LLC or not?

[Vidal Gonzales]

Hi Everyone,

I am currently lost on what next steps I should take next. I currently own two properties out of state and wondering if I should create an LLC or not? If I do, how would I get this done? I know the LLC needs to be filed in the state that it does business.

If I were to create a LLC should I transfer the properties under the company name? If so , how do I go about doing that?

Thank you for your input in advance. 

[Savannah Wallace]

For Vidal, 

For any investment of real estate, I'm going to recommend placing each property into an LLC for asset protection.

LLCs can help shield you from personal liability if a tenant were to ever sue as well as offer protection against creditors in case of a personal judgment through charging order protection, when the LLC has been structured appropriately. With the property in an LLC, if someone were to sue the property, they could only go after the assets in the LLC and not anything else (again, assuming you did not guarantee anything personally and the corporate veil has not been pierced).

Also, depending on the structure, you can keep your name off the public record as the owner of the property and even as part of the LLC. For my clients, I recommend that they place the properties in an LLC that has been formed in the state where the property is located and have the member of that LLC be a Wyoming LLC. This provides for both anonymity as well as charging order protection.

If you took out a loan to purchase the property, depending on the type of loan, you may benefit from a land trust. Depending on the terms of the mortgage, transferring the property to an LLC may be considered a sale, thus triggering the due-on-sale clause. However, putting it into a land trust first avoids triggering the due-on-sale clause.

While there are inexpensive DIY options out there, I highly recommend working with a local attorney to help you set up your LLCs. I've had the opportunity to review a number of templates from companies, like LegalZoom, and have found that they often lack the necessary detail and thoroughness required for effective business management. Important sections are frequently omitted, which can create challenges in day-to-day operations and long-term planning.

Once you've set up the LLCs, you'll utilize a deed to transfer the property to your LLC. Depending on where the property is located, there may be a transfer tax, so you may need to strategize and look at the various exemptions available.

Good luck with your investments!

Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.