Team,
I’m interested in asset protection - in particular what it the best type of protection for my rental properties between LLC, Incorporating, and Land Trust? Additionally, I’m looking for some help on where to find information on Land Trust. Thanks
Tim,
I recently went through the entity merry-go-round again and here’s what the majority of folks (CPA’s, attorneys) responded for keepers:
a Limited Partnership (LP) with an LLC as the general partner (GP)
So, now many other factors come into play…
costs, maintenance, number of properties per entity, etc.
In Texas the downside to an LLC is that gross receipts over 150k are subject to a 4.5% franchise tax, with some exemptions. Whether or not you actually hit that threshold depends on total rents and sales within the portfolio.
The downside to an LP is that you need a GP that will be on the liability hook, thus the recommendation for a second entity as GP.
Land trusts provide no asset protection; they are merely cloaking devices that should be used in conjunction with your chosen protection entity.
Ignoring the recent new companies, I have an LLC for keepers and I’ve been fine with that. Typically, I’ll have my C Corp be the trustee of the trust with the LLC as beneficiary, or vice versa depending on the deal. :deal
As far as info goes, I have most of Bronchick’s courses and I recommend them if you’re looking for something with docs included… :thumbsup
http://www.texasrealestateclub.com/courseauthors.html#williambronchick
I’ve heard Lou Brown’s materials are excellent as well and I know he has a course on asset protection, but I don’t have it myself.
Otherwise, there’s a book by Mark Warda (I think) out of Florida on Land Trusts that I’ve heard is good, but I haven’t read it. In fact, I guess I need to add it to the book list. Also, I would imagine there might be something available in the local library.
HTH
Tim,
How much risk would you be exposing yourself to if you just kept it in an LLC until 1 day before you sold it, you traferred the beneficial interest to yourself personally-- then sold it to your buyer?
Viable strategy? Or plagued with dangers?
- Adam.
AK,
I don’t understand the logic so can’t answer…please explain :brow
Let me try again
If you transfer interest in the prop. from your LLC, to yourself (personally) … without any monetary exchange … and then sell it to your buyer… can you avoid the franchise tax this way, and still gain the benefit of the LLC’s liability protection? (With the exception of the 1 day).
If you transfer interest in the prop. from your LLC, to yourself (personally)
In my opinion this constitutes a sale…thus included in gross receipts
If all the props are long term keepers, you’d have to have a good number of high dollar rentals to hit the threshold. If you reach that point, it may make sense to have additional entities. The franchise tax is frequently used as a downside to LLC’s (I’m guilty as well), but it doesn’t come into play easily.
And as I mentioned, I think there’s some sort of exception or exemption even if you hit the threshold.