Starting an LLC - Texas or Nevada???

18 Replies

Hello,

I'm getting ready to do my first deal, and was thinking about proceeding with getting an LLC.

I attended a Fortune Builders event several months ago, and was contacted by a company called Nevada Corporate Headquarters who proceeded to tell me that I "HAD" to incorporate in Nevada because of various reasons. He claimed that Texas does not have laws that will protect single member LLC's, as well as that there are like 28 different ways in Texas for someone to pierce a corporate shield, and that Nevada laws are just set up better for LLC's.

Does anyone have any advice on this issue? Is it OK to set up the LLC in Texas? If it is better to be in Nevada, any recommendations for companies/lawyers to use. Just trying to vet this process without being subject to a sales pitch.

Thanks so much.

Sounds like a sales pitch. If you live and you're investing in Texas, a Texas LLC makes the most sense. If you want to do business in Texas with you're Nevada LLC, you'll have to register it in Texas anyway. I would challenge the sales people to tell you which part of the Texas Business Organizations Code gives less protection to Single Member LLC's, and how a Nevada LLC protects you as a Texas resident operating in Texas.

@Bryan Hudspeth Definitely not worth the money. Spend whatever he is charging on having a local attorney review your situation and make suggestions to help you keep the corporate veil in place. 

For one property, not sure you want the expense of an LLC. If the property is in Texas, you'll get sued in Texas if something goes wrong. So you want to listen to a local RE attorney on how to do asset protection if you go that route. As an attorney in Nevada, I can tell you that Nevada has some great asset protection options, but those options are less effective when your dealing with assets located outside of Nevada.

My experience is that many foreign investors like Nevada LLCs because they are relatively inexpensive and can provide anonymity.  The asset protection features are nice, but are uncertain when you have a foreign judge deciding issues.  

Originally posted by @Jeff Hall :

For one property, not sure you want the expense of an LLC. If the property is in Texas, you'll get sued in Texas if something goes wrong. So you want to listen to a local RE attorney on how to do asset protection if you go that route. As an attorney in Nevada, I can tell you that Nevada has some great asset protection options, but those options are less effective when your dealing with assets located outside of Nevada.

My experience is that many foreign investors like Nevada LLCs because they are relatively inexpensive and can provide anonymity.  The asset protection features are nice, but are uncertain when you have a foreign judge deciding issues.  

One SFR is probably not worth an LLC, but there are many other advantages so its best to discuss with a local attorney.

Good points on NV law as well. see Panama Papers...

a) Avoid any unnecessary costs as a beginner 

b) Get a few properties under your belt first before you consider an LLC.

c) Consult with a good real estate CPA (not all llc's are equal)

d) happy investing !

  

@Bryan Hudspeth , @Scott L. is correct. I'd avoid forming in Nevada. Further, a Foreign LLC registration in Texas is the most expensive in the nation at $750. Plus, maintaining a Nevada LLC is also a bit more expensive than average with an annual report fee of $350 (plus you'll likely be hiring a Commercial Registered Agent). That is certainly one heck of a sales pitch ;)

Hello Bryan, and all,

No expert here just getting into the learning part of all this.

The way I am starting to see it, the whole LLC structure question should be about is it needed in my strategy.

Like 1) LLC to run a 30 unit multi-family. keeps the books and hires/contracts for all services. Then how to tax it also depends on exit strategy options.

Or 2) registering across state lines can cost you the anonymity earned with a Wyoming or Nevada LLC. So even if this is what your getting one of these for, it would be part of a Corporate Like structure to get any benefit of anonymity. ( Like Wy LLC owns the Texas LLC)

Get the point? Many people do not have an LLC to start...or ever (thats another discussion) So don't let that stop you.

To start with one local property? Insurance of course. . .

Just my unrefined-newbie thoughts.

You need to know what the purpose of an LLC is before you get into it.

The major reason for an LLC is to hold long-term (e.g. rental) property. The asset protection becomes increasingly important as the equity in the property increases.

Another, an LLC protects the owner from the operations of the rental (e.g. someone twists their ankle while walking on the lawn). The best illustration for this is that plaintiff will not get access to your personal residence if the assets of the rental are not sufficient to satisfy the claim from the lawsuit.

Set your LLC in the state where your property is located for best advantage/protection and to maintain the corporate veil. Setting up your LLI in Nevada (or Delaware, or Wyoming, or New Mexico) will not save you taxes in the state where the property is located.

Ok @Bryan Hudspeth This is BP strong suit, right? just refine the question a bit more now.

Can I play the interviewer?

Q - Have you had the first 30 min free consultation with any lawyers and/or CPAs ?

( I would love to hear about what the 'local to your market' advice is in your area. Texas comes up in many discussions.)

Q - What kind of deal? wholesale? flip? income producing with rent? 

It all makes a difference in the advice your seeking.

@Nicole Bernshaw , your quite right. I did not even mention the asset protections. I was thinking of best practice for tax purpose. C, S, Partnership or Single. Also member managed Vs manager managed.

So Bryan, please continue. A welcome thread  to follow if we can peek over your shoulder once in a while.

Kirk

@Bryan Hudspeth, you might consider setting up LLC's if you already have significant assets that you want to keep separate from your investing. Make sure you carry insurance that has $1 million or $2 million general liability on the properties (which isn't terribly expensive).

Consider using a Registered Agent in TX because that ends up making an internet search unable to connect your name to your properties, even after finding the LLC that owns your property. Meaning that a quick internet search will not help someone figure out that you are worth suing.

I recently switched to using the TX Series LLC. One fee to set up, then adding an individual series requires two Assumed Name certificates one filed at the state and one filed at the county. I did those myself and was able to do several in about 1 hour start to finish. I did discover that expedited service with the state is definitely worth the fee. Expedited took 3 days; I am still waiting on regular service a week later.

I’m also looking at setting up an LLC in Texas and buy a few properties with a partner. This thread is very informative!

Semi-relatedly, how does one go about putting properties under the LLC, would you recommend when buying to just buy in the LLC’s name?

I agree with many others. I small SFR is not worth to purchase through an LLC. Definitely seek the advice of a local real estate attorney!

Originally posted by @Cheri C. :

I'm also looking at setting up an LLC in Texas and buy a few properties with a partner. This thread is very informative!

Semi-relatedly, how does one go about putting properties under the LLC, would you recommend when buying to just buy in the LLC's name?

Yes buy it in the name of the LLC from the start. If you're looking for some anonymity/potentially obscuring asset searches then don't let your name show up on deed records.