LLCs, regarding asset protection + location

Hey, I live in MI, but my potential purchases will be in OH. I was wondering on a couple of things. First of all, should I form the LLCs in my home state or the business states? I live on the border. Also, should I package every building into its separate LLC or should I do it all into one, or package 2-3/LLC? Advantages differences for each? I’m looking into Rentals, small scale at first, then larger as I get more comfortable and experienced.

Any LLC will have to be registered in both states and you will have to file taxes in both states, if applicable. Separate or packaged LLCs won’t offer much protection if you own them all and/or personally manage the property. Best advice is to grow your business and forget about LLCs until you reach the point where they will make sense.

I’m with you until the “won’t offer much protection” part. I’m not sure I completely understand you. This is contrary to all of the advice I have heard up to this point. Please explain in further detail:D

Also, I suppose more accurate would be to be talking about liability protection as opposed to asset protection. Obviously a bad investment loses money however you try to spin it.

What don’t you understand? What have you been told? LLCs don’t protect owners who actively manage the business. It creates a means around the LLC. The gurus and promoters don’t fully explain how they work because they nno one would buy their product.

I was under the impression that owning the property via an LLC as opposed to under your own name would protect you from much loss on a liability standpoint, vis a vis someone slipping and falling on a patch of ice in your parking lot and suing you for negligence, etc. Am I mistaken?

That is true if you don’t manage the property or engage in actions that generate liability. If you are the guy who did a poor job clearing the parking lot or the guy who built the faulty deck that collapsed, then you are personally responsible. If you are going to manage the property, then separate the ownership from the management. The two shouldn’t be the same.

So, in essence, you’re saying if I own the property and contract out the management, get an LLC. Or if I manage the property and someone else owns it, form an LLC. But not if I both own and manage, or obviously if I do neither. Am I getting your drift?
Here’s where I want to hear propertymanager(mike)'s take. I hear he owns and manages, and recommends an LLC to start with. Nothing against, you, just like hearing other opinions and clarifications. Also, out of curiosity, what state do you operate out of? If that’s too personal, is it liberal, centrist, or conservative? I’m just trying to get a feel for the political slant’s influence on these laws, because I know they exist, unfortunately/fortunately. Thanks for your help!

The laws don’t matter really. A well drafted operating agreement in the most liberal state will protect you much better than a poorly drafted one in a conservative state. It only takes an $11K judgment to force you into bankruptcy where many LLC protections disappear.

There’s nothing wrong with setting up an LCC when you have no wealth or plan to manage property yourself. You just need to be aware of the limitations and decide for yourself if you want to spend the money to do it. If someone says that an LLC is going to protect your personal assets from your personal actions in the name of the business, then they are wrong. You need additional planning to cover those holes. Again, you have to decide if that is the best use of your money.

What is the best way to set up proprty and manage it? Since a LLC won’t offer the protection I want then what should I use? I understand that many investors have nothing in their name and just control the property.

There is no best way. There is only the best way for you. Sit with a qualified planner to evaluate your situation. An LLC may be appropriate. It may be the worse thing.

What is the best way to set up proprty and manage it?

Treat it like a business. if it’s broke, fix it promptly and professionally. if they’re late, send them a letter. late again, send a certified letter. everything’s in writing. all business, all the time. have good insurance. have good contractors and vendors. run background checks. that will keep 99.9999% of problems from developing in the first place.

I am refinancing a property and putting it into an LLC afterwards and have a property management company renting it out… is this the correct way to do this ??..and also If another property I own in my name personally goes into foreclosure…would this other property be protected by creditors if it is an LLC ?

Does anybody know if you can take the money you have in a CD and for assett protection purposes due to a forthcoming foreclosure…put the CD in the name of your son ??

That transaction would be subject to the fraudulent transfer/conveyance laws. The only statutory protection for BK are homesteads, certain tools of the trade, life insurance, annuities, and some retirement plans.

What do you mean by correct? It is a way to prevent a creditor from bypassing the LLC to your other assets, but it is expensive. Most investors I know manage the property themselves and own it with an entity where they have no direct ownership. The one person I know who uses a property manager did so because he is at the point where he cannot do so himself.

It depends on your operating agreement and your LLC. Your LLC membership shares could be transferred to the BK trustee who can liquidate the assets of the LLC.

hi susan C

BLL is right and so is everyone else…now to put everything together:

it is expensive to set yourself up properly…at the beginning…
if you are owning 1 property in your name…and you are being sued, you may lose that property and…ANYTHING that is in YOUR name or can be traced back to you.

if YOU own the LLC, they (lawyers, etc) can see you and your other assets.
if they can’t, but you are managing the property, they can sue YOU for mismanagement.

so the advice was that you have multiple layers of protection.

you may: put the property in a land trust; then create an LLC in a state that has a maximum tax and privacy advantage, say no state income tax for starters; then use this LLC as beneficiary of the trust. Beneficial rights are private and not recorded so the LLC will not appear related to the property.

now the owner of the LLC can be you but then you are exposed too and so are your other assets; so you need to have a living trust which would be the owner of the LLC.
now you can also run the property, but you are exposed…so the land trust trustee hires a management company that you created as an S or C corp. then you are the employee of the corp. the corp owns nothing (no assets to be sued for). the corp income is just the management fee, which barely covers all expenses including your minimum decent salary (and every other “necessary” expenses). your living trust owns the corp.
now you are then:
hired to run the property and are traced only as far as your running the corp.
you own nothing (your living trust does).

here is something to remember…
as per a supreme court ruling commentary on a tax case: that ultimately all land belongs to the state.
this means that seemingly we “own” nothing…therefore what are we buying and selling or renting?..

simply the exclusive right of usage and control.
this is what we exchange and pay for…

we rent the right to live and use a property, we sell the control rights…
in reality the government only looks for an entity (company, individual, trustee, corp, or combination of those) to assume responsibility for the pty…a name and someone they call call upon who will ‘manage’ the pty for them (them= the government/state, collectively- society, at large). this understanding is primordial to understand further the use of trustees and other entities. this works for all tangible item - registered or not with the state- as well as intangible (intellectual…)properties.
hence the use of living trusts being legal (it actually is used to relieve the state from the burden of the (legal) disposition of assets: probate). all it means is that someone is responsible for the assets. transferring the asset into the hands of the trustee (or any entity that will survive after you pass) before you die means that the assets are not in your hands anymore. so there is nothing to prove or to dispose of…therefore the state (society) has nothing to be involved in. in fact the trustee is the front man…and so are your LLC’s etc. yet you made provision in your contract with your trustees for you to remain in control. it’s all a matter of proper set up and deciding what you need and want.

so as for the state owning the pty; try not to pay taxes and see…or build (improve) without a permit, make too much noise, store junk…

in fact, isn’t it so that if property taxes aren’t paid, that a lien is ensued and it take precedence over ANY and ALL other possible lien…?
well only first owner can place a first lien.

home owner association?..yeah…they “own” the property too.

so this being established, and since we are only controlling the pty, setting up entities to do it for us in such a way that we do not lose control but remove ourselves from undue liabilities makes sense.

foreclosure? will look bad if your bank finds out that you are buying another property with their money. then again if all you “own” is in trusts and LLC’s…

your credit will suffer. However, you can always start a line of credit for the LLC and the corp. Make sure they are not tied with your SS#- get their own EIN #.
and before all…check with a few attorney really proficient in these matter as well as tax protection.
but once you are set up, it’s just an upkeep.

but it all depends on you goals.

no matter what , get yourself a living trust anyway or give everything you own to someone before you die (when is that?) :slight_smile:

P.S. trusts (except for the living trust) are really easy to set up…you just need someone you actually can TRUST. See an attorney for sure for your living trust. make sure you have someone who knows about multiple entity systems and is associated with an accountant also proficient in multiple entities.

hope this helps.

I’m curious how you get around the requirement that the LLC be registered in the state where the property is located. The LLC will not be respected in the state if it’s not registered. I’m also curious how you plan to prevent subpoena of the trust document during discovery. Trust information may be private, but it is not sealed. The trustee must turn over the documents unless he wants to go to jail.

How does a living trust shield the LLC owners? Assuming the grantor retains control of the assets in the trust, there is no liability distinction between a living trust and the grantor.

The trustee must turn over the documents unless he wants to go to jail.

unless the trustee is your atty with privilege.