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Tax, SDIRAs & Cost Segregation

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V.G Jason
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Asset Protection: Two Company Structure Questions

V.G Jason
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Posted Nov 24 2022, 07:10

Hello,

I have a question about forming LLCs to protect my investment properties that I intend to start doing here shortly. Before someone says, you don't "need" an LLC. I know I don't need one, I do prefer one for anonymity and risk protection. I'm willing to pay the hard lender, DSCR loan route for it to keep myself at bay.


My question is has anyone heard the two company structure of LLCs; one holding LLC that owns the assets, another LLC that is the management of the assets. If so, I have some questions.


If I were to use a property management company, I imagine the mgmt LLC does the negotiating & discussing, but doesn't the paperwork still have to be technically signed by the household owner(holding LLC)? So how does that really give you that extra layer of protection? I am trying to understand how this really divides it.

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Nathan Gesner
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Nathan Gesner
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ModeratorReplied Nov 25 2022, 18:18
Quote from @V.G Jason:

I know you don't want to hear it, but you are spending a lot of brain cells and time learning how to be a business owner when you have no business. No brand-new investor needs an LLC and you certainly don't need a Holding Company. You want to set up protections for assets you don't have. You want to structure protections for a PM business that is non-existent.

Do you want to protect yourself? Obey the law and treat people fairly. But properties and build a business before worrying about how to protect that business. 

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V.G Jason
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V.G Jason
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Replied Nov 25 2022, 18:59
Quote from @Nathan Gesner:
Quote from @V.G Jason:

I know you don't want to hear it, but you are spending a lot of brain cells and time learning how to be a business owner when you have no business. No brand-new investor needs an LLC and you certainly don't need a Holding Company. You want to set up protections for assets you don't have. You want to structure protections for a PM business that is non-existent.

Do you want to protect yourself? Obey the law and treat people fairly. But properties and build a business before worrying about how to protect that business. 

I know you don't want to hear it, but you should probably read before you respond.

"Before someone says, you don't "need" an LLC. I know I don't need one, I do prefer one for anonymity and risk protection. I'm willing to pay the hard lender, DSCR loan route for it to keep myself at bay."

Also, I have 10 different businesses. I'll always set up my defense before I go play ball in the field. I want to set up  protections for assets that I will have. If you have a problem with that, I suggest you mind your business.

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Caroline Gerardo
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Caroline Gerardo
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Replied Nov 26 2022, 08:30
Quote from @Kevin P McCarthy:
Quote from @Caroline Gerardo:

I have a WY LLC as I lived there. I do not use it to hide from liability.

If you fail to fix a safety code violation and someone lives but is injured for life they can find you.

Your layered plan only works if: 

1. you never get a loan (conversations, emails, paper documentation, insurance records can all be subpoenaed and the signature is you unless you give up all control to an attorney at $400 and hour to do everything)  That attorney makes all unilateral choices- they talk to realtor, insurance agent, property manager, every piece of the transaction- you are not involved, your name and face never seen.

2. You have a staff accountant who sets up many offshore bank accounts and you never use a credit card and never write off any personal expenses.

3. You tell no one not even your children

4. You are not worried about triggering the IRS

If you REALLY think a random "grifter" is out to get you all this LLC layering does nothing unless you go all the way.

When you get ANY loan in America you provide personal information which is saved and held by law for people or the IRS/state to go after you. When you buy you are notarized and must provide a current driver's license. There is no bank in the USA that will let you open a LLC account without proof you own the LLC and your personal identification (they keep copies on file). You cannot get lower rate government loans. You cannot get regular fire hazard insurance for your personal liability. A realtor is not bound to keep your name secret, nor are the fifty others in a purchase transaction. Property manager dealing with your attorney will cost a fortune. Your heirs do not get family transfers on the property every time you change the deed taxes go up and transfer taxes apply.

All this hiding stuff costs piles of money every year - add that into your ROI. Attorney fees, state filing fees, extra CPA fees, bank fees, extra insurance costs, no loans, all cash, travel out of country, and property management fees.

I opt do the work to provide a safe place for someone to lease. You can vest in Living Trusts and DIY without the extra thousands of dollars.

 I can quote hundreds of case laws that demonstrates how this asset protection paranoia fails BUT you will need to pay my attorney for the advice.

Now all those guys charging for their book, and $$$$  jump in and prove me wrong.

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Mark S.#4 Creative Real Estate Financing Contributor
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Mark S.#4 Creative Real Estate Financing Contributor
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Replied Nov 26 2022, 12:32

@V.G Jason Does anyone in this thread 1) know any property owner who has been successfully sued by a tenant or guest, and 2) had excellent insurance coverage that did not cover the damages?

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V.G Jason
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V.G Jason
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Replied Nov 26 2022, 13:00
Quote from @Mark S.:

@V.G Jason Does anyone in this thread 1) know any property owner who has been successfully sued by a tenant or guest, and 2) had excellent insurance coverage that did not cover the damages?

 I do, but settled out of court. "Excellent" insurance may be the only caveat, it was USAA as the HO and State Farm as the renter's insurance. Listen, you're talking improbability not impossibility. 

Either ways, great feedback and it helped me find a lawyer that knows this. I shall set it up after the holidays.

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Mitchell Zoll
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Mitchell Zoll
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Replied Nov 26 2022, 17:16
Quote from @Mark S.:

@V.G Jason Does anyone in this thread 1) know any property owner who has been successfully sued by a tenant or guest, and 2) had excellent insurance coverage that did not cover the damages?


I have as defense counsel. The cases usually involve multiple defendants so I would have only been representing one of many defendants. The cases typically involve death or significant bodily injury. The only advice I can give is to check your structure with your lawyer and make sure they have experience actually defending these cases. Use their real world experience to understand how depositions and discovery will test every one of the layers in a real court setting. 

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V.G Jason
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V.G Jason
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Replied Nov 26 2022, 18:33
Quote from @Caroline Gerardo:
Quote from @Kevin P McCarthy:
Quote from @Caroline Gerardo:

I have a WY LLC as I lived there. I do not use it to hide from liability.

If you fail to fix a safety code violation and someone lives but is injured for life they can find you.

Your layered plan only works if: 

1. you never get a loan (conversations, emails, paper documentation, insurance records can all be subpoenaed and the signature is you unless you give up all control to an attorney at $400 and hour to do everything)  That attorney makes all unilateral choices- they talk to realtor, insurance agent, property manager, every piece of the transaction- you are not involved, your name and face never seen.

2. You have a staff accountant who sets up many offshore bank accounts and you never use a credit card and never write off any personal expenses.

3. You tell no one not even your children

4. You are not worried about triggering the IRS

If you REALLY think a random "grifter" is out to get you all this LLC layering does nothing unless you go all the way.

When you get ANY loan in America you provide personal information which is saved and held by law for people or the IRS/state to go after you. When you buy you are notarized and must provide a current driver's license. There is no bank in the USA that will let you open a LLC account without proof you own the LLC and your personal identification (they keep copies on file). You cannot get lower rate government loans. You cannot get regular fire hazard insurance for your personal liability. A realtor is not bound to keep your name secret, nor are the fifty others in a purchase transaction. Property manager dealing with your attorney will cost a fortune. Your heirs do not get family transfers on the property every time you change the deed taxes go up and transfer taxes apply.

All this hiding stuff costs piles of money every year - add that into your ROI. Attorney fees, state filing fees, extra CPA fees, bank fees, extra insurance costs, no loans, all cash, travel out of country, and property management fees.

I opt do the work to provide a safe place for someone to lease. You can vest in Living Trusts and DIY without the extra thousands of dollars.

 I can quote hundreds of case laws that demonstrates how this asset protection paranoia fails BUT you will need to pay my attorney for the advice.

Now all those guys charging for their book, and $$$$  jump in and prove me wrong.

 You're getting carried away with the whole "hiding" moniker. It's not hiding, it's just putting as much anonymity as able to that makes sense, this is still a business. If it's a few walls that deters a cheap throw, it's worth it to me. To you? Maybe not, but that's you. I delegate in all my businesses, I usually only hear or get involved on things when it's at the highest/extreme levels, so knowing my back is covered to a particular degree is comforting and stress relieving for me. When I start after the holiday season, I'm putting quite a bit of capital to work over the next 3-24 months or longer, and I'll have several agents, lenders, property mangers and obviously tenants involved. Things will get messy, it's just natural for it. I'm not worried about it because I'll be covered.   All the other stuff you're talking about is just going too far, you're getting too caught up.