All Forum Posts by: Jerry W.

@Yee Elias, I am not commenting on what entity is best for you. There are a lot of factors for it. As to how to create an LLC in WY, I would use one of the thousands of companies that do the filing for you for about $200, and will act as your registered agent for about $50 per year. The way you get property into your LLC is do a deed to your LLC. Your bank could call your mortgage due if you do that, but often they do not. If they send you a letter on it then change it back into your own name.

@Bill Hall, I am not an accountant, but I cannot imagine having a C Corp is a good idea.  Please talk to your own accountant before doing that.  You could end up paying taxes twice on your profits.

@William Coet, OK , I am an attorney, but I am not your attorney. The laws may differ from state to state, but here is my opinion. First LLCs do provide protection for many liabilities. How much depends upon your states particular laws and how you operate it. They do not protect from all liability, but neither does your seat belt protect you from all wrecks. However they usually help a lot. Each LLC or corporation is separate from every other entity. So if you have 3 houses each in 3 separate entity, for a total of 9 properties and one entity gets sued and loses the suit, then only the assets in the entity sued are in danger of being taken. If you have all 9 properties in a single LLC all are potentially in danger of being taken if the judgement is high enough. You must treat each entity as a separate business and not comingle entity money with your personal money and not with each other.

Lawsuits are not common against landlords, but they are not uncommon either.  I know a lot of landlords who have been sued, some with shaky reasons, some with good reason.  Some judgements were a few hundred, one for over 10 million.  Most of the ones I see are for couple hundred thousand.

Unless you commit a negligent or tortious act you are not responsible for damages incurred by your entity.  Doing things like paying your own water bill and grocery bill out of your entity will allow the court to reach beyond the protection of the legal entity and hold you personally responsible, it id called piercing the corporate veil.  There are several ways it can be accomplished, one of the most common is comingling funds, but there are others, like undercapitalizing it. (Sucking all the money out and taking out large mortgages and taking the money to yourself)  Doing acts of personal liability can bring about personal liability, like driving the company car drunk and running over someone, or working on the wiring yourself and the house burns down from a short and kills your tenants.  Insurance is a must.  Read your policy.  If it has a limit of $5K for personal injury and a guest trips over torn carpet and breaks their arm and total damages are $200K you have a problem.  Make sure sure you have adequate coverage.  I usually do $500K liability and a 0ne million umbrella policy.

Insurance usually tries to avoid paying, but it often covers most things.  

I have seen a judgement of over $10 million where carbon monoxide killed 2 people staying in the home.  I have seen a couple slip/trip and fall cases for a couple of hundred thousand each.  One that seriously hurt a friend of mine was where a landlord was feeling sick but decided to drive himself home anyway and passed out and swerved and hit my friend by crossing the road.  My friend was very seriously injured.  The auto insurance had a measly $50k liability limit, and the judgement was like $600K, and over $200k was just in medical bills.  The guy lost all of his rental houses.

Having an LLC in a state with charging order protection can actually help there especially a multi member LLC. If you own property in a corporation the lawsuit if successful can actually take the shares of your corporation and end up owning your property. In an LLC they cannot take your ownership usually and can only garnish the money the LLC pays out to you.

I do not like the snake oil type lawyers that want to sell you the $20K liability protection packages. They are only slightly better than a regular LLC. Anonymity doesn't work much either, you usually cosign for your mortgages, and you write the checks, you sign the closing documents, you hire the workers, you call the plumber, you interview the tenant etc.

So my advice, form a simple LLC, follow the rules, get insurance, and operate your business ethically. Odds are you will be ok, but it is like wearing the seat belt. Most folks don't get in bad wrecks, but when you do the seatbelt can do wonders to save your life, but sometimes even that doesn't work.

Sorry this is so long.  Keep in mind I have really simplified some concepts here and educating yourself on more details is a good idea.

@Bill Hall, I am an attorney in Wyoming, and I think the cost of $2,000 is absurdly high. As to registered agents, most of those companies that provide that service are massively cheaper than hiring an attorney to do it. I am having a problem understanding why you would want a C Corp. I am having a hard time imagining a scenario where it would be better than an LLC, a Limited Partnership, or a Sub S corp.

@John Carbone, thanks for the thought provoking comments.  I am in a small market in the middle of Wyoming, so my market may not be anything like the national market.  I have been buying property in Wyoming since the 1970s.  I have seen a lot of boom bust cycles in Wyoming.  Every one of those cycles was driven by the cost of energy.  We often had booms that were opposite from the national economy.  When oil prices spiked upwards many industries were hurt and people got laid off.  When oil prices spiked we had massive amounts of drilling going, and pipelines being built, old oilfields got pushed into secondary recovery programs.  High priced wages for the dangerous oilfield work caused a lot of money to flow into oil towns, people bought houses paid exorbitant rent, they bought new trucks, campers, 4 wheelers, guns, beer, etc.  Mobile home parks had waiting lists to get in since they were full.  Grocery stores made more, restaurants made more money, car dealerships made more money, insurance companies made more money.  You get the idea.  When oil prices dropped businesses elsewhere took off.  It was cheaper to make glass, to make cars, to drive to vacation areas.  The economy picked up, wages went up.  In Wyoming when oil prices dropped then new drilling stopped.  You cannot pay the massive costs to drill and produce more wells at low oil prices.  Drilling companies laid people off, jobs were lost in oil production, fracking companies had layoffs, drill stem testing companies had layoffs, oil service companies had layoffs, mud companies had layoffs, trucking companies who moved oil rigs had layoffs, the list was long.  Wages dropped for those who kept jobs.  Then folks couldn't make payments on 4 wheelers and boats, and campers, and those got sold.  So house got foreclosed on and pawn shops filled up on rifles and other toys.  No one bought new trucks, or ate out, or had their hair styled or nails done.  Housing prices plummeted.

I have seen at least 4 of those cycles in my lifetime. We are currently in one of the biggest booms I have ever seen. Oil prices actually went negative for awhile during the pandemic as all the gas holding tanks were full since no one was driving and oil had to be stored sometimes on expensive oil tankers. Still prices boomed. Why? I can tell you with confidence it was not because of low interest rates as the main factor. I am in a town with a population of 3800. We normally have about 60 houses listed on the MLS. In 2019 I was actively trying to buy houses and occasionally bought empty houses that had been empty for years. It was not unusual to take a month or 2 to rent a house. MY model was to buy distressed houses, fix them up and rent them. I usually paid about 6% interest and did 15 year loans. In 2019 we had a small uptick in people buying from out of town. In 2020 we had a bit of a drop off in home buying and prices stayed a bit depressed a little while. In late 2020 and 2021 prices went nuts. They continued to climb in 2022. I bought a house in 2022 that was in pretty rough shape but in a nice area. I paid $120k, it would have been worth $70 to $80K in 2018 or early 2019. Houses that rented for $700 in 2019 are renting for $850 to $900 now. This summer and last summer I was doing deeds for 5 up to 10 properties a week. Maybe 1 in 10 of those were to local residents. People from mostly the west coast were buying houses and land like crazy. The number of homes on the MLS dropped to 10 or 12. Realtors could not find enough inventory to sell. The only houses not selling were the ones priced at insane levels. My personal residence was assessed at $140K. I listed it for sale in late December 2021 for $225K. The assessed value came up to $180K this year. I just sold it this week for $215K. Keep in mind it was an 1800 square foot bilevel with a redwood deck, new windows, new roof, new high efficiency furnace with central air, new bathroom remodels, and a newer kitchen.

My opinion is that Covid accelerated a market that was already heating up.  People began to be able to earn big money by working remotely and not having to live in cities with populations over one million.  People were able to sell 1400 square foot houses in Washington, Oregon, and California, for 1 to 3 million dollars and buy a same quality house for $150K in my town.  Houses that we locals thought should have sold for $100K.  Some people told me they were fleeing politics, like liberal governments and defunding the police riots.  Some decided that they would just retire early and live here for half the cost of living elsewhere.

Prices have stabilized here, and are still climbing in price, but much more slowly than the last few years.  Guys who priced a 950 square foot house for $220 thousand are slowly dropping prices.  Guys who are selling 1400 square foot houses for $190K are still selling them.  The froth has come off of the market, but not gone down anywhere near where prices were 2 years ago, and they will not for the foreseeable future.  I think a lot of the shift was from extremely expensive markets with high populations and high wages, to more rural areas at massively lower prices and a much better quality of life.  It takes 2 minutes to drive to the grocery store, and 2 minutes to drive to work, not an hour.

In my area high housing appears to be here to stay.  High rents are here to stay.  Many vacation rentals popped up here.  There were 12 when I started 5 years ago.  There were 60 in May of this year, I would guess we have close to 100 by the end of the year.  This is happening in ALL of Wyoming, not just my town.

Some new houses are being built, our local builders are booked up 2 years in advance, new subdivisions are popping up like mad.  Houses with acreage are still going for massive amounts, well over double what they were 3 years ago.  Lumber has really dropped, it is only about triple of what it was in 2019, not 8 times as high like it was last year.  Nobody can find workers, and the workers cannot find affordable housing.  None of the newcomers have opened any businesses or shops, unless you count vacation rentals.  A couple of folks have bought 4 or 5 houses and turned them all into vacation rentals.

I don't think we are going to see values of houses drop in my area, despite higher interest rates, it will just climb more slowly.  At this point it is just wait and see, and know I will pay more when I can find one I can afford.

@William Coet, I usually start off when making an offer finding out why they are selling.  If they need the money for another purchase the odds of seller financing are low.  Now if they want to get rid of a headache, or is costing them money there are more options.  I often ask them if they have a planned investment for the money from the sale.  This was easier when CDs only paid .25%.  I would point out getting a 4% interest rate was 8X more of a return than a CD produces.  I would also point out the benefit of spreading the profit out over several years.  Sometimes they want something like to fix their car, or to take a vacation.  I then ask what if you got enough to do that now and still can get a 4% return on the rest of the money.  I often offer a balloon payout between 3 to 5 years.  They can always change their mind and keep refinancing it.  I point out that the property is obviously worth the mortgage as they are selling it for much more.  There is also the benefit if they have a spouse or children who might benefit more from steady income over years as compared one single big payment.  It might almost be like an annuity for them.  If they change their mind before the 5 years is up they could also sell the mortgage.  Another thing is stress how fast they can have some of the money in their hands.  Some people value some money right away as compared a lot more money a long time in the future.

Just some of my experiences.  Finding out their motivation to sell is important though.

OK @Sadhana Patel, you do not need a Wyoming attorney to set up a Wyoming LLC. You basically need a plan, then craft the LLC operating agreement around it. There are a LOT of online entities that will set up an LLC for you. I have set some up for folks, but feel bad because it literally takes less than 30 minutes to set up a WY LLC using the online work sheet. I think the fees are about $100. I usually recommend they buy a corporate book (LLC Book) as well to have guides on how to do their paperwork. Figure out your plan and Operating Agreement then file the LLC. Do not bite on the guys charging $10K to set you up. Literally it is less than 30 minutes work to file one.

@Miguel Hernandez, I obviously have no idea of the real situation with your contractor, but let me give you my experience.  Right now contractors are extremely busy.  Like everyone else when demand is high it is hard not to take on a lot of work.  I have contractors who are booked out 2  years in advance.  They try to figure out how long a job will take and plan it in.  When something really unexpected happens they end up behind schedule but already have start dates they have given to other people.  Often the dates are important, there is a baby due, or furniture is coming, or even supplies are going to be delivered and they cannot let them sit out.  Now if you want to ruin the relationship with your contractor jump him about the issue.  Maybe just ask him what his timeline is and will he be able to fit the rest of your project in?  If so what is a realistic timeline?  You said the mold was very extensive and it took a lot longer.  Did you really think that he did not have any other projects lined up?  The better the contractor the more they are in demand.  Just my 2 cents, but if I knew my project ran over long in time because of issues that were not his fault, I would try to be very understanding.

What kind of work do you need done @Sadhana Patel?

@Nathan Kawalerski, while I am a long ways away from you I recently applied for a loan on a rental property.  The first bank offered a loan at 7.25% with 25% down, the second bank I went to initially quoted a rate just below 5% but the actual loan came in at 6%.  The second bank however took another property I have without a loan on it so my loan to value was about 50% and In did not have to put any money down.  Both loans were 15 year amortizations with 5 year ARMs.  I hope that helps for comparisons.  Both were small local banks, and were commercial loans.