John Hyre question

General Real Estate Investing
1

John,

Can you help me out with some info?

I own 2 properties (3 units) in my name that I manage. I would like to set up an LLC, which I’ve looked into and think I’ll do myself (looks like it should take 15 minutes and be pretty easy). Additionally, I would like to put my own home and both other properties into seperate land trusts with the LLC being the beneficiary. I am also about to turn management duties over to a management company so I can concentrate on accumulating properties quickly.

My questions are:

  1. Is this what I should be doing for maximum asset protection?
  2. What affect will the LLC have on the difficulty of doing my taxes
  3. Will the land trusts really make it difficult to track my assets? If motivated, wouldn’t a lawyer simply make my management company turn over my info to them?
  4. Question 4 is where I start pushing the free advice too far: Am I missing anything that would make it a mistake for me to do the LLC myself? I plan on using a generic statement for purpose such as “The purpose for which the LLC is formed is to engage in any lawful activity for which a limited liability company may be formed under the laws of the state of Ohio.” and skip entirely a single-member operating agreement. If by doing this I will end up far more likely to have the corporate veil pierced, I will check into having you do the LLC also, but I’m trying to minimize initial investment, and saving a grand or so on this would be nice.

Thanks in advance for the help! We spoke via email a while back about the differences b/n your KISS Guide to Bookkeeping and a couple of the other systems people had spoken of on these forums.

Thanks again,

Steve Reutzel

2

Answers in brief (i.e., not tax or legal advice!):

  1. I’m not a fan of land trusts, epecially where the properties are mortgaged. Little benefit but more hassle, in my opinion. Putting your personal residence in the LLC endangers the LLC, b/c it is for business assets, not personal assets.

  2. No change if you are the sole owner of the LLC, still file via Schedule E.

  3. See my other posts on the land trust subject. I do not use them for plain-vanilla rentals.

  4. Set up is way easy in OH. I would have a simple operating agreement, “looks more like a business”, if nothing else.

I am not a fan of management companies, though at a certain point they are probably a necessary evil. They tend to nickel & dime, over-repair and over-charge for the repairs and often do an inferior job at attracting & installing tenants. Check at the CREIA to see if anyone can recommend a good one - they are far & few between. And keep a close eye on whomever you DO choose.

John Hyre

3

John,

Thanks a lot for the info. Much appreciated.

Thanks again,

Steve