All Forum Posts by: Jason Marino

Hi Gil,

An LLC that owns real estate is generally considered to be doing business in that State. Based on that, the best option would be to have an LLC from the State where the LLC owns the property or register the LLC to do business in that State if the LLC was formed outside of that State. Not doing this can result in fines, and, worse than that, the LLC can be disregarded in a lawsuit if it is doing business in the State without being formed or registered to do business in the State.

Hi Kevin,

The property management company is usually an entirely separate LLC with a contractual link to the Holding Company. The idea is to maintain a separation between the interaction and the ownership. The rental management company would collect rents and pay all expenses on behalf of the property owner. Usually each spoke LLC would have its own bank account. Despite this, because none of the spoke LLCs should be interacting with any party apart from the rental management company, they may not need to have checks and credit cards. The bank account for the spoke LLC exists primarily to receive any income after the rental management company has paid expenses on the property. If you structure everything in a certain way, as you noted, this structure can be pass-through.

Hi Joshua,

Yes, the Operating Company would act as a rental manager. The link between the LLCs is usually through a contract. This would allow Operating Company the ability to do anything that the Holding Company could do. It will enter into leases, hire contractors, and deal with all interactions. The contract would be private. Based on what you said, it appears that you are concerned about a due on sale clause violation by transferring the property from your name to an LLC. There are structures that can legally avoid this issue, and there is additionally the possibility that your lender would give you permission to make the transfer.

Hi Joshua,

Having an LLC as an Operating Company and an LLC for a Holding Company is a common structure that investors use. The reason for using both LLCs is to separate the liability of interacting from the liability of owning property. The Operating Company would enter into leases and contracts, collect rent, and pay expenses. The Holding Company would own the property and not do anything else. This separation of responsibilities can additionally increase the anonymity of the Holding Company. If you plan on scaling up, as you noted in your post, this may make sense to create a structure similar to what you described above.

Hi Tina,

As you can see in the replies to your post, there are different opinions on this issue. The response is dependent on your risk aversion versus the inconvenience that comes with creating and maintaining multiple LLCs. The ideal solution if you are very risk averse is to have a single LLC for every property. Despite this, the creation cost and the maintenance cost of having many LLCs can impact whether this is practical. I would not say that it is a general rule, but I have seen investors that are interested in lowering their risk but maintaining a low operating cost separate their assets into different LLCs placing no more than 10% to 20% of their entire porfolio value in a single LLC.

Hi Mike,

The posts above did a good job of replying to your questions, but there are a couple of other considerations that I think should be added based on your situation. As a California resident, the minimum California annual franchise tax of $800.00 is going to apply to any LLC that you create, whether it is an LLC from California or another State. If you decide to not do this, the past due payments and fines can be imposed against the LLC. Additionally, if you have a Wyoming LLC or a Nevada LLC, and you intend on owning properties outside of these States, the LLC will need to be registered to do business in the State that it owns property. Not doing this can result in fines, and, worse than this, the LLC can be disregarded in a lawsuit if it is not from the State or registered to do business in the State that it owns property.

Hi Holly,

I cannot speak with respect to the lending portion of your question, but I can reply to the liability that comes with owning a property in a Trust. A revocable Trust generally does not have any limited liability protection. This is most likely the type of Trust that you are forming. What a revocable Trust can do is provide anonymity. If you are interested in limited liability protection, and you still want to have a Trust, options like a Statutory Trust or an Irrevocable Trust are going to give you that benefit in a way that a revocable Trust cannot provide.

Hi Catherine,

I agree with the post above. It is possible to own a property in Washington with your Florida LLC. Despite this being a potential option, it is not recommended. Property ownership is generally considered doing business in the State, and this means that the LLC should be from the State or registered to do business in the State where it owns the property. If you decide to not do this, there is the risk of fines, and, worse than that, the LLC can be disregarded in a lawsuit due to it not being registered to do business in the State.

Hi Benjamin,

You should be able to use your existing LLC, as long as you have kept it in good standing with the Secretary of State. You will likely want to verify that you have a complete LLC, which involves more than just the filing of the entity. This would include the formation documents for the LLC, an EIN for the entity in order to create a bank account, and an Operating Agreement that is suited to your LLC. If you have an LLC that is in good standing, and it is complete, I do not see any reason why you could not use it as a Holding Company as you described in your post.

Hi Corey,

I want to expand on something noted in a post above. Series LLCs are not really new in the United States when you look at them in comparison with traditional LLCs. Traditional LLCs in the United States were first established in 1977. In comparison, Series LLCs were first established in Delaware in 1996. Since the entity was created, it has been adopted by numerous States. Based on this, there has been a good amount of time to establish precedent on Series LLCs. Series LLCs are not an untested entities.