All Forum Posts by: Mitchell Zoll

Quote from @Fernando Martínez:

Quote from @Keaton Frieberg:

Hi Fernando, 

Depending on how many properties you plan on acquiring, you should definitely check out the series LLC that Texas offers. Our clients typically use a separate management LLC as an S Corp but do not elect S Corp status for the LLC Series holding company.

Disclaimer: I am an attorney. This is not legal advice, just friendly information.

Hi Keaton,

Can you elaborate on checking out the series LLC in Texas has to offer?

Are there CPA's in Texas that you would highly recommend to use in regards to real estate?

Are you a real estate attorney, just curious in case I would go with your services. What area of Texas do you operate out of? If not do you recommend any?

Thank you for your time.

Please slow down and really look into a series LLC before going that route. The benefits are not often there compared to the risk, especially if you are only investing in a few properties.  Texas LLCs are only $300 to form an entirely new entity and you can better separate properties and assets into LLCs if you need to (and you might not even need to hold that many LLCs).  

Chris - the answers above are correct. In Texas, a quitclaim deed conveys only the grantor's rights, if any, in the real property. A quitclaim deed contains no warranties of any kind and does not establish title in the person holding the deed. It says "I'm not saying I own it, but if I do, you can have what I own." I can quit claim the pennybacker bridge to you if you would like (for a fee of course!) To preserve title, get someone to draft you a deed that conveys the property in a way the title company will support in the future. It is simple and you can electronically record it to convey title from your LLC back to you.

My pitch to the builder is that they shouldn’t have to be a bank (floating advances or waiting for their subs to get paid). My pitch to owners is that it avoids surprise liens, unpaid vendors, and gives visibility into costs and details. It’s a win-win, and I’ve had really good parties on both sides of the deal agree to those terms- but maybe it’s just me. I agree with you that contractors in this market can chose the deals they want to take. 

Quote from @Chris Schorre:

Hi everyone, I have a project coming up that involves construction of a 1,400 sf addition in Central Austin. Nothing fancy, no special requirements. I am wondering if anyone has a sense for what percentage markup a GC would charge for a project such as this. 15%? 20%? I have worked with a GC before but that billing process was a bit opaque (big surprise). Trying to avoid that this time...

Having worked with contractors her in town there isn’t a set % (This is called a “cost-plus” contract) not all contractors do a cost plus and many prefer a flat fee with change orders. A lot will depend on what trades they already have on their team and what they have to get from general subs and that also changes by their workload. One bit of advice- pay your own bills. Vendors, suppliers, even subs. The general contractor should get paid for their work (and in Austin they are getting paid well!) … but you should have direct visibility into the underlying costs to avoid surprises and avoid liens. 

I am not an Ohio lawyer so I can't guide you in the answer, but before you head down the Series LLC path, read cases in Ohio (or wherever your LLCs will be) looking at how the Courts view Series LLCs and the burden of proof necessary to maintain the liability protection. Also read the Series statutes, including Ohio 1706.761(b) and the Ohio cases specifically interpreting that section, to know what you need to do to comply with that provision if you are sued again.

Each member of the series is supposed to be a totally separate entity, and best practice should be to have unique emails for each one. If you are running them all out of a single email account, it will be difficult to establish you have maintained the entities separately if that is a statutory requirement in your state. This is just one example of where the records can be blended -and the difficulty in managing Series LLCs. If the series is truly the best structure for your situation, set up a unique email account/website/contact information for each entity, and then use that information for each separate bank account. 

Use an attorney.  I say that not because I am one, but because I am going through the other side of this process now and I understand the value of their experience and advice.  For context, I handle business formations and transactions and buying and selling businesses all day ... but as I navigate this process, I am using a great estates attorney for these legal issues.  When you engage the lawyer, ask questions, review the documents, then ask questions again. Dig into the "how" of each step: How does the trust operate;  How will the money go in and out of the trust when it is time to use them; etc. The fees you are paying a lawyer should always include an education about how the documents work for you and what needs to happen when they are needed. 

You raise an important point that no one seems to discuss. Series LLCs have been around for a little over 10 years in Texas, but there is very little case law to provide guidance on the Series LLC statutes That's why lawyers often do not recommend them. Read the statute in your state regarding Series LLCs. In Texas, the statute reads that it is a burden on the owner of the Series to prove they have kept their records separate in order to maintain the protections. (For those of you in Texas, read 101.602(b)(1)). The lack of case law doesn't allow any lawyer to provide you guidance on how far a Plaintiff's lawyer can push that statute. It will be very expensive for you to find out.

Lenders, insurers, and other entities don't have to deal with a Series LLC. They may reject your loans or simply require you to do the paperwork to transfer assets to a proper LLC before they work with you. I have worked with clients on transactions trying to use their Series LLC to buy companies or sell portions of their company assets. We end up dumping the Series, proceeding with just a single LLC, and then spend time and money dissolving the series and putting the structure back correctly.

If a Series LLC is really the right entity for your situation, make sure you have a CPA and attorney very involved in your business to keep your records clean and your entity relationships documented.

Hey Bryan

I am in the Northwest Austin area. I help form companies as well as help my clients through asset purchase agreements and agreements to buy and sell LLC membership interests.

I am happy to work with you and your CPA to find the best way to divide up your entities and assets.

I don’t think I can post a link to my website in this chat but luckily I’ve got an easy name to find on google.

Let me know if I can help.

Talk with your CPA ("hello, CPA!") about your plans for the property and have the answers to these (and other) questions ready to go: are you holding to rent or flipping it? Will you add other property to the LLC, and if yes, will they have the same investment profile? Will you bring on new investors? Will all of the investors be individuals or will they try to invest through their LLCs/entities? Will all the distributions be equal to the membership interest or will it be weighted based on other factors? Will you have only one "class" of membership interest or will you have A class, B class, voting/non-voting.

Some of the answers to these questions will guide you on if you CAN make the s-corp election, and some will guide you if you SHOULD to an s-corp election. And make your your answers to these questions match answers for the folks about to give you advice you are about to get on this forum.