages the property. They're binded by a management agreement. They are both owned by the Holding company and have an operating agreement between the two.
It's a lot of upfront work and fees, but worth it and I think that for anyone. If you're tight on funds to do it, then you shouldn't participate in investing. You're not cut out to weather any storm. I consider this the cost of doing business. And recommend it for everybody. Why risk it otherwise?
Assuming you own the LLC that owns the properties you are going to be PM'ing, would you then need to have a Property Management License in the state of the houses your LLC owns, and your other LLC property manages?
I ask as I am working to Airbnb my personal home's guest house and was told to start a Wyoming property mgmt LLC to run it (Hide the owner) and then put my main residents in a personal residence trust held my a different wyoming LLC. The goal is to have my personal name out of everything a creditor or disgruntle guest could fine. They cant see who actually owns the house or runs the airbnb... Just don't want to have to get my real estate license.
Every state is different in regards to property management, so it's case by case. But if you're going to create an LLC for protection, I'd say hire a PM. That gives you another layer of liability protection. Honestly, any engagement with tenants is really not worth it. I know it'll cost you, especially for an airbnb, but one slip up there is going to cost you far more.
You can't really ever prevent being sued, but putting as many blocks as possible prior really, really helps. I think the most valuable part of hiring a PM isn't just time, it's the liability of engaging.
For right now, I am only doing my guest house that is 15 feet away from my personal residence. A PM company would make the endeavor not worth it, and we are only renting it out part time for the time being.
It's not about convenience and saving money, it's about exposure. You do something wrong at the property and the short-term tenant is at risk; you're at fault. You're trying to limit liability, that's the underlying reason you go this route. If you're going to still self manage then just hold the title under your property holding LLC and manage it. It's not materially going to change a thing.
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