Out of state LLC’s for anonymity and asset protection.

21 Replies

I am looking at purchasing my first multi family ~40 units. Would it be wise to structure a out of state LLC (Nevada) for anonymity and asset protection? I currently have an instate LLC which has 4 Properties in it getting ready to add the fifth SFH. But the multi family I was going to put in a separate LLC. Any advice is appreciated.

Thank you in advance,

Terry

Not in my opinion. You'll still need to register your Nevada LLC in the state where the property is located as a Foreign Entity and once you do that you may lose your anonymity anyway. Plus, now you may have an extra tax return to complete. One for the state your property is located in and one for Nevada. I'm saying this not knowing if you'll have to complete a return in Nevada or not. I think they don't have state income tax, but I don't know if you still have to complete a tax return.

Your lender will usually require that your 40 Unit Complex be put in its own LLC to protect them.

Here's what I do; besides putting each complex in it's own LLC, I have an attorney as my Registered Agent in each state for the LLC. Since the attorney is my Registered Agent, I remain anonymous. No one knows I own the complex unless I tell them.

Originally posted by @Terry McPherson :

I am looking at purchasing my first multi family ~40 units. Would it be wise to structure a out of state LLC (Nevada) for anonymity and asset protection? I currently have an instate LLC which has 4 Properties in it getting ready to add the fifth SFH. But the multi family I was going to put in a separate LLC. Any advice is appreciated.

Thank you in advance,

Terry

Best to consult your attorney on this one, but when we purchased our first apartment complex in Sept 17, we created an LLC just for the apartment complex in the state where the complex resides. I live in FL, property is located in AL.

I understand Nevada and Delaware have better laws toward corporations, but don't know if it really pertains to what we're doing. If you want some help on the due diligence from someone who just went through the process, hit me up. 

Great question.

You will get many different responses with varying information.

I’m in a similar situation as you. I was hoping I would get clear cut direction; but I think generally, multiple state LLC strategies are subjective and have faults. We just need to do a total assessment of the benefits and risks/hassles of each strategy.

After consulting with both my attorney and CPA, I have decided to continue with my umbrella policy, and wait till the dust settles with the new tax bill. If the 20 percent pass through is only offered to official entities then I would definitely be persuaded.

Best of luck!

 @Justin R. The 20% pass through applies to sole props and Sch E's in addition to pass through entities- there is NO tax benefit to an LLC in it's simplest form.

As mentioned this is a question for an attorney- but keep in mind the extra state filings and extra costs associated with them as well or if there is a better way to protect your assets.

@Natalie Kolodij thank you!  That is almost identical to what my CPA and Attorney said. At a certain point many investors (including myself) feel the need to set you am entity. My personal assets just feels susceptible to all of my liabilities.

A single person LLC is treated no differently than a sole proprietorship for tax purposes. I was hoping that as real estate investors we would see some benefit of the pass through benefit, but it doesn't sound like it.

@Anthony Chara is right about the lender, the best way is to have an LLC in that state take title originally to the property. The question becomes what do you do after closing if you want anonymity @Terry McPherson and the answer to that is you can deed it to a land trust without violating the due on sale clause. The land trust is in turn owned by the LLC. The Land Trust provides the anonymity, the LLC provides you the protection.

Another consideration for you might be to split up the other properties you have...consider using a Series LLC filed with a Trust as the owner so that the LLC ownership is anonymous. You can then isolate each property inside the child Series and hold them anonymously with individual land trusts. This is the best asset protection plan you can actually get, complete compartmentalization and anonymity.

If you set up the Series LLC in a state like Texas you don't pay franchise taxes or yearly fees, and you can have it anonymously by the use of land trusts. Just like any other LLC, you can form a Series LLC in one state and use it anywhere.

We form the LLC in the state that we live in/office out of and complete a foreign Filing for the state the property is in.

Originally posted by @Justin R. :

@Natalie Kolodij thank you!  That is almost identical to what my CPA and Attorney said. At a certain point many investors (including myself) feel the need to set you am entity. My personal assets just feels susceptible to all of my liabilities.

A single person LLC is treated no differently than a sole proprietorship for tax purposes. I was hoping that as real estate investors we would see some benefit of the pass through benefit, but it doesn't sound like it.

 Justin I'm not sure what you're referring to as the pass through benefit? The new 20% deduction?

Thanks for posting this @Terry McPherson . Like you, I am looking to identify the best structure but, I do not yet own any properties. Hoping to get it right from the start rather than feeling a need to redo things afterwards. Really wondering about viewpoints that suggest registering a holding/umbrella company in Wisconsin or Nevada and having that own/manage LLCs in other states.

Awesome insight and information.  Thank you all very much for your time.  Will get to doing some more research and make the decision.

Regards, 

Terry

Originally posted by @Todd Dexheimer :

We form the LLC in the state that we live in/office out of and complete a foreign Filing for the state the property is in.

 I am literally in the thick of this right now. I really need to decide by tomorrow.  I  have property holding llc's for 3 properties in the state I live (and where they're located).  All single member.   Now need to form the property mgmt llc.   Confused... If I form a Nevada or Wyoming mgmt llc for example,  how does that work in reality?   Do tenants mail their checks to a NV address, or local?  Biz checking account at a NV bank, or local?   etc..... 

@Jamel Catoe an LLC does not protect you form being sued. It only limits it to what is inside the LLC, basically like a firewall. This only really comes into play when you have significant net worth, in my mind that is a 7 digit number. So one can say, every time one of your assets exceeds 7 digits put it in an LLC, so if you loose one you dont loose all. Below 7 digits it's just not worth it to sue you, because there is not much to gain. A good umbrella insurance will cover you and is much easier. Run a solid business, stay on top of issues, do everything by the book, have good documentation, be a responsible landlord and have insurance is your best protection.

@Natalie Kolodij a "pass through" is a business that does not pay corporate income tax; and which means they generally pay less tax than the large C corps. The new tax provision allows owners of certain pass throughs a 20 percent tax deduction. Whether or not a RE investors needs to have an entity established is not "fully" understood at this point because the tax bill is so new.......at least in my CPA's opinion 

@JEFF D. you don't need to form a Nevada or Wyoming LLC. It is all pass through income and will be taxed based on the state you live in. Form an LLC in the state you live and keep it simple.

Randy Hughes aka Mr Land Trust has some interesting ideas combining multi state trusts, trustees, LLC and even going so far as using an Am Indian Attorney on tribal land as trustee. To get through that supposedly you have to sue in tribal court. That’s way too many hoops and paperwork for me but if you really want to bury your ownership that’s one way to do it.

Originally posted by @Todd Dexheimer :

@JEFF D. you don't need to form a Nevada or Wyoming LLC. It is all pass through income and will be taxed based on the state you live in. Form an LLC in the state you live and keep it simple.

I guess I should have clarified the nature of my questions - i'm focused on the liability protection aspects of a NV or WY property mgmt company.    The tax issue isn't a biggie to me.  I'll deal with whatever the tax implications in order to get the extra liability protection.    So with liability protection in mind,    For people who have property llc's in one state,   and you have a mgmt llc set up in another (WY for example),  how does that work?  Do tenants mail checks to Wyoming?   Do you need a physical address there?    Or can it be a Wyoming llc but operating from the state you have your properties?  It seems a little weird in either circumstance .....

Originally posted by @Justin R. :

@Natalie Kolodij a "pass through" is a business that does not pay corporate income tax; and which means they generally pay less tax than the large C corps. The new tax provision allows owners of certain pass throughs a 20 percent tax deduction. Whether or not a RE investors needs to have an entity established is not "fully" understood at this point because the tax bill is so new.......at least in my CPA's opinion 

Hi Justin, Yep I own a tax firm I know how the entities work. 


I just wanted to clarify that what you were referring to as the pass through benefit was the new 20% deduction. 

It was actually made clear that No you do not need an entity. It applies to Schedule C and E reporting with or without LLCs. Your CPA's opinion might have been prior to fully reading the release guidance and education for tax pros. 

@Natalie Kolodij Thanks for the heads up.

Perhaps the 20 percent deduction will help offset the extra tax liabilities we will face (as a coastal state.) Looking forward to the 10k aggregate SALT cap.

Go to YouTube and type in Clint Coons.  He has lots of good videos. FYI, i dont work for him, his firm nor have I hired his services...just find his videos very clear and informative.

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