Purpose of a LLC and types of LLCs?

5 Replies

So I was thinking about setting up a LLC for the next rental property I buy, to add some separation between my rental and my personal assets. However, I was speaking with an attorney and he said that a simple single member LLC offers almost no asset protection at all, that if someone decides to sue much LLC it would be quite easy for them to go after my personal assets as well. He mentioned that a LLC may have some tax benefits but it's not effective as a mean of asset protection. Is this true? It sounds like true asset protection cost about $20,000 as an initial a set up which seems like a lot to me. He also mentioned that I can choose a series LLC which offers a little bit more protection and costs about $3000 to set up with anonymity $300. I want to get some opinion from the BP community. What kind of set up do you have for your rentals?

Talk with another attorney - one that tells you "LLC it's not effective as a mean of asset protection" and asks for 20K for setup is not a good attorney.

Series-LLC do not offer you better protection than an LLC. But if you have the option for Series-LLC, that might be a better alternative for other reasons.

Talk with @Scott Smith .

@Liwen Gu

The easy part: taxes. There're no tax benefits from LLCs for landlords, except for some rare and complicated cases.

The difficult part: asset protection. Zero consensus between attorneys. They all have different opinions, unfortunately.

There have been several threads on this forum recently that discussed LLCs and asset protection in depth, including this one. Please look at them.

Originally posted by @Liwen Gu :

So I was thinking about setting up a LLC for the next rental property I buy, to add some separation between my rental and my personal assets. However, I was speaking with an attorney and he said that a simple single member LLC offers almost no asset protection at all, that if someone decides to sue much LLC it would be quite easy for them to go after my personal assets as well. He mentioned that a LLC may have some tax benefits but it's not effective as a mean of asset protection. Is this true? It sounds like true asset protection cost about $20,000 as an initial a set up which seems like a lot to me. He also mentioned that I can choose a series LLC which offers a little bit more protection and costs about $3000 to set up with anonymity $300. I want to get some opinion from the BP community. What kind of set up do you have for your rentals?

@Liwen Gu RUN from that attorney!  Looks like you are local to me.  I can go over what we have done and why as well as going over the different tax impacts (not an impact on taxes so much as on the type of return you might or might not have.)  You ABSOLUTELY do not need 20k..I can not even imagine what nonsense they would set up that would cost that much.

@Liwen Gu In my opinion, that attorney is trying to make money off you. One LLC, if set up properly and run properly, can provide you with excellent asset protection. Setting up multiple LLCs can provide you with more protection, simply by adding additional layers that make it harder for someone to get to you, if they sue you.

However, it is probably totally unnecessary and, in my opinion, borderline unethical, for an attorney to try and sell you that level of protection when all you are doing is buying a rental property. Whenever I set something like that up for a person, it usually doesn't cost more than $1,500 and I'm sure there are people on BP who will probably tell you to do it yourself for even less.

I don't recommend you do it yourself (as I've sometimes seen problems crop up when people do that). I also don't recommend you pay an attorney $20,000 to do way more than you need.

Go find another attorney .

LLC offers 2 kind of protection: Inside protection (liability arising from inside the LLC should not propagate outside to your other assets), and Outside protection (liability from something outside the LLC should not touch your assets inside the LLC).

The Inside protection is almost identical in every state. The Outside protection however varies greatly depending where the LLC is formed. Only a few states have the charging order as sole remedy that would create that great layer of outside protection.

As it is generaly better to have the LLC in the same state than the property, if you are in a state that does not offer charging order protection, it is then advised to open an holding LLC in a state like WY or NV that will own the LLC to create that outside protection.

You can create the LLC(s) yourself for a few hundred dollars (depending on the state) and have an attorney draft a good asset protection operating agreement for around $1000 to $2000 depending who you choose. You will find better deal if you form multiple entities.