It’s no secret I have sort of become obsessed with asset protection and land trusts etc…I have already completed Mark Warda’s book on land trusts and my next question relates to forming out of state LLC’s…Currently for my first LLC I have formed it’s listed/advertised in the county where I own property…
My question is this…I have come across a service (that I don’t plan to use) that speaks of having the LLC in Nevada and the land trust to make even more complicated to find out true ownership of a property…But how is this handled from a tax stand point and also how can I do this if I don’t own property in Nevada…Or is that a non issue?..I appreciate any responses from the experienced investors using out of state LLC’s to mask ownership…
I would suggest starting your LLC in the state where live and invest. You certainly can have a Nevada or Delaware LLC. There is no problem with a LLC in one state owning property in another state.
One problem with doing that is that you may be required to register your Nevada or Delaware LLC as a foreign LLC in your state which will cost you more money.
Thanks Mike,
I probably should have looked down on the threads and I would have seen your same answer to another poster…As always thanks for the advice…Yes I have already formed an LLC in the county/state I’m investing in…
My next question would be do most investors form a new LLC for each property or they use the same LLC and just keep putting properties in it…Seems foolish not to form an individual LLC for every property…Becuase if you didn’t and you get sued all of your holdings in that one LLC will be at risk…I guess I answered my own question,for a new LLC for each property…But then does having multiple LLC’s create a tax liability and make the accountants rich(er) with doing various returns etc?..
think about this - managing one company - the paperwork and the costs and the tax numbers and checking accounts etc. adds up.
now multiply that by two, three, four, etc.
quite frankly, i find that completely ridiculous. that’s just my opinion.
you build a company so that it stands on it’s own, seperate from you and able to at the very least, fight its way through law suits. once you develop a business, provide it with leadership, liability insurance, cash flow, etc - you give it teeth.
setting up a business entity to simply provide you with “asset protection” is downright silly. i’m sure there are people that do it - but IN MY OPINION - it’s overkill and defeats the purpose of the business entity.
now. say you buy rentals with one company. and you own another company that provides PROPERTY MANAGEMENT to these properties - now if the prop mgt co f’s up and gets sued, well then it doesn’t own the properties does it?
i think having 3 to 5 properties within one entity is sufficient. having a seperate entity for each one is like running multiple joint ventures or syndicates of sorts. and joint ventures/syndicates don’t really invest in one SFH that cash flows for 200 bucks a month…
Dave T,
Excellent advice on the Delaware series LLC,not just for the real estate investments but more so for my business I’m in…It basically allows you have to multiple sub chapter LLC’s and one master LLC all on 1 tax return but with seperate liabitlies for each sub chapter…Fits into my business perfectly and I have been shooting emails/links back and fourth all day with accountant and lawyer to properly get this going…
Also after speaking with my attorney today he suggested a family limited partnership LLP for my real estate investments also…I’m not sure of the difference and I haven’t really heard that used to often on this forum but as everything else I’m researching it feverishly until I fully understand it…My lawyer said that the FLIP is as close to being bullet proof as one can get…So any opinion on that would be great also…
I really appreciate the input from all the pros here…Keep it coming !!!
having done a good bit of research on FLPs, I can say that a FLP is more of a estate planning tool rather than asset protection (althought it does provide for that in some ways).
However, FLPs are very complex to set-up and operate correctly due to reams of IRS regulations that go with it. It is not a DIY type entity like an LLC. Bear in mind that your atty stands to collect tens of thousands of dollars in fees if you were to set up an FLP.
Also, anybody that tells me something is bulletproof make me wonder. The legal system is far from cut and dry. One really needs a multi-layer system to keep the barbarians out of your assets
Also, check out a thread within the past few months on this forum about FLPs for more discussion
My lawyer that protected me in a major business litigation court battle (and won) was the FLP guy,then my prenup attorneys are the ones against the FLP…They are more for just putting each property in a seperate LLC rather than the FLP like my other attorney…I will most likely go with the seperate LLC for each property because of cost and simplicity…
I also have my accountant and prenup attorneys looking into the Delaware series LLC but the problem is that has not been tested in the courts and has no validity is what I’m hearing so far…I hope that it does work out because that fits my business profile perfectly but I need the green light from the higher ups first…If anyone knows more about using the Delaware series LLC please provide some info…
Limited Partnerships were the entity of choice before LLCs. With LLCs, limited partnerships are just about obsolete (at least that’s my opinion). Unless you live in Delaware, I WOULD NOT do a Delaware LLC. Delaware has gotten greedy and charges $200 per year for each LLC. NO THANKS! Then, you might still have to register as a foreign entity in your own state.
Personally, I like to put 5-10 rental units in each LLC. As TMCG said, it is cumbersome to have a lot of LLCs. Therefore, you need to balance asset protection with practicality. For me, having a separate LLC for each rental would be too much trouble. On the other hand, having dozens of rentals in one LLC is WAY TOO RISKY. Rentals are a very risky business from a lawsuit standpoint. A well thought-out, multi-layered asset protection strategy is needed in our screwed up country.
propertymanager,
So if you think having 5-10 units in one (NY)LLC is sufficient…So I’m purchasing 2-3 family homes so every 3 homes I should form a new (NY)LLC basically…Is that logical you think?..Seems ok to me vs a different LLC for each property…And yes I do agree with not using the FLP especially being that I just went for a small fortune in litigation fees from court case ,my business litigation attorney is looking for round 2 out of me… (NY) LLC’s are cheap to form and from what I understand give the same level of protection…