Any other ways besides LLC to hold titles?

15 Replies

Currently I had ten rentals in bay area California, most being duplexes and fourplexes. In the past, I hold these rentals under my name. I had a $5M umbrella policy to protect myself, at least that is what I think. However, about a year ago, I was suggested to set up LLcs to separate them so I can have a better protection. I divided them into three different parts which about equal values, I then group them into three different LLCs. In the hope that something happen I don't have to lose all. Sounds like a good idea, but here is the painful part, It is so costly to up keep these llcs. Not only need to pay $800 each for taxes, insurance also goes up so much because now under business name. Accountant also charged $1000 each LLC tax returns. As you can tell, it adds up a lot. I am sure there are many people own many rentals, how are you holding them? Is holding in different llc is the only way or there are some other ways work better? Thank you all in advance to enlight me .

Originally posted by @Ed Zhao:

Currently I had ten rentals in bay area California, most being duplexes and fourplexes. In the past, I hold these rentals under my name. I had a $5M umbrella policy to protect myself, at least that is what I think. However, about a year ago, I was suggested to set up LLcs to separate them so I can have a better protection. I divided them into three different parts which about equal values, I then group them into three different LLCs. In the hope that something happen I don't have to lose all. Sounds like a good idea, but here is the painful part, It is so costly to up keep these llcs. Not only need to pay $800 each for taxes, insurance also goes up so much because now under business name. Accountant also charged $1000 each LLC tax returns. As you can tell, it adds up a lot. I am sure there are many people own many rentals, how are you holding them? Is holding in different llc is the only way or there are some other ways work better? Thank you all in advance to enlight me .

This seems like a good solution but I don't know how many people are doing it. 

 https://royallegalsolutions.co...

Originally posted by @Ed Zhao:

Currently I had ten rentals in bay area California, most being duplexes and fourplexes. I had a $5M umbrella policy to protect myself. About a year ago, I was suggested to set up LLcs to separate them...

It is so costly to up keep these llcs. Not only need to pay $800 each for taxes, insurance also goes up so much because now under business name. Accountant also charged $1000 each LLC tax returns.

First, congrats on owning so much Bay area property.  You've been buying a long time I bet. 

Thank you for highlighting some costs with holding residential assets inside commercial enterprises.  Insurance co's don't know how to handle that, so they up premiums.  Tax reporting costs,  annual renewal fees, legal fees to establish and maintain...

Hopefully you didn't transfer with quitclaim deeds. Hopefully you didn't have mortgages on them. Title chain damage and lender DOS risk are a couple additional 'benefits' of FEAR (false evidence appearing real) transfers cause.

Personally, I have a large umbrella policy for my residential property and hold commercial assets inside LLCs from day 1 . No shady transfers one day all the sudden. YMMV, but thank you for highlighting some problems drinking the AP LLC kool-aid causes.

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@Ed Zhao

We have them all in our individual name with an umbrella policy, as well. Do you really foresee someone suing your for more than $5 million? 

There is a great strategy to not get caught up in the franchise taxes levied on California LLCs by segregating assets into trusts.  This is spelled out in the article https://www.biggerpockets.com/blog/california-real-estate-investors-delaware-statutory-trust.  I think this is what Johnny was referring to.

Originally posted by @Jerry Padilla:

@Ed Zhao

We have them all in our individual name with an umbrella policy, as well. Do you really foresee someone suing your for more than $5 million? 

 Hi Jerry, 

The totality of the judgement is not the only problem.

I have seen two instances where California owner/operators held everything in their own name (Calif. Community Property/divorce issues aside) and as soon as a lawsuit came up from a tenant all of their assets were frozen. Personal and business accounts.

Both men were in a panic. With all bank account frozen it's impossible to pay mortgages and other costs on the investments as well as on their own homes.

It takes time to ask the court to unfreeze things, and that cost attorneys fees, aside from the cost of addressing the actual lawsuit.

One man lost, the other prevailed, but it was a LONG emotionally grueling time for both of them.

Perhaps some type of insurance would cover all of your bank accounts and other assets being frozen, I don't know.

But using LLC's seems prudent in many cases.

Good Luck!

@Steve Vaughan thank you for the reply, yes, I start about 20 years ago and they are mortgage free. Simple buy and hold what i can afford. As I will continue to buy more, I see the problem of each llcs will get bigger or I need to set up more llcs which means more costly...

@Jerry Padilla couple years ago, a teenager fell and hit his head at the intersection of one of rental. It happened because the neighbor was doing construction and needed using water from city fire hydrant at the corner of mybrental. They put the water hose across the intersection which tripped the teenager when he riding roller skate. Anyway, I was on the lawsuit for which I don't know why, they claimed $10M for physical/mental damages and $10M lost of future incomes. That what makes me thinking is $5M insurance sufficient to protect myself.

Originally posted by @Steve Vaughan:
Originally posted by @Ed Zhao:

Currently I had ten rentals in bay area California, most being duplexes and fourplexes. I had a $5M umbrella policy to protect myself. About a year ago, I was suggested to set up LLcs to separate them...

It is so costly to up keep these llcs. Not only need to pay $800 each for taxes, insurance also goes up so much because now under business name. Accountant also charged $1000 each LLC tax returns.

First, congrats on owning so much Bay area property.  You've been buying a long time I bet. 

Thank you for highlighting some costs with holding residential assets inside commercial enterprises.  Insurance co's don't know how to handle that, so they up premiums.  Tax reporting costs,  annual renewal fees, legal fees to establish and maintain...

Hopefully you didn't transfer with quitclaim deeds. Hopefully you didn't have mortgages on them. Title chain damage and lender DOS risk are a couple additional 'benefits' of FEAR (false evidence appearing real) transfers cause.

Personally, I have a large umbrella policy for my residential property and hold commercial assets inside LLCs from day 1 . No shady transfers one day all the sudden. YMMV, but thank you for highlighting some problems drinking the AP LLC kool-aid causes.

How are you able to get loans for the property if they go into an LLC right away?

@Ed Zhao

Congrats on doing so well. Like @Jerry Padilla I kept all the properties in my name. However I had other active businesses with employees, and had S Corps C Corps as well as LLC's, for other reasons. I had them all insured.

I bought a business from a couple who had it in an S Corp. Long story, they were sued for $3 million. But their S Corp only had liability insurance of $1 million, just for the S Corp. Both the S Corp and they were sued personally and they tries to get the suit against themselves dismissed, but was denied. I got a little nervous, spoke with lawyers, and I was told it's routine for lawyers to sue that way, especially for small businesses where owners did all the work, such as investment real estate. Good part of the story was they retired to FL, put all they money into their retirement home, protected under FL's generous homestead laws, and the litigants settled for the $1 million.

I on the other hand had nuisance suits against my LLC, where I had corporate insurance, as well as for me personally via an endorsement. Here for some slip and fall lawsuits, I had people contact the insurance company. In effect, they are my legal department. These suits involve lawyers working under contingency, something like 33% to 50%, and they usually give up after a year if threatening letters don't scare the insurance companies. I offered one guy $500 to go away, even up to $1,000, and he went to a lawyer instead, for $6,000. After his lawyer stopped returning his calls, came back to beg for my original offer, but I turned him down and he got nothing.

So my view is lawyers around here lawyers sue the LLC, S Corp with the owners personally in large suits. For smaller suits, they don't bother, and get after the insurance.

In talking with local attorneys, the theory a PERSON is somehow negligent. The one sure way to get around it is to have a PM involved, where he has his own E&O insurance, and it something goes wrong, there's a person you can point to who's negligent, who's also insured.

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Originally posted by @Johnny Weekend:
Originally posted by @Steve Vaughan:
Personally I hold commercial assets inside LLCs from day 1 . No shady transfers one day all the sudden..

How do you get loans for property if they go into an LLC right away?

Commercial properties. Commercial loans. The commercial lenders are glad I have an LLC.

You'll only have problems trying to stuff a residential property inside a commercial entity.  Trying to get fixed Fannie loans reserved for natural persons. 

@Ed Zhao

My property's risk profiles are relatively low (well kept code compliant bldgs, professional tenants/non scammers) so I don't bother with the whole LLC set up. As you said, a total PITA to set up wrt your insurance, mortgage, individual returns, etc. So I have the $5mil umbrella policy too. Guess you could look at a bigger umbrella, but the little research I did indicated that 5mil was the max avail.

Also AB 1482, CA rent control, will most likely pass. If so SFH and condos are exempt from it, unless they are held by corps and LLC's. So that'll be a new wrinkle to wrestle with as well if you own SFH or condos...