All Forum Posts by: Scott Smith

@Timothy Williams, there are good reasons for real estate investors to form LLC's in other states for tax and a variety of other reasons. While a local LLC may seem simpler, it may be more costly in the long run. This article identify three states I like, and there are others that can make compelling cases also.

@Samantha Kay, here is graphic to show what value LLC's are intended to accomplish. Even though there may not be a tax benefit, there are other expenses and issues they can save you money on. Here is an article I wrote where I make my case for why an LLC is worth the expense. 

@Angela MIller here is an article on joint ventures, operating agreements and LLC's that may give you and your partner some good ideas. In addition, estate planning is helpful in case health issues arise - especially when the partnership extends over time. It seems like something always comes up, and getting everything nailed down at the beginning is basic relationship insurance. Best wishes!

@Misty Monk. here is an article on the changes Fannie made to not trigger due on sale for transfers within your own pass through entities.

@Nick Murray, here is a graphic that identifies an asset protection plan, which an LLC is one element used to support this plan. LLC's generally are used to isolate business assets from personal assets, and as the business grows to separate them to reduce risk.

The old adage of "don't put all your eggs into one basket" captures alot of what the LLC's are made for.

Here is more information that may be helpful.

@Spencer William Quesenberry, I agree with Trevor that more information is needed, but generally if you have more assets than your first deal, the LLC will help to protect what you currently have from any legal issues arising in your first deal.  As you build personal assets, the following graphic shows steps you can take to protect those assets.  When you buy your first investment in your name, then everything in your name is subject to any judgements that arise - and they are all in your name.

@Anson Lau, a good strategy to use to avoid due on sale is to transfer to a land trust which is protected by the St. Germain Act, and have the LLC as the beneficiary as of the land trust. Here is an article about changes Fannie Mae made to incorporate this in their newer loans. @Gio Gonzalez date is the one for this purpose.

@Matthew Haralson, here is a graphic we use to show the pieces of Asset Protection.

Each of these tend to be podcasts by themselves. The operating agreement is part of the liability column, and is very helpful to protect relationships by clearly identifying roles, responsibilities and processes to use to operate a LLC. I don't have it listed as "relationship protection" but that is what it often is, and it is good you have one. Property management agreements are also helpful in this regard, and allow you to separate ownership from operations and use an operating LLC to manage multiple properties with different needs that get to compartmentalization. I personally like the lifestyle automation that helps with the ongoing maintenance, so I can live life without distraction.

I am sure many in Bigger Pockets can add their experience in many of these areas.

Not sure what State you have properties in.  In some cases we advise holding assets in trust to reduce the franchise taxes some States charge.  I give my opinion as an investor since legal opinions need more information and planning - sorry!

@Anil Rathi, Generally, there is an operational side and an asset side of the rental business. You will find many rental businesses will have an operating LLC that does the property management and cash management for the property. The property itself can be separated and held in either a LLC or trust to protect the asset from lawsuit and to identify ownership. Many times I find clients who have the spouse as trustee in the operating company to improve the ability for either to do business, and not in the asset side so it is easier to complete transfers and loans. The ownership can preserved, but the execution simplified.

This is not legal advice, rather an observation.  When marriage problems occur all the pros/cons change and there are other legal remedies that will come to bear.  It is good to have a strategy to protect the marriage in any business partnership - wish you the best!