New Investor with an LLC Question

[John Mitchell]

I am new to Bigger Pockets, and excited to connect with the people on here. My wife and I currently have a house and are looking to purchase a rental property to start building our rental portfolio. We live in Dallas and want to focus on the Dallas/Ft. Worth area and we are looking at small multi-family units as well as single family houses.

I have a couple of new investor questions:

1. We live in Texas and for the time being would like to purchase most of real estate in Texas. Would it be better to create an LLC in Wyoming and then register it in Texas or should I just create it in Texas?
2. Within the Dallas/Ft. Worth Metroplex, what areas do you guys find attractive?

[Harrison Sharp]

arlington, garland, ft worth are all great areas. I would just set up llc in texas 

[Nathan Gesner]

Quote from @John Mitchell:

An LLC is useful for two things: anonymity and legal protection. In most cases, neither is warranted.

Warning: I am not an attorney and this can be a complicated topic. Please note the information provided below is a layman's definition designed to provide a basic understanding for the general audience. You should consult an attorney or CPA for your specific situation.

ANONYMITY: When you create the LLC, your name is recorded on the documents and published on the Secretary of State website for all to see. So you're not completely anonymous. If you want to be completely anonymous, you can use a Registered Agent. The Registered Agent will record the documents on your behalf so only their name and information appears on the documents. I've done this with my properties because I'm well known in my small town and don't want people to know what I own.

LEGAL PROTECTION: By placing your assets in an LLC, you are legally separating them from your personal assets. If someone injures themselves and sues, they will be suing the LLC and not you personally. If your insurance coverage isn't enough, they could seize the LLC assets, but not your personal assets.

Additional thoughts:

1. An LLC is not free. You can spend as little as $100 to form an LLC, or you could use an attorney and spend $1,000 or more. There are also additional costs of operating and maintaining an LLC, like separate bank accounts, annual report filings, tax filings, etc.

2. There are rules to follow! If you fail to follow the rules, you may open your personal assets to a lawsuit. An example of this would be mixing your personal money and LLC money in the same bank account.

3. You do not need a separate LLC for each property or a series LLC! Don't make your life more complicated than it has to be. Most professionals will recommend a separate LLC for every $1 million in assets but I don't think that's necessary. In my case, I have residential rentals in one LLC, commercial properties in another, self storage in a third, and my real estate company operates in a fourth. Some have more than $1 million in equity while others have less.

4. The need for an LLC is grossly exaggerated on BiggerPockets and other websites. Have you ever heard of a Landlord being sued by a Tenant and losing property? I've been on this board since 2010 and haven't found an example yet. You've probably heard of big Landlords losing property, but only because they were flagrantly violating Fair Housing, running a slum, or otherwise violating the law in an egregious manner. You are more likely to be struck by lightning twice. The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations. Your basic insurance policy with $300,000 in liability coverage should be sufficient in 99.999% of all lawsuits.

5. The best protection for you and your investments? Know and obey the law. I manage around 400 rentals with 12 years experience and have never been sued once. Even if I were sued, I document everything and obey the law, so I won't be found guilty. Even if I were found guilty, the cost would be in the thousands, not in the millions. Insurance would cover it, I would pay the deductible, and no assets would be lost.

If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is likely to be higher, then you may consider an umbrella insurance policy. This policy will provide additional coverage above what your existing policy covers. It's easy to obtain, costs very little, and doesn't require additional, on-going effort to maintain.

[Julio Gonzalez]

Hi John, welcome to the community! You found the right place for information.

[Chris Seveney]

@Nathan G.

This post should be pinned to the top of every forum group.

[Nathan Gesner]

Quote from @Chris Seveney:

[Bruce Lynn]

@John Mitchell I agree with what other says about LLC here. 95% of the time I think it does not provide anonymity if that is what you want. Most of the time I can find the owner and owner's contact info with 2-3 searches and less than 5 minutes.

I doubt most provide legal protection....as most people probably don't go the distance and expense to really keep thing separate.  So many attorneys tell me they could attack everything you own if there was an issue...

As far as areas to look at....probably anything within about 1hr to 1.5hr radius of DFW.   Inside the loops seems pretty expensive right now or lower returns when you look at rent/price, but go a little further out and ratios seem to be better.

Good luck and best wishes.

[Wale Lawal]

@John Mitchell

Welcome to BiggerPockets!

You should consult a real estate attorney about your LLC question.

A local Investor-Agent can help shorten your learning curve and save you a lot of headaches as they tend to understand the market better.

Make sure to consume contents here as much as possible.

We are here to help each other grow.

Good luck!

[Alicia Marks]

@John Mitchell welcome to BiggerPockets! I am a local investor as well as the Community Manager here. We have a strong network of investors in DFW here. If you haven't narrowed down your goals for cashflow or appreciation, budget, etc, it will be difficult to suggest the places that might be best for you. If you are still working full time and have no construction experience, I'd definitely recommend going turnkey or a lipstick reno for your first property. The goal is to create success that can motivate you, not find yourself stressed, over budget, AND learning how to be a landlord. I'm looking to start a meetup in North Dallas or Sherman area next month. I will post it to the events page when I have a day and location locked in. The group interested seems to be very new investors, so we will likely cover the basics in our meetings.

[Ned Carey]

@John Mitchell the Wyoming LLC probably won't help much. It will cost more in complexity, time, and money.

NOLO Press has a number of self help legal books on LLCs. I'm not necessarily recommending that you open an LLC yourself but reading up on the issues involved will help you work better with your legal professional. An example would be the legal formalities you need to follow (as @Nathan Gesner Mentioned) to keep your LLC separate from yourself personally.