All Forum Posts by: Jason Marino

Hi Jake,

There is a lot of information needed to respond to this question, and I think that it would be difficult to describe everything in detail in a single post. Generally though, you will need to first create an LLC or LLCs. Creating more than a single entity is going to spread the risk and have the ability to compartmentalize your properties into separate LLCs. You will need completed LLCs with Certificates of Formation, Operating Agreements, and EINs to be able to open a bank account. The LLC or LLCs should each have their own bank accounts. You will additionally keep a book of business for each entity. At this point, you are ready for a property transfer. You should be able to use either a Quit Claim Deed or a Warranty Deed for this purpose. As noted in the post above, you will need to be aware of the risks associated with a due on sale clause violation. You should additionally be aware of potential transfer taxes or a tax reassessment when a property transfer is made. As for existing Leases, these are usually inherited by the new property owner. That said, you could assign the Lease from yourself to the LLC as part of the property transfer. You will additionally need to notify your insurer, and add the LLC or the LLCs to your insurance policy covering the properties.

Hi Honza,

As seen in the posts above, there are a variation of opinions on this issue. I think that the issue on whether or not you want an LLC comes down to risk aversion. Even with a single rental, there are potential liabilities that come with owning a property that can occur that would exceed your insurance coverage or where insurance coverage could be denied. This is called an external liability. If this happened, your primary residence and other personal assets can become part of the settlement of a judgement. This is not common, but it is a possibility. A properly formed and managed LLC that owns a property can protect you and your personal property from an external liability. However, this LLC may not be able to protect you from something called internal liability. An example of this would be a car accident that you caused.

Hi Jacob,

There are multiple different ways that you could go about creating the partnership that you described in your post. A common method of doing this would be to create a Joint Venture Agreement. This option is probably the least expensive, but additionally the least formal. It will help avoid and control internal disputes between you and your partner. However, it will not provide any asset protection if there is a lawsuit by a party outside of the partnership. Another option, the more expensive and the more formal way of proceeding, would be to form a limited liability entity and incorporate the partnership language into the actual formation documents. This is going to provide guidance on the internal disputes between you and your partner, but it will additionally provide asset protection.

Hi Sean,

My understanding is that, if you are a California resident with an LLC anywhere, California still imposes the $800.00 minimum franchise tax on that entity. I have heard about California investors that attempt to avoid this franchise tax with a foreign LLC, but there is a risk in not reporting your ownership. California can impose fines and try to recover the lost franchise tax on the entity. A common method of avoiding the franchise tax in California legally is the use of a Statutory Trust. Examples of these entities are the Delaware Statutory Trust and the Wyoming Statutory Trust. These are Trusts that have similar asset protection to a Corporation but are governed by Statutes in the State where they are formed. Statutory Trusts are very efficient holding entities.

Hi Bob,

I think that your question was addressed by the post directly above, but I thought that I could provide additional information. You are talking about 2 separate structures in your post. It is useful to speak about each structure in turn.

First, you can have an LLC that owns a property directly. In that case, the LLC is normally considered doing business in the State and requires registeration in that State. If the LLC is not registered in the State and is doing business in the State, there is a risk of fines and, if a lawsuit is initiated against the LLC, the LLC could be disregarded based on the failure to register in the State.

Second, you can have a Land Trust that owns the property directly, and the Beneficiary of that Land Trust can be an LLC. In some cases, owning a beneficial interest in a Land Trust that owns the property is not considered doing business. In that case, you would not need to register the LLC in the State where the property is located. Please note, this is not related to the tax issues that your accountant may be referring to. I am only speaking from a very generalized legal perspective.

Hi Charles,

You can use a title company or an attorney for what you are trying to do, and you do not have to be in Tennessee to sign the Warranty Deed. There are a couple of issues with what you are proposing though. First, if you have conventional financing, and it is a residential property, you may be creating a due on sale clause violation by making a property transfer to an LLC. Secondly, you should generally not use a Wyoming LLC to own a property in Tennessee directly without registering the entity in Tennessee as a foreign entity. Owning a Tennessee property directly as an LLC is most likely going to be interpreted as doing business in Tennessee. That said, not registering the entity in Tennessee can result in fines, and, worse, if there is a lawsuit against the LLC, it may be disregarded in Tennessee for the lack of being registered there. I do not know your the context, but these are issues that could possibly come up with your current plan.

HI V.G,

In relation to your question about the Operating Company needing to be from the State where it manages property, the response depends on whether the level of activity of the LLC arises to the level that the entity is considered doing business in the State. If the entity is simply receiving rent collected from a 3rd party rental Manager, it may not reach that level. The conservative response would be yes, it should be from the State that it manages the properties, or registered to do business in that State as a foreign entity. You would not need an entirely new LLC for each property in different States, but you could use the same LLC registered in multiple States.

Hi V.G,

What you are describing by using 2 LLCs is a common method in asset protection and functions fairly well. The idea is to separate the liability of interacting (for example in contracts and Leases) from the liability of owning an asset. What you would do to maintain the anonymity of your Operating Company is have a private contract between your Holding Company and the Operating Company that authorizes it to enter into Leases, contracts, advertise the property, and other actions on behalf of the Holding Company. This would allow the Operating Company to perform these interactions without the Holding Company needing to sign anything that other people would see.

Hi Brian,

Real estate law is fairly broad, and there are multiple specialties within this practice. You may need to call a few individual attorneys to see if they have experience creating the documents that you mentioned. You might need more than a single attorney in some situations. Another option would be to call a larger firm with a real estate department. Larger firms will usually have several specialists within a department. 

Hi Tim,

I have not heard of a title company acting in the role of Trustee of a Land Trust. As noted in the post above, this is often handled by an attorney or other times you can have an anonymous LLC that you control act as a Trustee. There are ways to maintain your anonymity while controlling the property. Additionally, while the post above is accurate in a Land Trust not providing asset protection on its own, a method that is used to avoid this is to make the Land Trust Beneficiary an LLC or a Delaware Statutory Trust. This gives you the benefit of both anonymity and asset protection.