Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
While I know this is wildly different across states and formation types and the like but...anyone have any sort of guidelines on what an attorney should cost for setting up an LLC? I'm focused on Delaware, but I imagine anything in the Northern Maryland, South Jersey, Philadelphia areas should be comparable.
I'm only just getting started and will not let the lack of an LLC hold me back from doing so. I can always transfer property ownership later (without fear of triggering any due on sale clauses because I've already cleared it with my lender and they're willing to put in writing before I go to closing).
However I'd kind of like to have the LLC set up so that I can start my branding and marketing and know that I have the legal rights to the business name and the like. Perhaps a conversation on business name and marketing before having an LLC belongs in another post though...so we'll see where this conversation goes and maybe I'll post that up there.
Investor · Hammonton, NJ · Member since 2015 · 58 posts · 17 votes
11y
Hi, @James MasottiI have setup LLCs several times through New Jersey's state website. It's relatively easy and painless (at least in New Jersey) to do it all online, and then get an EIN. As for the Operating Agreement, I have several that I've paid for from attorneys, but after finding Rocket Lawyer, I use it for many of my legal documents. They have state specific legal forms ready to go, and an easy to use questionnaire to help you fill it out as you go. I just logged in to check, an they have an LLC Operating Agreement, and all kinds of other documents that help real estate investors (such as Lease Agreements, Eviction Notices, etc). I highly recommend them, they've been well worth the money for me versus taking all my work to a lawyer.
So are you saying that interest rates are higher for those with LLC's than if the loan were to be in my name personally?
I hear of investors closing in their name and then transferring the loan to their LLC. Thoughts? I hear about the horrid "due on sale" however everyone that says that has also never heard of anyone that it has happened to.
So are you saying that interest rates are higher for those with LLC's than if the loan were to be in my name personally?
I hear of investors closing in their name and then transferring the loan to their LLC. Thoughts? I hear about the horrid "due on sale" however everyone that says that has also never heard of anyone that it has happened to.
Thanks!
Jared - To start - Yes you will pay about 1% higher on the interest rate for a commercial loan. You will get 15-25 year amortization and likely have rate resets and balloon payments. A fixed rate 30 year mortgage doesn't exist in commercial financing. The exception to that is if you're doing larger commercial deals with agency debt.
To the second point... I'm not an attorney, although I did complete pre-law and take the LSAT to go to law school...just never actually followed through, so take my opinion with a grain of salt.
If I'm an attorney looking to sue you and go after your personal assets my goal is to pierce the corporate veil of protection and identify some sort of activity that can negate your claims of separation between your LLC and you as an individual. I would certainly hope if I were suing someone that my attorney would due a title search to establish a trail of ownership and figure out that you purchase the property in your own name and then did a quit claim deed to your LLC but never refinanced. What this effectively would tell me and the argument I would want my attorney to make is that you did this purely to establish a higher degree of anonymity from you tenant, but never actually had the intentions of running a separate business entity.
Would this stand up in front of a judge and jury? I have no idea. But I also don't want to be the one to find out the hard way.
You are correct that plenty of people do this process, and that's a part of their risk assessment they have taken under advisement from their legal council, so it's fine for them. I'm just saying it's not for me.
I own a rental in my own name, because it was my primary residence that I converted. I didn't transfer it to an LLC, I just have insurance to cover my increased personal exposure on that property and my overall asset holdings. That being said any property I purchase with the explicit purpose of owning as an investment, is purchased in one of my LLC's and treated as an investment and a business day one.
Hopefully that helps better understand my personal thought process for why I structure my things the way I do.
Rental Property Investor · UT · Member since 2018 · 80 posts · 14 votes
7y
This is great insight @James Masotti Thank you for that info.
So when I hear on the podcast of investors talking about umbrellas and leveraging their money on a 30 year mortgage like @David Greene am I to assume they are NOT wrapping those properties up into an LLC then?
Investor · Los Angeles, CA · Member since 2017 · 96 posts · 102 votes
7y
Most states you can file for an LLC on your own with the state for less than $100. Usually a 1-2 page document. Next step is EIN & bank account. Not sure an attorney is needed unless you want to bring them in for more higher level planning. Just my two cents.
Real Estate Agent · Chicagoland · Member since 2018 · 314 posts · 199 votes
7y
In Illinois where I live they recently lowered the prices on LLC registration. I registered mine a couple weeks ago, it took 10 minutes and $175. There is no reason you can't do it yourself.
Rental Property Investor · Cumming, GA · Member since 2017 · 66 posts · 15 votes
7y
IN GA, I paid $450 for all. ( State fee, EIN and Operating Agreement) this is my first LLC So went with lawyer to get all my questions answered face to face.
Even you can do you your self, by spending some time googling.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
@Regina Jones This article may be of interest to you and anyone else out there that is considering setting up an LLC themselves or having an online group do it: https://www.biggerpockets.com/blog/reasons-buy-llc-online/ There are many factors to consider such as annual fees, how to maintain the llc and keep it in compliance year after year, etc.
Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
7y
An LLC purchased at a "GURU" seminar can cost over $6,000!
In Illinois many attorney's charge under $200.00
There are websites out there that sell LLCs and have something like a Bronze, Gold and Platinum package. These start at under $200.00 and go up to $500 or so.
Contact your local REIA and see what their members are paying and who they use.
Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
7y
@Jared Smith - @Eric Nguyen, @Forrest Williams, @Trin Nagireddy, and @George Skidis are all correct LLC's are quick and cheap to setup yourself...BUT...mine are partnerships so the attorney was used more for the implementation of the operating agreement, which, again not an attorney, but from my knowledge is an important factor of the asset protection. If you don't execute the operating agreement correctly, and/or spell out everyone's roll and responsibiity in the partnership. You're doomed if the you-know-what hits the fan.
The time and cost to actually do the filings was relatively low for him and I could have done it myself.
A transfer to an LLC will trigger the clause and should therefore be avoided, even though banks are hesitant to ever foreclose as long as the note is being paid. Even with the note being paid, the banks will still send threatening letters. This issue can be avoided completely by transferring the property into a land trust.
While a transfer to an LLC will cause alarms at the bank and prompt them to send you a letter, a transfer to a trust will not. A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool. You should not even receive a letter from the bank.
This article can explain the general process of taking a property into your own name and transferring it into the Land Trust before assigning it to the LLC. The added benefit of this process is that you can also have your attorney sign the public records as "Nominee Trustee" before assigning yourself as the "Trustee" once the Trust has been established. It means your name does not appear on public record for that property, your attorney and their address is the only thing that appears. All the while, you always have control and nobody else, not even your attorney, can manage or sell your property except for you.
If you need to prove ownership for financing or any other reason, you simple produce your company documents as well as your banking and accounting records. Since these disclosures are private, and not part of the public record, it does not violate the anonymity you’re seeking.
Please feel free to connect with me if you’d like to know more.
Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
7y
@Jared Smith and @Regina Jones - If you found the information from @Scott Smith helpful you should also check out his podcast. You can get to it from his company's link in his forum signature, or you can find it on your favorite podcast store.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
The real reasoning behind the anonymity is two-fold. First, people will need to invest in discovery, requiring them to pay out money before there is any certainty you own the property at all - it's a barrier to entry that deters most of the frivolous claims. The second is that when you establish the LLC correctly it will look similar to a partnership, as it is the same entity many people use for partnership deals, and you are just managing it. This then brings into focus that you may only own a portion of the asset, rather than the whole thing - meaning people will question the full extent of the payout they may be entitled to.
Looking at it from the front-end, anonymity doesn't always seem that useful. When implemented properly it increases the barrier to entry significantly for any would-be litigant while also drawing into question their confidence in an actual payout. Good attorneys have many cases available to them, and unless they have a really good reason to take on a case that requires extra discovery time/costs with a smaller chance of producing a viable settlement or judgement, they often will lean toward pursuing cases with people having properties in their personal names. It's less work and they are hold more assurance of the potential settlement/judgment.
This is not legal advice, just my opinion as a real estate investor.