All Forum Posts by: Scott Smith

PM as a schedule C would expose your personal net worth to any risk in PM, which I see some above are saying is small based on your tennants. Keep the accounting separate between your schedule C and LLC, and you should preserve your corporate protection.

The advantage of creating a separate LLC structure for the PM is to contain the risks of the PM and operations from the assets of the property managed and your personal net worth. I explain this use of separate LLC in Point 4 of this Bigger Pocket article.

@Clint G. congratulations on your first flip!  You mentioned the partnership and Joint Venture Agreement - here is some information I posted on Bigger Pockets to help you understand what your partner knows and getting a better handle on where you are going.  

I am not sure the detail you want, I have some blogs on Bigger Pockets that discuss the partnerships and LLC structures that do this with less risk.  I find I just read the different agreements and that helps me understand what is and isn't covered and the risks involved.

The series LLC is a structure that can limit risk to each BRRRR and adapt to differences in ownership between deals. Since there are many aspects to the series LLC agreement and the laws that support the structure, I have other articles in Bigger Pockets that may interest you.  I think you will find the limited liability structures are less risky than general partnership structures.

@Sarah Dawson, I agree with @Don Konipol above about legal partnerships and recommend an LLC since that provides limited liability, not general liability.  If you consider a series LLC, you would be able to compartmentalize the risk characteristics in your other properties from this deal and your personal assets.  The series structure is able to be tailored to the individual funding partnerships, while maintaining the separation of businesses you need.

Asset protection considers both compartmentalization (containing risk between assets) and separation (containing operating risk from asset risk). The strategy that works for California is to have a LLC manage operations, and Delaware Statutory Trusts compartmentalize and hold assets. The DST allows for a structure similar to series LLCs, with all the coordination and flexibility that series structure entails.

This is my opinion, and not legal advice.

Depending on how you structured your LLC, it is a pass-through entity. We use the term "pass through" because you can claim the income of these types of businesses on your personal income tax returns. Ordinarily, you would have to file a separate return for your business (or businesses).

Samuel, LLCs are great for separating and compartmentalizing risk from business ventures, but generally tough to secure financing through traditional loans. Once you figure out the best financing method, then plan the LLC to protect your personal assets from the BnB and other rental operations risk you may have. Check your local regulations to see if the rental operations you have in mind might be limited by local regulation, like BNB activity.

Many times the LLC is used to protect personal assets from business activities. If you have personal assets you would like to protect from a new business, then waiting for the LLC may make sense. You may be exposed to some liability in wholesaling that you may be unaware of since it is new to you.

Your thoughts look like they are in line with the article I posted using land trusts to avoid due on sale calls. However, you didn't identify if the land trust has you as the beneficiary or a LLC. By using a pass through LLC, you will get the separation of personal from business assets you want. You will want to work with an accountant to separate your finances from the business operations and other actions that make good business sense.

Again, this is not legal advice but an initial review of your action plan.

@Justin Y., a new LLC is generally difficult to secure financing with - I wrote an article about this with some thoughts on how to get financing and move the property to the LLC.  Following are some of my thoughts re: your questions above:

1. LLC's help to compartmentalize your assets.  First, they allow you to separate your personal assets from your business assets which is a great idea for most investors.  Second, the State matters since the laws of the State identify what you can do, and what taxes you will pay.  An accountant may be good to ask for the tax advice.

2. The deed needs to be in the name of the LLC to create the separation of assets in case some difficulty arises.

3. Using a land trust to transfer assets is protected by the St. Germain act from due on sale calls when the LLC is a pass through entity.

Good to see you on BP!