All Forum Posts by: Clint Coons

@Ryan Neuman. Investing through a Solo 401(k) is relatively straightforward, but proper structuring is key to protecting your retirement assets. I strongly recommend forming a single-member LLC to hold the investment, with the Solo 401(k) as the sole member. This structure adds a layer of liability protection and keeps the retirement plan out of the public record.

I've worked with several clients who were surprised when their self-directed IRA (SDIRA) was named directly in a lawsuit because the property was held in the SDIRA's name. Using an LLC as a holding entity can help prevent this exposure and the risk to your other retirement assets.

If you plan to use financing, be sure to inform your lender ahead of time about your intended ownership structure. Let them know the property will be held in an LLC owned by a retirement plan, and offer to provide the LLC and plan documents for review. This will hopefully address any lender concerns well before the week of closing to avoid delays.

@Jean Wilner Wilner. To open an account, you are required to provide the bank with your personal information. However, this does not compromise your anonymity, as the details you share are kept private and are not accessible to the public.

@Ken M.. If I recall, Philly chargers over 3% plus 1% to the commonwealth.  Very steep.

@Sylvia Castellanos. Just an FYI on Pennsylvania transfers. Pennsylvania imposes a tax on real estate transfers into living trusts unless the trust includes specific language outlining the permissible beneficiaries. To qualify for an exemption, the trust must strictly define who the beneficiaries are and ensure they align with the state's requirements. Without the required language, the transfer may be subject to real estate transfer tax. For more information, refer to 61 Pa 91.101, which provides detailed guidance on this matter. I raise this issue because depending on who drafted your living trust or how it reads you may create a taxable event upon transfer.  Best to have your trust reviewed by an attorney in Pennsylvania.

@John Dunn. There's been a lot of discussion—in BP —about whether holding LLCs offer any meaningful asset protection. Many commentators argue that a holding company doesn't protect you from lawsuits related to the property owned by your real estate LLC. They are absolutely correct.

If a tenant sues the LLC that owns their rental property, your insurance is your first line of defense. If the claim exceeds your coverage, then the LLC that owns the property provides the second layer of protection by containing the liability within that specific entity. In this scenario, a holding company does not add any additional protection. Setting up a holding LLC to reduce risk from tenant lawsuits is a misstep—these entities simply aren't built for that purpose.

Instead, holding LLCs are used for entirely different but still very strategic reasons.

Entity Consolidation is one of the most common uses. For example, consider James and Sheila, a couple living in Illinois with eight rental properties, each held in a separate LLC. If each of those LLCs is taxed as a partnership, they are required to file eight separate federal tax returns annually. That's not only time-consuming but also expensive. By creating a single holding LLC to act as the sole member of all eight LLCs, James and Sheila can drastically simplify their tax situation. The individual LLCs become disregarded entities for federal tax purposes, and only the holding company needs to file a partnership return. This reduces the number of tax filings from eight to one, significantly cutting down on accounting fees.

Another benefit is outside liability protection. While a holding company doesn't shield you from liabilities related to your properties, it can protect your portfolio from personal liabilities. For instance, if James is personally sued for something unrelated to his real estate investments—like workplace harassment—and a judgment is entered against him, a holding LLC can serve as a barrier between his personal creditors and the real estate. If the property LLCs were held in his name directly, those LLCs could be exposed to the judgment. With a holding LLC in place, creditors face a much more difficult path to reach those assets while allowing James to continue his investing without harassment from the creditor.

Holding LLCs can also be used to create anonymity. James and Sheila, like many investors, have their LLCs registered in Illinois, which requires public disclosure of member or manager information. That means anyone who looks up the LLCs will find their names and home address—information that can be used to target them in litigation or harassment. By using a Wyoming holding LLC as the sole member of their Illinois entities, James and Sheila can keep their names off public records. Wyoming does not require the disclosure of owners or managers, so the paper trail effectively ends there. This added layer of privacy can be an important deterrent against frivolous lawsuits or invasive inquiries.

There are additional benefits to using a holding company, including reduced audit risk, a cleaner and more streamlined appearance on a personal 1040 tax return, and improved borrowing power on Freddie and Fannie-backed loans—especially for investors with newer portfolios.

My general point is this: a holding LLC is not a shield against tenant lawsuits. That's the job of insurance and the individual property LLC. But when used correctly, a holding LLC can offer significant strategic advantages in terms of tax efficiency, personal asset protection, and privacy. Understanding what a holding company can—and can't—do is essential to building a structure that supports your long-term investment goals.

@Stuart Udis. You’re absolutely right that anonymity is not the same as asset protection. Anonymity doesn’t stop a judgment creditor from collecting—it’s more about discouraging frivolous or predatory lawsuits from being filed in the first place.  I believe @Savannah Wallace was referring to personal lawsuits outside of the real estate context that can jeopardize your investments.

To give a real-world example: I believe you are based in Pennsylvania so you may know of Mike the Hammer, a Texas personal injury attorney who advertises on every medium he can trolling for clients, but I recently spoke at a tax and asset protection workshop in Dallas. During the event, an investor shared a troubling story. He was involved in a multi-vehicle rear-end collision. His car was the fourth in the pileup—hit from behind by a truck that fled the scene, which pushed his vehicle into the cars ahead. A few days after the accident, he was served with an un-filed petition and a letter from the plaintiff’s attorney, Mike the Hammer, stating they knew every property he owned (18 total) and even had knowledge of his bank account balances (not sure how they got this information).

Unfortunately, all of his assets were held in his personal name. The attorney’s message was clear: they believed he could afford to pay, and they were going after him accordingly.

That’s where anonymity can play a critical role. While I agree it doesn’t shield you from legal responsibility, it does reduce your visibility as a target. I’ve seen numerous cases where clients avoided aggressive legal action simply because there was no obvious financial incentive—their ownership wasn’t easily discoverable.

You're also correct that when a property is mortgaged, a recorded document may include the name of the person who has an interest in the property; however, you first need to know the person has a connection to the property. Let's revisit the Dallas investor's situation: had he titled each property in an individual LLC, all owned by a Wyoming holding LLC, his ownership would have been far more difficult to uncover. Without that extra layer of anonymity, his name would have appeared on the filings for every Texas LLC—information that's easily accessible through public databases like OpenCorporates.com

There’s also a practical privacy benefit when it comes to tenants. Personally, I prefer that tenants don’t know who owns the property. While I always strive to treat tenants fairly, I’ve seen how quickly an unhappy or hostile tenant can create disruption.

Ultimately, I agree with your point that structure should never create a false sense of invincibility. But many of the investors I work with, big and small, understand the value of privacy and prefer to keep their personal information, when possible, out of the public domain to the greatest extent possible.

@Jerry W. I believe we may be drawing from different experiences and perspectives, which is why it’s important to clarify a few key points for the benefit of others reading this discussion.

Many investors I’ve worked with—and this includes countless conversations over the years—will acquire residential properties in the name of one spouse, then transfer the property post-closing into an entity structure owned by both spouses. The strategy is often used to remain within the 10-loan limit for conventional Freddie/Fannie-backed loans. One spouse utilizes their 10-loan capacity, then the other does the same.

You referenced this approach as potentially constituting mortgage fraud, stating, “If you are doing a transfer to hide the one half ownership, according to Letitia James, that is felony fraud.” With respect, that comparison is not accurate. The case you’re referring to involved material misrepresentations of financial condition—overstating assets to induce a lender to extend credit under false pretenses. That is indeed mortgage fraud.

However, transferring ownership after the transaction closes, when the original application was accurate at the time it was submitted, is not. For clarity, mortgage fraud—under federal law, specifically 18 U.S. Code § 1014—requires knowingly making false statements to influence a lender’s decision. There is no prohibition on legal transfers that occur post-closing, particularly when the original borrower remains responsible for the loan and the transaction is transparent when required.

If you’re citing a different statute that criminalizes post-closing transfers to an entity, I’d genuinely be interested in reviewing it, as I haven’t seen anything beyond §1014 that would apply here.

Also, I want to address this implication: “If she hides it, it becomes a felony.” I’m assuming you weren’t suggesting that I recommended concealment. At no point did I advise the borrower to mislead the lender in any future disclosure. In fact, I would fully expect the borrower to accurately report any change in ownership structure if asked.

Additionally, this type of restructuring is explicitly contemplated by Fannie and Freddie guidelines. For example, Freddie Mac allows borrowers to transfer property to an LLC post-closing without loan acceleration provided the borrower remains a member or manager of the entity. You can refer to their published guidance here: Freddie Mac Guide Section 8406.4.

As to your suggestion that the borrower and her father should have applied jointly through an LLC: that's a different financing model. Purchasing residential property through an LLC typically requires a DSCR loan, which carries a higher interest rate and generally requires the borrower to have a track record as a real estate investor. That scenario wasn't part of the original facts, which is why I didn't recommend it—doing so would likely be impractical for the investor in question. However, I do agree with @Stephanie Medellin that applying for a loan with both of them on title but only the daughter on the loan might be an option.

Lastly, regarding the structure I recommended—it's not just about asset protection. It also simplifies tax reporting. If multiple properties are held in individual LLCs, each treated as a partnership, that requires filing multiple partnership returns. The holding company structure I outlined allows all investments to flow through a single partnership return (via a parent LLC owned by the two investors), while the single-member LLCs below it are disregarded entities for tax purposes. This reduces both cost and complexity.

And to your question on pricing: we charge a flat fee, not hourly, and our clients often find the long-term savings on tax prep and risk management outweigh the initial investment in proper structure.

I always welcome differing views, but I think it’s important that those reading understand the legal and practical nuances. If there’s a specific regulatory basis you’re drawing from that contradicts any of this, I’d appreciate seeing it so we can continue the discussion productively.

@Jerry W. Sorry, but I am confused by your comment. What do you mean by "whole fake facade"? I recommended creating one LLC that will be treated as a partnership for federal tax purposes. A partnership provides each partner, Anthony and his daughter, with a K-1 representing their share of partnership income and liabilities. This information is reported on their 1040 Schedule E, page 2. The partnership return will include each of the properties held by the partnership via the disregarded LLCs I suggested in my initial post. All of this would be fully discoverable by a lender through their 1040 filings. What exactly is "not honest" about putting properties into an LLC? I did not suggest hiding the fact that Anthony holds an ownership interest in an LLC that owns real estate, so your statement has me genuinely confused.

Generally, in my experience, underwriters will request copies of the partnership's Form 1065, along with the P&L statements and balance sheet, in certain situations. The partnership return will disclose all ownership interests held by the disregarded LLCs. Specifically, it will appear on the 1065 as if the partnership owns the property directly. Furthermore, if Anthony moves forward with creating a separate LLC for each property, as he initially suggested, he will need to file multiple 1065 returns each year since each LLC would be treated as its own separate partnership for federal tax purposes. I was offering a solution to avoid that scenario because filing multiple partnership tax returns can become costly, requiring extra CPA fees, and can also slow down the underwriting process. As I mentioned earlier, underwriters will likely request copies of each partnership return, which adds another layer of complexity and potential delays. By creating one LLC structured as a partnership, Anthony can consolidate the ownership of all properties under a single tax filing, saving both time and money while still being fully transparent.

Regarding the due-on-sale clause, that is a separate matter. Yes, if you move a property into an LLC and the mortgage is not yet owned by Freddie Mac or Fannie Mae (you can verify this information using their loan lookup tools online), there is a risk that the lender could accelerate the note. In my 27 years of practice and after easily recording over 15,000 deeds, I have only seen this happen a handful of times, and it's usually in specific situations, such as subject-to transactions or cross-collateralized loans. Your experience may differ, of course. For clients who are concerned about triggering the due-on-sale clause, I typically suggest using a land trust strategy as an alternative to transfer the property into the LLC. This approach can help mitigate the risk while still allowing the property to be effectively managed under an LLC structure.

Hopefully, this clears up any confusion. If there is something specific you’d like me to address further, let me know, and I’d be happy to elaborate!

@Ana Shapiro What you are describing is not an uncommon scenario. Based on your description of the exchange, I am assuming for purposes of this response that you were the owner of the downleg property, which is why you are taking title on the upleg property. To maintain the 1031 qualification, there cannot be a change in ownership from a tax perspective. This means the same taxpayer who relinquishes the property must also acquire the replacement property. Transferring your property into a disregarded LLC, wherein you are the sole owner, is permissible under IRS guidelines (See PLR 200131014: The IRS ruled that transferring hotel replacement property to a single-member LLC did not violate the holding requirement under 1031). However, you mentioned that your Indiana LLC is owned by a Delaware LLC, which is in turn owned by your living trust. This adds additional layers of complexity.

The key question is whether your Delaware LLC is treated as a disregarded entity for federal tax purposes. If your Delaware LLC is treated as a partnership for tax purposes or, alternatively, if it is disregarded but owned by your living trust while you reside in a non-community property state, it could technically be classified as a partnership. Partnerships introduce issues for 1031 exchanges because they do not meet the "same taxpayer" rule. In this situation, you may need to consider restructuring how the LLC is titled within your living trust to ensure it qualifies as a disregarded LLC. This could involve retitling the LLC or even modifying the ownership structure to simplify compliance with 1031 exchange requirements.

One last, but critical, point: when transferring real estate into your Indiana LLC, do not use a quitclaim deed. Instead, use a warranty deed. A quitclaim deed can create future title issues because it does not provide the same guarantees as a warranty deed. Additionally, from an asset protection standpoint, using a quitclaim deed could make it easier for creditors to trace ownership back to you. If a creditor were to investigate ownership of the Delaware LLC and discovered the use of a quitclaim deed, it would be an obvious indication that you are ultimately the owner because a purchaser would never accept a quitclaim deed from a seller. For these reasons, using a warranty deed is a much safer and more reliable option for transferring title.

Yes if you file for the FONCE exemption.  Keep in mind you must file for this each year.