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Kashyap Shah
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Asset Protection : LLC Formation for First Investment

Kashyap Shah
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Posted Feb 22 2024, 13:34

Hello ,

I am Kash from San Jose,CA and I am a Rookie in the world of real estate investments. 

I am planning to buy my first investment property in Austin, Texas. 

I have a few questions related to LLC formation . I have heard that forming a Wyoming LLC is better for asset protection. So I do have following questions :




1) What are the benefits and drawbacks of forming an LLC in Wyoming versus Texas?

2) How will Wyoming's laws and regulations affect the management and operation of the LLC?

3) Are there any specific requirements or compliance issues for an out-of-state LLC owning property in Texas?

4) Are there any restrictions or limitations on the LLC's ability to purchase, sell, or finance property in Texas?

5) Are there any other legal or financial considerations I should be aware of?



I'd appreciate any guidance or recommendations. 

Thanks ,

Kash

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Replied Feb 22 2024, 22:17

@Kashyap Shah

A lot of your questions have been answered before in the forums. I'd start by searching through the forums.

Most importantly, insurance coverage > LLC for liability protection

That said, to answer your questions...

1. The LLC that will hold the property is often formed in the same state as the property. This works best for many investors

2. There is a lot of 'it depends' with this. If you have a WY LLC that owns a TX property and you get sued in relation to the TX property, the TX courts may not acknowledge WY's laws. This is a question you'd want answered by a TX attorney.

3. Check with the TX Secretary of State

4. In many cases an out of state LLC, also referred to as a 'foreign entity' simply needs to register in that state to do business. In your case TX

5. Yes. LLC laws are very state specific. The reason you hear so much about WY LLCs is because of their anonymity and 'charging order' protections, but things get complex fast when you get into a WY LLC actively doing business in another state.

Google WY Holding LLC. It sounds like this may be what you're looking for

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Jordan Moorhead
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Jordan Moorhead
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Replied Feb 23 2024, 04:27

@Kashyap Shah are you buying with cash? Most lenders won't allow you to put it in and LLC, it needs to be in a trust or your personal name.

I'm no attorney but I've never worried about being in an LLC too much when it's not allowed by lenders, I just make sure I have the right structure and insurance.

I put them in an LLC whenever I can but I've not found a traditional lender that will allow it.

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Chris Seveney
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Chris Seveney
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Replied Feb 23 2024, 05:03
Quote from @Kashyap Shah:

Hello ,

I am Kash from San Jose,CA and I am a Rookie in the world of real estate investments. 

I am planning to buy my first investment property in Austin, Texas. 

I have a few questions related to LLC formation . I have heard that forming a Wyoming LLC is better for asset protection. So I do have following questions :




1) What are the benefits and drawbacks of forming an LLC in Wyoming versus Texas?

2) How will Wyoming's laws and regulations affect the management and operation of the LLC?

3) Are there any specific requirements or compliance issues for an out-of-state LLC owning property in Texas?

4) Are there any restrictions or limitations on the LLC's ability to purchase, sell, or finance property in Texas?

5) Are there any other legal or financial considerations I should be aware of?



I'd appreciate any guidance or recommendations. 

Thanks ,

Kash


1. Let me save you some money. Skip the Wyoming LLC for one. Not needed. If you want your name to be hidden its a joke. I have worked for four billionaires and not one used a wyoming LLC. People do not give a whoot who you are and are not gonna come knocking on your door, and if they were, a wyoming LLC will not protect you.

2. Talk to your CPA / accountant but if you are in texas and buying in texas, they incorporate in texas.

3. Do you need a LLC? If you are financing it in your name, then keep the house in your name. If you can buy it in a LLC and the LLC is funded, then yes buy it in a LLC.

I am not an attorney, but have done a lot of the stupid stuff people tell you that you should do and at the end of the day every accountant and attorney after the fact told me all of that is such overkill and just a waste of $. 

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Zachary Jensen
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Zachary Jensen
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Replied Feb 23 2024, 06:55

As an accountant, I like to share this tier list to see the full spectrum of asset protection and what is needed for your individual situation: 

Worst:

– No coverage, held in your name.

Bad:

  • Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.

Good:

  • Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.

Better:

  • Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.

Best:

  • Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.

Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:

  • Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
  • Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
  • Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.

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Kashyap Shah
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Kashyap Shah
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Replied Feb 26 2024, 16:20
Quote from @Martin M.:

@Kashyap Shah

A lot of your questions have been answered before in the forums. I'd start by searching through the forums.

Most importantly, insurance coverage > LLC for liability protection

That said, to answer your questions...

1. The LLC that will hold the property is often formed in the same state as the property. This works best for many investors

2. There is a lot of 'it depends' with this. If you have a WY LLC that owns a TX property and you get sued in relation to the TX property, the TX courts may not acknowledge WY's laws. This is a question you'd want answered by a TX attorney.

3. Check with the TX Secretary of State

4. In many cases an out of state LLC, also referred to as a 'foreign entity' simply needs to register in that state to do business. In your case TX

5. Yes. LLC laws are very state specific. The reason you hear so much about WY LLCs is because of their anonymity and 'charging order' protections, but things get complex fast when you get into a WY LLC actively doing business in another state.

Google WY Holding LLC. It sounds like this may be what you're looking for


 Thanks a lot Martin for your valuable insights

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Kashyap Shah
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Kashyap Shah
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Replied Feb 26 2024, 16:22
Quote from @Jordan Moorhead:

@Kashyap Shah are you buying with cash? Most lenders won't allow you to put it in and LLC, it needs to be in a trust or your personal name.

I'm no attorney but I've never worried about being in an LLC too much when it's not allowed by lenders, I just make sure I have the right structure and insurance.

I put them in an LLC whenever I can but I've not found a traditional lender that will allow it.


Thanks a lot Jordan.. I am speaking with lenders to figure out if they allow to put the title to LLC. That would a starting point to figure out the next steps.

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Kashyap Shah
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Kashyap Shah
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Replied Feb 26 2024, 16:26

@Chris Seveney @Zachary Jensen : Thanks a lot for your time to respond. This was really helpful

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Zachary Jensen
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Zachary Jensen
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Replied Feb 26 2024, 16:27
Quote from @Kashyap Shah:

@Chris Seveney @Zachary Jensen : Thanks a lot for your time to respond. This was really helpful


 happy to help! 

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Replied Feb 26 2024, 21:36

1.Benefits of forming an LLC in Wyoming include strong asset protection laws, privacy for owners, and lower costs. Drawbacks may include additional fees for out-of-state registration and possible confusion with managing a remote LLC.

2.Wyoming's laws and regulations may impact the management and operation of the LLC, such as annual reporting requirements and taxation policies.

3.Specific requirements for out-of-state LLCs owning property in Texas may include registering as a foreign LLC and appointing a registered agent in Texas.

4.There may be restrictions or limitations on the LLC's ability to purchase, sell, or finance property in Texas, such as compliance with state laws and regulations.

5.Other considerations to be aware of include consulting with a legal or financial advisor, understanding tax implications, and staying current on any changes in laws or regulations that may affect the LLC and its operations.

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Replied Feb 27 2024, 14:30

How about this: TX trust -> Wyoming LLC(with a professional registered agent).

Trust is generally preferred by lenders over LLCs.

If OP gets sued for personal reasons, the plaintiff would not be able to discover his property even if they searched every state.  I know nothing is 100%, but I believe this is as close as you can get?

I am a newbie, about to buy 2nd property; but still don't fully understand this.

Side note, how does the Corporate Transparency Act effect this?

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Ronald Rohde
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Ronald Rohde
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Replied Feb 28 2024, 07:28

We form these often. Its just up to your personal preferences on risk mitigation.

TX LLC owned by a WY LLC offers a lot of protection that may be overkill for a SFR worth $400k and $150k in equity.

We offer anonymous TX LLCs through our law firm, half the cost and all the benefit.

I'm an investor, and don't use WY.

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Don Konipol
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Don Konipol
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Replied Mar 4 2024, 04:16
Quote from @Zachary Jensen:

As an accountant, I like to share this tier list to see the full spectrum of asset protection and what is needed for your individual situation: 

Worst:

– No coverage, held in your name.

Bad:

  • Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.

Good:

  • Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.

Better:

  • Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.

Best:

  • Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.

Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:

  • Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
  • Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
  • Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.
VERY good advice.  

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Don Konipol
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Don Konipol
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Replied Mar 4 2024, 04:22
Quote from @Ronald Rohde:

We form these often. Its just up to your personal preferences on risk mitigation.

TX LLC owned by a WY LLC offers a lot of protection that may be overkill for a SFR worth $400k and $150k in equity.

We offer anonymous TX LLCs through our law firm, half the cost and all the benefit.

I'm an investor, and don't use WY.

Yup, I had the occasion only once to utilize an LLC (Texas) in which all paperwork appeared in the name of a nominee whose relationship with myself was governed by a non recorded contract.  Normally I’m okay with having a trail leading back to myself, but this property was a SPECIAL circumstance.
It’s important to realize that it’s not only “paranoia and overkill” when someone doesn’t want their name associated with a particular property.  An example is someone hiding from another who wishes to do them harm.  

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Zachary Jensen
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Zachary Jensen
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Replied Mar 4 2024, 04:29
Quote from @Don Konipol:
Quote from @Zachary Jensen:

As an accountant, I like to share this tier list to see the full spectrum of asset protection and what is needed for your individual situation: 

Worst:

– No coverage, held in your name.

Bad:

  • Relying on insurance. This is the most basic level of protection and it is not very effective, but it is still better than nothing. Insurance companies have many exclusions and they may not cover everything, but they can help to pay for some of the costs of a lawsuit.

Good:

  • Using one LLC for all of your rental properties. This is better than relying on insurance because it protects your personal assets from liability. However, if someone sues you and wins, they could take all of your rental properties.

Better:

  • Using a separate LLC for each rental property. This is the best level of protection because it isolates each property from the others. If someone sues you and wins, they can only take the LLC that owns the property that was involved in the lawsuit.

Best:

  • Using a combination of LLC and land trust to protect your rental properties. These are more complex legal structures that can provide even more protection than a traditional LLC alone.

Here are some of the key things to keep in mind when choosing an asset protection strategy for your rental properties:

  • Your risk tolerance: If you are not very worried about being sued, you may not need the best level of protection. However, if you are worried about being sued, you should use the best level of protection that you can afford.
  • Your state laws: The laws governing asset protection vary from state to state. You should consult with an attorney in your state to make sure that you are using the best asset protection strategy for your situation.
  • Your budget: The cost of asset protection can vary depending on the type of protection that you choose. You should make sure that you can afford the cost of the protection that you choose.
VERY good advice.  

 Thank you sir!