All Forum Posts by: Costin I.

This being your first rental, I would concentrate on getting the deal done and many more after. The low equity itself should act as deterrent, so you need to worry more about good insurance and proper property management before getting fancy with other asset protection structures. I suggest you read Every Landlord's Property Protection Guide: 10 Ways to Cut Your Risk Now and implement as much as possible first.

Hint: Insurance doesn't cover you in all situations (like fraud and mold). Also, you need to worry about attacks from "inside" (like tenant suing you) and from "outside" (like, you crashed your car into someone).

Once you have more properties and more equity accumulated, then you need to look into more advanced means of asset protection. By then you'll be more familiar with deals, financing, managing, insurance, deed transfers, DOS, etc. I can send you my notes on the whole asset protection subject research I done - it will give some insight in the many concepts involved and the pros/cons.

Land Trust offers little to none asset protection. They are often used for estate planing, and in conjunction with an LLC, they might offer some anonymity or privacy protection (as they might remove your name from a county search on current deeds). I can send you my notes on researching the whole asset protection question, including all the rabbit holes it opens with land trusts, LLCs, transfers, insurance, DOS, etc.

A. If you have few (1-3) properties with little equity and/or are financially strapped…insurance and proper management. Concentrate first on getting deals and growth.  Read and implement Every Landlord's Property Protection Guide ( https://www.amazon.com/Every-Landlords-Property-Pr...). More than 3 and/or lots of equity, get an LLC.

B. When setting up entities there are multiple decisions for each property that have to be considered:

1. Liability protection 2. Ease of management 3. Tax Angles.

The number of properties per LLC should be based on a number of different factors: equity, number of units, cash flow, location of real estate, and tenants. They are often rated on a scale from Poor to Excellent. The investor has to decide what level of each and mix is optimal for their situation.

For example, you might own 4 properties with a sum total of 50k in equity but one of the properties generates $900 per month positive cash flow. In this situation I would structure it so the cash cow property is held separate from the other 3 rentals despite the low overall equity. In other words each person/situation is a case by case scenario.

C. Insurance doesn't cover in all instances, like mold or fraud (very easy to misrepresent something when discussing your properties).

When setting up entities there are multiple decisions for each property that have to be considered. 1. Liability protection 2. Ease of management 3. Tax Angles. 

The number of properties per LLC should be based on a number of different factors: equity, number of units, cash flow, location of real estate, and tenants. They are often rated on a scale from Poor to Excellent. The investor has to decide what level of each and mix is optimal for their situation.

For example, you might own 4 properties with a sum total of 50k in equity but one of the properties generates $900 per month positive cash flow. In this situation I would structure it so the cash cow property is held separate from the other 3 rentals despite the low overall equity. In other words each person/situation is a case by case scenario.

Buy rentals with enough cash flow to cover your primary residence mortgage. That way you are "mortgage free", while at the same time you have assets paid by tenants and your wealth accumulates. If you have extra money, you can always add whenever you desire and can to your mortgage payments. Plus, you enjoy the partial asset protection provided by having notes on both your residence and rentals.

In time, you'll have your residence paid off and the rentals paid off and providing income. Compare what with paying just the residence mortgage and then buying rentals (will probably put you 15-20 years behind).

Do you have this meetup on Meetup.com?

Before anything, why do you want to transfer it under an LLC? If for asset protection reasons, the mortgage itself should act like a deterrent (unless you have already high equity to protect) and you need to worry about proper management and insurance anyway. In other words, you need to make sure you covered yourself first with insurance, property maintenance and management before going to next level of protection.

To answer your questions:

1. I don't think it matters how long you wait to establish and transfer title. The concerns involved and DOS clause are the same one month in or 5 years in. You need to read below about DOS to be fully informed if you want to risk it or not.

2. Yes, depending on how you decide the make the transfer and into what kind of entity. I don't think the associated costs change based on how long you wait.

3. Depends on what your situation (do you have many other personal assets, lots of equity, risk tolerance, etc.) is and your goals.

An essential asset protection measure is to transfer investment property out of one's personal name and into an LLC–or, if a two-company structure is used, into individual series of the holding company. For real estate, this is done by means of a general or special warranty deed.

Are due-on-sale (DOS) clauses a problem in the transfer of real estate? Almost never, in spite of what lenders and Internet alarmists say. Lenders have their plates full with monetary defaults and generally do not accelerate a performing loan, especially if a property is being transferred to the borrower's personal company. But...

 Transferring into a revocable living trust will not trigger a DOS enforcement however the property must be primary-owner occupied and the beneficiaries must be the original borrower(s) not a new name beneficiary like a LLC. So no matter how you slice it or try and circumvent the rule, if you change out the name of the beneficiaries, they can enforce the clause. Transferring to an LLC is not seen as estate planning or an inheritance event.

 A detailed resource on Due on Sale: https://www.johntreed.com/blogs/john-t-reed-s-real...

I can give you more info on all this, including a letter if you want to request lender permission, and how to preserve title insurance and more on the asset protection subject. PM me if interested.

Partnerships and joint ventures are tricky. So, my first suggestion is...don't do it. 

If you decide to proceed, I think you should have an LLC formed going in a limited partnership with your(s) partner(s) LLC. There are so many areas where things can go wrong with a simple partnership, and you want to be protected from an asset protection perspective. I can provide you with more info on that and give you a referral to a good attorney specializing in asset protection and partnership structuring.

Before proceeding, I suggest to have all or most of following questions clarified:

Joint Ventures – checklist / questionnaire

Before you can start to set up the legal framework, there are various issues that need to be addressed. These can be summarised as follows:

1. What are the objectives of the joint venture?
   • general trading principles
   • what will the business actually be doing
2. Who puts what in?
   • cash
   • other assets
   • services
   • are any existing contracts of either to be taken over by the joint venture
   • who actually does / will do what
3. Will any external funding be needed?
   • who will it be raised from
   • who will borrow it
   • who will guarantee it
4. Who gets what out?
   • sharing of revenue profits or losses
   • sharing of capital gains or losses
   • is any payment to be made to either other than as share of profits, eg for ongoing services
   • will the participants be operating a ‘salary/dividend split’ – ie taking their month by month requirements by way of low salary, balance as dividends?
   • What, otherwise, will be the policy in relation to dividends – to what extent is it intended to distribute / retain surplus profits?
5. Who controls what?
   • responsibilities for day to day running, in all relevant areas of activity
   • tactical decision making (day to day)
   • strategic decision making (longer term policies)
   • what things can only happen if both parties agree
   • what will happen if you can't reach agreement on some major issue - ie deadlock
6. What happens if either party 'wants out'?
   • on what kind of notice will this be permitted
   • does the other have 'first refusal' to take over the whole venture? - if so, on any favourable terms?
7. To what extent will the parties be free to carry on other businesses
   • while the joint venture subsists
   • if one party pulls out
8. Is it intended that spouses/partners should also be shareholders, to allow for tax advantages from a broader split of dividends?
9. Is there a vision that any others will become shareholders (or be granted grant options to acquire shares) in the company in the future?
   • Who?
     • Staff?
     • Others?
   • On what terms?
     • Participation in dividends?
     • Voting rights?
10. Are there any offshore angles:
    • Is there potential for overseas sales or operations?
    • Does anyone involved in the venture have any overseas connections?
    • Does anyone involved in the venture have any plans to live overseas in the future?
11. Is there yet any written:
    • business plan?
    • marketing plan?
    • cashflow projection?
12. Is there an ‘exit strategy’? If so, what is it – which of the following most closely hits the mark?
    • ‘lifestyle’ business – ie simply intended to be run by and to provide an ongoing source of work and income for the proprietors, no clear vision for the long term future?
    • possibility of future sale at some point?
    • A core object of the venture is to create an asset with a view to sale or flotation in 5 years?
13. Which aspects of the above do you feel most important at present? Which aspects concern you most? (NB each of you may have a different view here, the question is asked to help me understand where each of you is coming from) 

Not an attorney, but here my 2¢:

1. Never Put Real Estate in an S Corporation Without first talking to a Tax Attorney or Tax Accountant, especially if you have partners. http://walkerlawpc.net/never-put-real-estate-s-corporation/

2. What happens if you decide to keep the house, for one reason or another? S-corp might not be the best.

3. If you quit-claim, you might loose the title insurance protection.

4. From asset protection perspective, if you (your S-corp or LLC) flip a house and later get sued, and it can be for a variety of reasons, any other flips/properties you might have under your corp will be under attack. From that POV, is better to use one LLC per property and leave it dormant (although for CA that might be a very expensive option) after the sell (so if it gets sued, there is nothing to collect on). Suggestion: look into Series-LLC, if recongnized in your state.

Wow, is the city requiring "transparent" fence and limits your height to 3' on the corner?? I knew of covenants restricting the height of the fence to no more than 6 feet, but never heard of limiting to a max of 3'...

Anyway, I would go for a more modern look of horizontal pickets, eventually with large spacing for a more "ventilated" look...