All Forum Posts by: Sean Morrison

You're describing a holding company, which isn't a bad idea if you're doing deals in your personal names, and only putting the final product (the rental) in its own LLC. Do you need it for one property? Probably not. But if you do expand, then consider it. If you expand into flipping or wholesaling, then you'll want something separate for that. Not great to mix your active income (flipping) with your passive income (rentals).

The other problem with putting your personal home in an LLC is that you will probably lose your homestead exemption, and end up paying more in property taxes.

Hey @Bob Norton, I love that book!

You may need to have a conversation with your lender. You can move the LLC with a quitclaim or warranty deed, but it may trigger the "due on sales" clause of your mortgage. That clause typically says that if you transfer title to somebody else, or to a company, then the entire mortgage is due. Some lender's are fine with such a transfer so long as you personally guarantee the loan. Some are not. There are complicated, expensive, legal ways around it, but talk to your lender first.

Typically, single member LLCs are fine to do with templates. But partners are a different beast all together. I would never trust a template to manage a partnership. You should at least talk to a local attorney.

@Michael Plaks is correct. If you're holding property in a state, you should have a local LLC. You can always have a fancy New Mexico holding company on top of that, but you'll want something local to hold the property (which, by the way, will erode your anonymity since you need to put names down for a Texas LLC). Either way, you have to pay Texas for doing business there, plus the fees for any other state you're registering in.

You'll need an environmental consultant here. The first problem with be CERCLA, which is the EPA law that provides strict liability for owners of contaminated property. In other words, it doesn't matter that it was contaminated when you bought it, you are liable for cleaning it up. You can get around that by starting with a Phase I study. Based on the level of contamination, you may need to go beyond Phase I, and the higher you go, the more expensive it gets. But if you can get a good feel for the cost of either cleaning up or getting clear of CERCLA, then you can figure that in to your financials.

You'll really want to sit down with a CPA on this. Doing a "reasonable salary" for just one deal is going to be tough. I never recommend people play the S-Corp game until they're doing regular deals.

Typically your entity would be an LLC. You'll need help putting that together since your standard templates are not ready for multiple silent partners. It will be a securities sale so you need to file with the SEC. Assuming your friends and family are not accredited investors, then 506(b) is a standard SEC exemption to use - in that case you'd just file Form D with the SEC. But remember, you can only have up to 35 non-accredited investors with 506(b), and you need to provide them with the disclosure documents, which can be quite a bit of work and you'll need help with those. If they're all accredited, then you can get them to self-certify, but the disclosure requirements are less burdensome.

As to your questions, the LLC would own the fund, and the investors would own the LLC. Typically, we set up a second LLC to hold the properties. Of course, all LLCs are disregarded by the IRS (unless they're taxed as corporations).

General rule is to only buy the company assets, not the company. The reason is simple. The company has a history, and you don't know if that history includes unknown liabilities, possible lawsuits that haven't hit the statute of limitations, or any number of things. If you buy the stock, then you also buy that history.