Talked with a Lawyer Today. What do yall think?

Question

Brief Background. I live in Texas. I'm an engineer by profession. I've owned 4 rental properties at one point in time. I've since consolidated down to one rental property that I currently own. My plan/aspiration is to increase the number of cash flowing properties in my portfolio potentially though BRRRR. I will also want to transfer my current property into the entity I create.

I talked with a RE attorney today, thinking that we'd be focused on series LLCs; however, he advised against the series LLC in Texas since the "chances of piercing the vale are high in this state" opposed to others. His recommendation was to create limited partnerships to hold the properties then have them managed by either an LLC or INC. This is a strategy that I have not heard of and didn't see in the stickies. I'm fairly certain this strategy is popular with many of the oil companies in my location (Midland, Texas).

Being an armature in this space, I'm left with many questions! So naturally I turn to you gurus here @ biggerpockets.

1.) Are series LLCs really "weak" in Texas?2.) Has anyone used this limited partnership managed by an LLC strategy?

General question on entities and BRRRR:

3.) Do most people BRRRR outside of the entity then transfer the refinanced, cash flowing property into the entity? Or do they buy the house with cash in the LLC, renovate, rent, and then refinance with a personal grantee within the entity? (then create it's own series? or it's own limited partnership?)

Thanks for any guidance/opinions yall offer. I'm trying to get in the game on the right foot.

Also if anyone has any solid recommendations for RE Attorneys, CPAs, and contractors in the Midland, Texas area I'm all ears! (I guess the CPA and Attorney just need to be in Texas... not Midland only...)

Cheers,James

Account Closed · Answer

You should listen to an attorney's advice over random people on a forum. That said. Ask your attorney about placing the parent LLC in a state like Wyoming so your name will never appear on the records (with a little legal manipulation). He will know what I'm talking about. Good luck.

Charles Dobens · Answer

Account Closed stated, all veils can be pierced, just depends upon if you are truly running it as a legitimate entity or just a shell to hide assets (among other things).

Also, as David stated, the issue regarding invalidating your title insurance policy by using a different entity can be easily resolved in a title exception letter drafted by your attorney prior to closing.

Finally, I agree with @Crystal Brooks. You should contact Scott Smith. He has been on my podcast and knows Texas law and always recommends the LLC and Series LLC.

Q: What do you have when you have two lawyers in a room?

A: Three opinions.

Greg H. · Answer

Being an Engineer, my first(and second and third) is that you tend to overthink things right?

I do not agree that you should listen to your Attorney's advice over others unless they are an expert in this field(Which most are not).  I would ask for precedent to support that assertion

Account Closed · Answer

Hey guys I really appreciate the responses.

@Greg H. some may say over thinking... others say planning. If I'm going down this road, I'd like to "do it right." To this point I've utilized umbrella policies as protection, but I'd like to acquire more properties and I'll feel more comfortable separating my real estate from my other assets, which at this point of my career are more substantial than when I started. Failing to plan is planning to fail right?!

Account Closed thanks for your insights. I must say I've had excellent results with forums in multiple disciplines. I look at the forums like getting a second opinion. Or at least getting ideas on the right questions to ask.

@David Disraeli thanks for the info on the cost and charging orders. I feel like this gentleman was just more acustom with that structure due to the large trucking companies in our region. Seems like it's their preferred method. Also thanks for the suggestion of having the LLC purchase the property with a personal grantee. I agree this seems cleaner.

@Ronald Rohde Thanks for this info. It seems that the series LLC will at least provide some protection for the small fish like myself (I'm not starting off with a large amount of assets). Worst case scenario it seems is that the series LLC will be treated like a traditional LLC. At least in that case my personal finances will still be separate.

Follow up thought/question: Would the series LLC purchase the property, rehab, rent, refinance, THEN create the series for said property? Or would you create a series first to buy the property?

From a team member standpoint; is there are major disadvantage to working with a CPA and Lawyer remotely (yet still being in the same state)? Midland/Odessa is known for lacking in personnel options and also is known for having an "old school" mentality. I also see myself living in multiple Texas cities over the next decade.

I am extremely grateful for yalls help! A true wealth of information on here that would be difficult to acquire locally.

Ronald Rohde · Answer

Without knowing more of your facts, I would say that structure MAY be advised if you intend on a large portfolio, for most investors that is going to be overkill. I recommend Series LLCs, but for large deals or anything fund related, they are all individual traditional LLCs, why? because even if its a 1% increased risk of co-mingling or liability, its not worth the risk.

Series will save you a few thousand dollars, for investors starting out or less capital, the savings is worth the minimal risk. Bottom line, talk to an attorney who asks the right questions and can accurately give advice based on your needs. YMMV

Crystal Brooks · Answer

Account Closed.  He is a real estate attorney in TX has a podcast here on BP #109 and has written many articles on the subject.  https://www.biggerpockets.com/blog/the-traditional-llc-vs-the-series-llc-which-is-better-for-real-estate-investors

Account Closed · Answer

Hey @Crystal Brooks thanks for the info!

Ronald Rohde · Answer

Create the series first, take title in that name, then do your work to it. I work remotely for hundreds of clients, doesn't pose a problem for me.

David Disraeli · Answer

Hi James - opinions vary on how a series LLC would hold up under attack since they are so new.  LP's can be pierced as well and cost much much more to set up.  If more than one property were placed in an LP - they would all be available to a charging order.  A charging order to the most a successful plaintiff can get in Texas (unless criminal activity took place). So can't imagine why an attorney would recommend the LP/Inc. structure  outside of the additional fees ($2,000 vs $10,000 or more).  One thing you don't read about much is the fact that if you transfer property into any entity, the title policy made be void as it was issued to the benefit of the original purchaser and not transferrable.  Check with your title company.  Therefore the best approach is to buy in the entity from the start.  All that said:  I would be interested in any theory that articulates why an LP is better.  PM me if you want to talk further.

Talked with a Lawyer Today. What do yall think?

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