LLC or Land Trust

12 Replies

I believe to have found my first rental property. It's a duplex, asking price is $71,000, tenants pay all utilities and mow grass, gross rent is $1,300/mo. Great school district, good rental history, etc. A friend of mine dissolved his LLCs last year and put all 9 of his 4 units, $500,000 personal house and vehicles into trusts and raised his insurance coverage to 3 million. He says that it is a far simpler process, less yearly paperwork and easier financing. I am planning to buy properties in East Tennessee, South Carolina and North Georgia because that is where we want to put down roots in a few years. I will have a property management company hired for all properties. Our five year goal is to purchase 20 properties. How should I structure myself????

Originally posted by @Jean Norton :

I still like land trusts, but I keep my LLC as the beneficiary.

Does this mean that if you die your LLC will inherit your properties?

@Jean Norton    what do you gain in using a land trust to hold the llc

@Nick Martin   what happens to all your assets if you insurance company finds a loop hole to not cover you.  Everything is up for grabs.    much better to have different lines of defense.  Research charging orders, as well as Nevada llc.  once theses are setup they are cheap to maintain and provide additional protection.  

for example let's say you neighbor slips in your walkway and get a concussion or even worse goes into a comma.    then let's say you insurance company show the walkway was not properly maintained.   everything you ever worked for could be gone.   

@Account Closed you are arguing against your own point. You are talking about liability insurance. If somebody slips and falls on your property they sue you because they say you are liable for their injuries. Your insurance company will fight to push the liability off of you and not have to pay the claim and push it back on the person who fell. Negligence is the main reason for liability insurance. Charging orders are what creditors use to go after people who try to hide behind an LLC.

If the walkway was not properly maintained you are liable for the injuries. You have liability insurance to pay the claim and to protect your personal assets. What am I missing? 

If an insurance company can show that you failed to exercise your duty to inspect as well as fix any known issues that resulted in someone getting hurt they more than likely will not cover the incident.  Case history abounds with such outcomes.   So given that insurance in and of itself is not sufficient asset protection a second line of defense should be incorporated

The LLC will help protect your personal assets if it gets sued. This is true in all states

However it is different when you are personally sued as to whether or not your assets and an LLC will be protected

This is where the charging order becomes important.  In states like New York and Pennsylvania you have almost no protection and a judgment creditor can take the assets by taking control of the company forcing sale of assets and distributing proceeds

In other states like Wyoming and Nevada charging orders are handled differently in that a judgment creditor cannot take control over the company.  So while a creditor can win in court collecting the money is much more difficult.  By making it more difficult you're less likely to have an attorney go through all the work to collect the money

I'm not sure if we disagree maybe I just needed to clarify my point

Originally posted by @Jean Norton :

I still like land trusts, but I keep my LLC as the beneficiary.

Can you explain a little further (in amateur terms) how that works? Does that structure double your protection? My attorney is telling me that South Carolina and Tennessee might not recognize a Texas series LLC in their state. Any ideas on that?

There are many, many factors that contribute to your asset protection plan.  Are you planning on financing through a bank or paying cash?  This can influence your ability to qualify for financing.  Trusts require careful planning to set up (at a minimum) and since it's your first time, you'll probably want to use an attorney.

I will say that the most common model I hear people talk about using is to hold a property in a land trust, which is held by a personal property trust, which has an LLC as a beneficiary (one LLC total, and two trusts per rental property). You act as the agent of the LLC.

If your friend has some experience with this, you may want to have a lengthy, detailed discussion with him about it, and maybe his attorney too.

Originally posted by @Jeremy Pace :

There are many, many factors that contribute to your asset protection plan.  Are you planning on financing through a bank or paying cash?  This can influence your ability to qualify for financing.  Trusts require careful planning to set up (at a minimum) and since it's your first time, you'll probably want to use an attorney.

I will say that the most common model I hear people talk about using is to hold a property in a land trust, which is held by a personal property trust, which has an LLC as a beneficiary (one LLC total, and two trusts per rental property). You act as the agent of the LLC.

If your friend has some experience with this, you may want to have a lengthy, detailed discussion with him about it, and maybe his attorney too.

 My plan right now is to put half down on each property and finance the remaining balance for 10-15 yrs. This will allow us to purchase properties at a faster rate than paying cash for each. I did discuss this topic with my friend but he wasn't super helpful or super knowledgeable on the subject. His brother in law talked him into the decision.

@Nick Martin

the fact that you are putting so much money down will definitely make the use of trusts less of an issue with the bank. If you were trying to get one of those super-low down-payment FHA loans, they'd almost certainly throw fits.

If you don't have access to a R.E. lawyer who has worked with trusts before, you should try and find a local REIA. The odds are greatly improved that someone there has a connection or some experience that could be of use to you.

@Jeremy Pace

thanks, I was unaware those even existed! It seems as if most are once a week local meetings. My situation is that I'm working in West Texas/ New Mexico and will be buying properties out East. I will have to do most of my research and networking online. I'm planning on purchasing most of these properties based on photos and video from a trusted realtor.

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