Grand Prairie, TX · Member since 2017 · 49 posts · 2 votes
I think I came across this idea on BP but cannot find that post. Basically to protect from lawsuits one creates a property management company as an LLC. You rent the property to the LLC and the LLC sublets it to the tenant. The advantages are:
1. Property remains in your name. Helps in getting financing and insurance.
2. If sued, the LLC does not have any assets. Setting the property as an LLC puts at least one property at risk.
3. Avoid having to set up multiple LLC for each property.
Would not anybody who initiates a lawsuit name both the management company AND the owner as defendants?
Jacob thinks that just having a management LLC serves as the shield for himself owning the properties. I'm not an attorney, but my layman's understanding is that this will not work.
Now, Scott's suggestion to combine a management LLC with a holding Series LLC makes total sense. But this is NOT what Jacob had in mind. Jacob wanted to keep properties in his own name for financing/insurance reasons. Which is understandable, but it would defeat the asset protection goal, would not it, Scott?
Real Estate Agent · Garden City, NY · Member since 2016 · 3k+ posts · 1k+ votes
7y
@Jacob Abraham
LLCs don’t protect you from lawsuits, only from creditors if the business becomes insolvent.
Having the property in your name will pierce all of that either way.
Rental Property Investor · Round Rock, TX · Member since 2016 · 1k+ posts · 971 votes
7y
@Jacob A. For a privacy/anonymity layer, look into Land Trusts. They offer that, but no liability protection. However, if you purchased in your name and then transferred to a land trust, you'll leave behind a paper trail that is (not as easy with just a look at tax roll, but nevertheless) discoverable.
I never heard of this asspro strategy - to rent to an LLC and the LLC to sublet to tenants. I don't think it would give you much, as the properties are still in your name, and still at risk from internal (tenant suing you) and external (you doing something, like a car accident and getting sued) attacks.
To avoid setting multiple LLC for each property, look into Series-LLC - you are in Texas so you have that options.
You'll still want to setup a PM/Operations LLC, if you do the property management, so you can separate the active side of operations (leasing, hiring, contracting, etc.) from the completely passive side (Series-LLC as asset holding only entity). Talk with @Scott Smith about setting these structures up.
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
@Jacob A. You're on the right track that you don't want a company that's doing business with the public to have any assets. I would be inclined to suggest the Series LLC since you're in Texas. Costin's suggestion of using an anonymous land trust is the easiest way to disguise ownership. These structures can be used together for greater effect. Simple use of an asset holding company like a Series LLC with a Shell Company is a well-established way of protecting the real estate assets involved.
Would not anybody who initiates a lawsuit name both the management company AND the owner as defendants?
Jacob thinks that just having a management LLC serves as the shield for himself owning the properties. I'm not an attorney, but my layman's understanding is that this will not work.
Now, Scott's suggestion to combine a management LLC with a holding Series LLC makes total sense. But this is NOT what Jacob had in mind. Jacob wanted to keep properties in his own name for financing/insurance reasons. Which is understandable, but it would defeat the asset protection goal, would not it, Scott?
Attorney · Austin, TX · Member since 2014 · 1k+ posts · 932 votes
7y
@Michael Plaks Well you quoted half of my sentence, so allow me to clarify. He is on the right track in terms of how he is considering using a Shell corp and for being proactive about asset protection. And although you can create your own property management company, he's missing a couple of things that would make this actually a viable AP strategy.
Namely, what you just mentioned. If you have property in your own name for any reason (@Jacob A.--this is important) it's easy as hell to seize in court. And in fact, keeping property in your own name will attract certain unsavory types towards you. Any "protection" you'd get fro your shell corp is gonezo since the property is in your own name. Here are the tweaks I'd suggest:
1. Still buy in your own name. This does indeed help with financing/insurance. 2. Use a handy-dandy land trust to hold the title to any properties so you don't have to. 3. Get the opinion of a smart and experienced asset-protection attorney. Tell him/her you'd like to talk about a "two company structure" using a TX Series LLC and Traditional LLC. That Traditional LLC is something you'd use as essentially you're own property management company. Only instead of your property being at risk in your own name it will be secured inside the SLLC. That piece is the main problem with your original plan--it wouldn't actually deter or prevent lawsuits in any meaningful way. This general strategy, however, keeps some of the easy parts (for instance, streamlined structure and ease of financing/bookkeeping) while giving you meaningful protection.
Hope that clarifies for you and the others watching this thread!
Investor · Brossard, Quebec · Member since 2014 · 21 posts · 6 votes
6y
I'm not sure that I agree with these comments. A management LKC, along with a good contract removing the property owner from any liability should still work. Sure you can still be sued but the contract is between the management company and the tenant and the contract will stipulate that the property owner is excluded from any form of liability.
I'm not a lawyer but something along those lines can work I think.