All Forum Posts by: Mike S.

In my setup, I created a C corp as management company. This C corp is contracted as property manager by all the LLCs and is the one signing the lease as landlord. All rents are flowing through this C Corp.

Through the C corp I can then get fringe benefit (like medical reimbursement). The corp also pays all the bills. Then I can reverse to the LLCs the cash flow that then goes to the holding LLC for distribution,

My C corp take a reasonable management fee from the rents that covers the expenses and make almost no profit. I could also decide to make more profit to get a W2 salary and get retirement plans contribution.

Last but not least, it is also a good practice to separate operation from ownership for asset protection.

LLC have two protection mechanism:

Inside protection: any liability happening inside the LLC is contained in the LLC (ie only the assets in the LLC are at risk and your personal assets are not).

Outside protection: if you have liability arising from a personal event, the assets in your LLC are protected if the charging order are the only remedy.

The first protection is the same in all state. The second one however depend on the state and some will allow foreclosure. Some state protection will also differ depending if it is a single member or multi member LLC.

That is why I am a proponent of using a double LLC structure.

The first LLC is opened in the state where the property is located. This LLC is then owned by a holding LLC in WY or NV. These two states not only offer good anonymity (one way to lower the risk of ambulance chaser lawsuits) but also have excellent charging order protection. By using this double layering, your local LLC is protected from outside threats thanks to the holding LLC.

Taxwise, the local LLC is disregarded and only the holding LLC will have to report (if multimember).

You keep one holding LLC and you open as many local LLC that you need (either one per state) or many in the same state if you have many properties that you want to insulate from each other.

Using LLC has a cost, but provide also great peace of mind. It is up to you to decide depending on your assets and your threat assessment what level of protection will make you sleep better at night. Only you can answer that.

@Greg Scott

Do not do a quit claim deed.

Use instead a warranty deed.

It would help keeping the title chain and your title warranty.

So if the beneficiary is not the grantor, then the grantor can not revoke the trust, it should come from the beneficiary directing the trustee to do so. That would seems logical to me.

Registering an LLC with a State is really easy. You can do it online yourself on the State website.

But having an LLC registered, while making your LLC official, is not the only step. You would need to create an operating agreement. This operating agreement is the core of your LLC and would need to be tailor-made for your goals. That is where the use of a real estate attorney is highly recommended. In addition, you will need to decide how this LLC will be regarded by the IRS tax-wise and make the proper election. There a CPA input is probably also needed.

Now regarding the need to have an LLC or not, it is up to you. It has a cost, but also provides asset protection benefit. It all depends on what you need to protect and how much you want to pay for that protection.

You would need to look at what is required by your state and in addition what structure you would need for asset protection.

For instance in Florida statutes, for residential properties, you would need a separate account for security deposit and you would need to notify the tenant where the account is held at.

If you are using entities, you would probably need different accounts for each entity. Also it may be useful to create a savings account to hold reserve as it is usually sitting money.

In a typical land trust, a grantor transfer title of a property to a trustee, with the beneficiary having power of direction.

In a typical revocable grantor trust, the grantor can revoke the trust at anytime and transfer the property back to him.

It is my understanding that a land trust is in the family of revocable grantor trust. Does that mean that the grantor can transfer the property back without the approval of the trustee and/or beneficiary?

I am probably missing something or making a wrong assumption somewhere... Can someone enlighten me.

@Samuel Chua

It all depend what your goal is.

If you want to get rid of the debt as soon as possible, then yes, it will save you a few years on your payments. But then why not paying more than that too?

If your goal is to have cash on hand for other investments, then no, you want to drag your mortgage as long as you can to keep maximum cash on hand and pay only the minimum allowed.

There are different ways of looking at it. But most of them will tell you that you need an entity in the state where the property is, for instance if you need to evict a tenant and go to court.

You can hire a local property manager company that will act as the landlord.

You can create a local land trust.

You can foreign register you current LLC in that state.

You can create a new LLC.

As foreign registering an LLC is around the same cost as opening a new LLC in the state, I much prefer the later as it split your asset in different LLCs offering better asset protection.

I am a proponent of having one holding LLC in a good charging order protection state like WY or NV. Then this holding LLC is the single member of child LLCs in each state where you are holding property. As disregarded entities, these sub LLCs don't file taxes (at least at the federal level) and won't increase your tax burden.

Search this forum for the following key words: due on sale clause, and land trust.

Basically, you obtain the mortgage under your name with the title under your name.

You then warranty deed the property into a land trust where you are the initial beneficiary. The Garn St Germain Act will protect you against the due on sale clause. Later you assign the beneficial interest of the land trust to the LLC. This being a private unregistered document should not create any red flag.

Also, recently some lenders will approve transfer to an LLC that you own. But it is still a sensitive subject with most of them.