All Forum Posts by: Jenifer Levini

Hi @John P., You are asking a very specific question about the specific activities you are doing in the two states which you are involved. If you would like a lawyer to do the legal research into the statutes and case law to find the precedents, to be able to answer this question, you can retain me or another lawyer for our hourly rate.

On the link at the State of California website on LLC taxes, I gave you above, it gives an example of when the taxes must be paid. A fuller explanation is here: https://www.ftb.ca.gov/forms/misc/1050.pdf

California is one of the most tax heavy states. It's possible to fight, and win against the taxes in certain cases. Yours might be one of them. You'll need a lawyer to assess the specifics to give you an opinion on your likelihood of success or whether your activities are are de minimis. 

Hi @Adam Slack,

An LLC is a great way to shield your personal assets from almost anything that can go wrong, from transactions to trip and fall, on your investment property. @Levi T. is right on the money, that piercing the corporate veil is few and far between, and in the very few examples of veils that are pierced the actions are egregious, not regular people in the course of doing business. 

The only time when its probably not necessary to hold investment property in an LLC is when the property will be held for a very short time, like a quick turnaround assignment contract. Another time is when you plan to occupy the property as the sole tenant (like an office space).

Lastly, banks sometimes charge higher rates (interest, points, or fees) when lending to LLCs because they are taking on more liability. That's another consideration  in the bigger picture of how long you'll have the property.

Good luck!

Jen, the lawyer in CA

Hi @Kay Lyn, i'm an attorney in CA and help with LLCs all the time. I'm curious about what youre doing that youre so worried about piercing the corporate veil. If the LLC is formed correctly, and the operating agreement is written correctly, and the LLC is managed correctly following the operating agreement, its nearly impossible to pierce. When it is pierced the members have mixed their own funds with the LLC funds, looted the LLC or stiffed a lot of contractors. If youre not planning to do any of those activities, I agree with everyone else here that it makes the most sense to file in CA and only pay taxes in one state.

Hi @Ashish Khera, first you'll have to check the Bylaws of your c-corp and your articles of incorporation. If there is anything in there that names a specific purpose of your corp and this loan would be a violation of that purpose, you'll need to amend your corporate guidelines with a full vote of the shareholders and officers. This needs to follow all the corporate formalities.

Once your corporation specifically allows lending, then it will require a vote of the shareholders to make the loan because it is certainly out of the ordinary course of business for a tech company to lend money to a real estate company.

After the shareholders vote to allow the loan, and all this paperwork is filed in your corporate binder, the corp can make the loan directly to the LLC.

For tax purposes, the corp will not pay tax on the loan but will pay tax on the interest income created (3%) at whatever rate the corp pays tax. Luckily that same 3% will be part of the expense you deduct for the LLC. And if the property you purchase is depreciable, you may end up sheltering additional income too. You could be very net positive in this transaction.

I suggest you have a lawyer write or review all the paperwork.

Jen, the real estate lawyer

Ok. Youre using different language that could lead to a couple of different conclusions. But, I think that there are two possibilities: 1. if Wisconsin allows series LLCs, you can subordinate the LLCs that way; or 2. LLCs are member owned. If you make B,C, and D single-member LLCs and A is the sole member of each of them, then A would have 100% ownership of each of those, and the 5 people would be the members of A. The important piece will be the Operating Agreements that govern each LLC. That's where you spell out how theyre managed. Have a lawyer write OAs for you.

Jen, the real estate lawyer

Hi, I'm a real estate attorney. The contract should list the remedies in case of breach or default. But basically you can sue for "Specific Performance" to force the sale if he's trying to weasel out, unless you gave up this right in the contract. Just say the words, "specific performance" a few times and that might get things moving. If you need some legal muscle, let me know.

Jen

I use Bank of the West. No problems.

Hi @Nicholas Clark, I am a real estate lawyer, here in California, and I help people buy and sell real estate without realtors all the time. I help with the negotiations, write the custom Sale & Purchase Agreement, provide the legally required disclosure forms, and some hand holding through the process for a few thousand dollars. On a deal like yours, $650K, the cost to have a realtor involved would be around 6%, $39,000. And that cost would be paid by the seller. Since that is the amount the seller will save by selling to you, it is very reasonable to ask him/her to subtract that whole amount from the sale price. The additional benefit of having a lower sale price is that it means the property is more likely to appraise for that price and the price wont be a problem in getting a loan.

If the price it above comparables, a bank will refuse to loan the amount above the value (really the LTV times the appraised value). When you apply for a loan the bank will have a professional appraisal company do an appraisal to make sure youre not over paying and theyre not over lending. For example, If the sales price is $630K, and the appraised value comes back at $600K, and your loan is 80% LTV, the bank will only lend you $480K. You will then take the appraisal back to the seller and renegotiate the price based on the appraised value. You'll ask them to sell it to you for the value $600K minus the realtor fees theyre savings. So you could end up paying something like $570K even though you first agreed to $650K.

If you want help with this process, or with the contracts, please send me a message.

Jen

Hi @Darek J., I'm a real estate attorney in California working with landlords and investors. I can help you, if you havent already found someone. Attorneys are licensed for the whole state. I have other clients in your area. Feel free to message me for contact info.

Jen

Hi @Juan Ayala, I'm a lawyer here in CA. First, is it safe to assume that you do not want them registering their business using the address of the home where they live? Why not? There could be a lot of good answers to this question. For example, like @Roy N. suggested, it could be a violation of law, or their lease. But, it could also be no big deal if they are running a consulting business (like graphic design) where they sit in a chair inside and do not disturb anyone.

In California, the state does not allow LLC's to use P.O. Boxes or other rentals as addresses. They can however use an Agent for Service of Process. I think these guys charge $50-100/year.

One good thing about them using your rental address is that they are certainly planning to stay for the long run.