I am a young investor - I own two rental properties in states other than the one I live. I am trying to figure out the best way to set up liability and asset protection plus minimize taxes. Since I don't have a lot of properties, cost is a big concern. However, I want to be positioned for growth because I don't plan to stop at 2!
I have come across a few strategies:
- Series LLC - It's an LLC but each property goes into it's own "series" or child LLC - Only a few states have these and I've heard that they aren't "proven in court" - they don't have a lot of precedents - other than that, they seem ideal.
- Putting each property into a Real Estate Privacy Trust (AKA Land Trust) and making the beneficiary the LLC - there isn't a lot of info on these (pros & cons) It doesn't seem common and I can't find a lot of unbiased info
- Creating a separate LLC for each property - this seems like a lot of overhead and complication and renewal fees
- Not doing an LLC and instead just get an umbrella insurance policy - I'm concerned that they are cheap because they rarely pay out.
I'm looking for thoughts, opinions, and suggestions on the above strategies - OR If you have another strategy, I'd love to hear about it!
I am also considering the following states
- Ohio - the state that I am currently purchasing in
I hear that DE, WY, and NV all have great LLC laws but the big question here, is if I get sued in OH, will those laws protect me?
The problem I'm coming across is that when I talk to an Ohio attorney, they can't talk to Series LLCs because OH doesn't have them and they push Ohio LLCs because that's what they know. But if I talk to a Nevada attorney, they really push Nevada for the same reason. I am having an impossible time finding an expert who has working unbiased knowledge for all of the above.
Thanks in advance!
I have a great real estate lawyer based in Columbus, Ohio that you can talk to.
@Julie Torres Just a quick comment on the part "LLC to minimize taxes". For rental properties, it won't have any impact. Still reported on Sch E of your return.
@Julie Torres - you have 2 rentals, but do you have a lot of equity to protect? Having properties and having equity are two different things. Do you have lots of other assets and/or income or are involved in activities that make you a target for litigation (like a doctor)?
Have you put in place all the other measures of risk mitigation? If not, you might be rushing into complicating your life and increasing your expenses at a time when you should grow your investments. For sure get the umbrella insurance, you need it regardless, it's not an "umbrella or LLC" question.
Here is a diagram to help you on your quest: asspro-cya-diagram-v6a-solo-401k.
If you reach the conclusion you need it now, talk with @Scott Smith - he can set you up with Series-LLC, and explain your other concerns.