Benefits of Having Wyoming Holding Company
Luke TetreaultPro Member
Investor · NY · Member since 2022 · 49 posts · 21 votesBenefits of Having Wyoming Holding Company
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3yQuote from @Luke Tetreault:
We are fairly new to real estate and were told to set up our LLCs under a holding company in Wyoming. The people who we worked with in the beginning that had us structure our business that way are no longer accessible. We were more told than we were taught, so I want to know why. I am looking for the benefits of having a holding company in Wyoming and why we would want to be structured this way. Thank you for any input.
It's a common mistake. People are told to set up LLCs and have no idea why, what work/cost is involved, or whether there's really any benefit. If you are going to set up an LLC and holding company, Wyoming is a great state to do it. The bigger question is: do you need an LLC?
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
5 Replies
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Luke Tetreault:
We are fairly new to real estate and were told to set up our LLCs under a holding company in Wyoming. The people who we worked with in the beginning that had us structure our business that way are no longer accessible. We were more told than we were taught, so I want to know why. I am looking for the benefits of having a holding company in Wyoming and why we would want to be structured this way. Thank you for any input.
It's a common mistake. People are told to set up LLCs and have no idea why, what work/cost is involved, or whether there's really any benefit. If you are going to set up an LLC and holding company, Wyoming is a great state to do it. The bigger question is: do you need an LLC?
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 - 3yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
A lot of people are oversold on getting an LLC when proper insurance coverage will be just fine.
If you do find it that an LLC is needed, Wyoming is a great state to set it up as it has great charging order protection and anonymity.
Basit Siddiqi CPA4.880 Reviews - Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes3y
I think the best thing to do with the set up an LLC in your state to start. Many people spend a lot of time on asset protection and they have no assets or only a few assets to protect. I spent a lot of time setting up a NV LLC and it was a big waste of time and it costs a lot of additional money and not just one time but each year.
- 3yDaniel DietzPro MemberRental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
Your are getting some really good advice here.
If you want to dig into the topic farther, I would google up @Mat Sorensen & Mark Kohler from KKOS Lawyers & Accountants. (They are also the parent company of Directed IRA) They have some EXCELLENT YouTube videos and podcasts on that topic (as well as MANY others). A summary, as *I* understand it, is that there is rarely a need for a Wyoming LLC or similar.
They have done work for us on our LLCs that are made up of multiple SDIRAs and SOLO401Ks with excellent results.
Dan Dietz
- Phoenix, AZ · Member since 2016 · 40 posts · 18 votes3y
I think one shady business dealing risk is worth the money in asset protection. Protect your personal home and assets with everything you hold dear. . I ran into a very poor dealing with an ex / ex business partner who was upset I ended the relationship. They sued me for 80k and put a lien on a unrelated property i owned and was selling. I almost lost the sale 3/2020 - right as covid hit, I almost got sued again because the house didn't close. This is easily the worse stress Ive ever felt.
It only takes a simple recorder search and you can have a lien slapped on your property and be sued for things that have no grounds. Had I had things setup with a land trust and Wyoming llc she not only wouldn't have found me, but she couldn't have done what she did. Turns out it was still unlawful, and I got it removed. $20k later in attorney fees after a pain the *** battle.
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