I am 23 years old and am looking at buying small multi-family (<4 units) with a silent partner who is a physician by day. He is worried and wants his personal assets protected when investing (he is a high net worth individual).
Does anybody have any suggestions how to structure an LLC for this type of business or deal in Georgia, or anywhere? I personally own one small condo that I am currently house-hacking and had no trouble receiving a loan or financing the property. My partner also has great credit.
Will we run into a lot of issues getting financing if we invest together, underneath an LLC?
Any advice or people to contact would be greatly appreciated!
Thanks in advance.
You should probably talk to a CPA or attorney (maybe both) to see what advice they give on how to structure your LLC. The LLC will give some protection, but a healthy amount of insurance would also be an option, especially for your partner.
As for forming the llc, that is easy enough to do in Georgia - it is $25 for the name registration, $100 for the filing and then $50/yr for renewal.
Well, to begin with, banks will probably not loan to LLC even if you invest together.
You guys will probably have to buy a house together personally and contribute the asset to the LLC if you really wanted an LLC(or get a good insurance). I am sure you are aware of Due on sale clause. If not, please google or search here.
It might be worth talking to Attorney.
Good Luck man
Get set up right. Asset Protection will help protect you and your investment / legacy. This includes not just insurance, but also corporate structure and trusts. The reality is once you become a REI you are advertising your wealth, and you will be sued at one point. So, you are on the correct path. It just has to be structured and done correctly. Not just any attorney will be proficient at Asset protection. So find an asset protection firm to get you set up and protected correctly not when you start, and for growth.
Does anybody have any advice or words of wisdom on some of the strategies for purchasing property or holding property in an LLCs name? Is the best way to do this to transfer the title from your own personal name to an LLC? I know there is a lot of risk there, especially today when banks are getting tighter. Is there any way to make this happen with less risk?
Honestly just looking for best practices when investing with partners and mitigating risk for high net worth individuals. Seems that there is no golden rule, but anything or anybody's personal experience will help.
Thanks you again.
You could look into creating a limited partnership (or an LLC that is organized like a limited partnership). Just note that financing limited partnerships could complicate matters when you get to financing. So it's something you want to line up the lenders.
I'm not a big fan of most "silent partner" arrangements. You can do it but properly doing it tends to cost a lot on legal fees to do it properly to protect both parties. If he just wants to make some money, I would rather have him act as a private lender instead of forming an LLC or some other fictional entity with him.
If you use a Fannie/Freddie loan, transferring the property to an LLC could cause due-on-sale concerns.
Also, the strategy is not ideal in some states. For example, Pennsylvania charges to full realty transfer tax amount when you transfer a property from yourself to the LLC (even if you are the sole member). Depending on the specific area, it can range from 2% to 5%. That can be pretty costly. Not sure what you guys do there in Georgia.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
@Anthony Fontana Partnerships and joint ventures are tricky. Make sure you both are clear with what you are getting into - suggest you read this thread and the questions posted there to clarify before entering a partnership .
Financing under LLC has its difficulties, so get clear on that before proceeding. If he's providing the money, then maybe he should act as a lender to you.
If you decide to proceed, I think you should have an LLC formed going in a limited partnership with your(s) partner(s) LLC. There are so many areas where things can go wrong with a simple partnership, and you (but especially him) want to be protected from an asset protection perspective. My suggestion: you need professional advice - talk with @Scott Smith .
Thanks for the praise @Costin I. !
@Anthony Fontana Your partner is right to be concerned. Physicians have special considerations when it comes to asset protection, and he certainly would want to keep his name off of any publicly filed documents to ensure his personal assets are protected.
There are a few ways around the financing issue, including buying in your own name and immediately placing the property in a Land Trust to get around the Due on Sale clause. But you want to be careful to do this correctly, particularly if you're forming an LLC (venture-specific or otherwise). There are pros and cons to both of these tools, and quite a few benefits to using them together for the strongest asset protection plan possible. An attorney who is familiar with asset protection generally, and Land Trusts in particular, could ensure you're doing things by-the-book.
to add on to what @Scott Smith said. Going the LLC route means you really have to go by the book when creating your LLC structure. So I would say have an AP Attorney do this for you.
I read a lot of the forums and questions and answers. t's interesting how many people think that simply having insurance, and an umbrella policy with an LLC will really do anything to protect them. That's not asset protection.
1. Insurance companies, and this includes umbrella policies, will deny or challenge your claim especially if the damage / claim is high and based on negligence or any fault of your's, READ your small print and don't think you are so good at landlording that accidents won't happen. They will, and in today litigious environment thats a lawsuit.
2. LLC will NOT just protect you automatically, and the veil can be very easily pierced i not set up correctly and managed correctly. Talk to and get an AP attorney to get this set up correctly for you and your long term growth plans and current needs. Scalability is a big issue for you since starting out.
I love insurance and LLC (and the Series LLC) and think that having BOTH is the STARTING point to AP and an AP plan. But as in building a house, it is just the foundation for a stronger house. AP is about creating barriers. Their is no such thing as a bulletproof plan to avoid personal liability, but you can get close. The more fences plaintiff and his attorney have to jump through, and the more money they have to spend, or time and resources to get to you, the better protected you are.
An LLC is a useful devise in separating business from personal affairs. But it is just one of the tools in the system that has to be joined properly with other tools from its initial filling to create a legal and enforceable AP system. Otherwise it will be useless. If you commingle funds and have bad books etc. If you keep your property in your own name, and not in your LLC and Trust. If you only have a domestic trust, then you are not bulletproof. If you do not have quality documentation working together to build a wall against lawsuits and creditors then your wall will just fall down on you.
The goal should be to have insurance and as much as you can get (even an umbrella policy), AND establish an LLC that works with a Asset Management Liability Company, that then works with a Domestic Trust and once you have about 500k-1.5M in assets a Foreign Cook Trust that can be used if an event tiggers the foreign trust. Then you are protected. Just having Insurance or a LLC and or both, is NOT good enough if the goal is AP.
@Brian Bradley You're dead on, and hey, it's great to see another AP attorney on here! Like you, I recommend my clients always have both. If insurance is a fence, then then Series LLC is a series of brick walls. Then when you bring in other elements, like Anonymity--that can be like a moat or a dense line of trees keeping the invaders away from your assets. Who doesn't love a good combat methapor? After all, the business of lawsuits is certainly a bloodsport.
Thanks for your elaborations, and couldn't agree more.