LLC's and Land Trusts.
My original point being that it is good to protect yourself. Here in NC it cost $200 big ones per year to have an LLC. So for the most part an LLC per property isn't really feasible. Land Trusts however are relatively easy to maintain. Anybody agree?
"My original point being that it is good to protect yourself. Here in NC it cost $200 big ones per year to have an LLC. So for the most part an LLC per property isn't really feasible. Land Trusts however are relatively easy to maintain. Anybody agree?"
If your objective is to protect yourself (limit your liability) then the LLC is the way to go. If your objective is privacy (shield your identity) then the land trust achieves your goal.
A land trust does not provide liability protection, while a LLC does not conceal your ownership. A land trust with an LLC as the beneficiary provides asset protection and anonymity.
For the investor holding long term rental properties, a single LLC can be the beneficiary of several trusts. When the LLC's capitalization reaches a certain threshold (one tax lawyer/CPA suggests $250K), form another LLC to be the beneficiary of subsequent trusts.
Incidentially, this same tax lawyer/CPA also warns that using a single LLC for each property, may be viewed by a court as a sham corporation if the LLC appears to be undercapitalized (I interpret this to mean no assets or equity in its property). Asset protection in this instance could be an illusion.
I am not a lawyer or CPA and have no specific knowledge on this point. I am just repeating the warning for your consideration
[ Edited by DaveT on Date 09/07/2002 ][ Edited by DaveT on Date 09/07/2002 ]
To All,
I am a firm believer in seeing an Attorney and CPA when starting out in Creative Real Estate Investing.
There are State Statutes that goven the way we do business where we live. I would never want to see anyone go in to "harms way" by being penny wise and pound foolish by not getting professional advice.
DaveT sounds like you have done your homework for your investing area.
Keep on posting we are all learning, fun ain't it.
John $Cash$ Locke
Joel,
DaveT brings up a good point of undercapitaliztion. Most States Require a certain amount of capitalization to maintain it's corporate shield. However, in the State of Nevada, capitalization requirnments is at $100 dollars.
If it's liability you are looking for, a $200 dollar fee to setup is well worth the money.
So how do you setup a Nevada Corp. when you live in SC? You would apply as a Foreign Corp in the State of Nevada. There is many benefits to this, which I won't get into details here, but it is doable.
For privacy issues, as you mentioned, Land Trust is an excellent vehicle, but it does not protect you against liability. Because it is privately formed, an attorney might find it hard to track down who the actual beneficiary is. If that beneficiary is actually another attorney, under the confidentiality agreement that attorney/clients have, that attorney (trustee)does not have to reveal who the beneficiary is.
Also, another point before I let this topic go. As Dave T mentioned, using an LLC works great if you are building homes for rental purposes. However for flippers, an S-Corp. would be much more advantageous tax wise because of the Self-Employment taxes involved.
good luck,
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A land trust with an LLC as the beneficiary provides asset protection and anonymity.
RightyO JohnCASHLocke!
There are plenty of schools of thought here and each having their own merit.
The actual pros and cons of utilizing Land Trust and/or combining or not to combine them with and LLC?---can be best answered by the individual investor and their needs(both personal and Investment)
I utilize myself and a Trustee sometimes and an LLC, in which I may hold some interest as a Beneficiary.
If I am doing a 'Flip' (as a Beneficiary inside of the Trust) I usually get a POA (Power of Attorney) and get cash fro my beneficial interest in order to avoid simulatneous(no seasoning of Title issues) on the close.
The Lenders only the Owners home being recently placed into a Trust.
I then can (as Trustee or as Beneficiary) elect to take my earnings in the form of stock in the LLC. or the name of my self-directed IRA or as an annuity (Insurance Instrument) in the name of my children.
There are dozens of loopholes that I can use to both Protect myself from exposure to Liabilities (law suits) and/or Tax implications!
Not to get too deep into it...I am a firm believer in the combo method(LLC holding an interest in many Land Trust properties.) mentioned above.
A better method for my own investing M.O. is to hold these various Beneficial- interests as an C-Corp.
Why a C-Corporation instead of an S-Corp.??
I plan to be evenmore wealthier tommorrow than I am today! and If I earn subtancial income from my dealings (and I do) then I wish to shelter it without concern!
That of being thought to be a 'sham corp' undercapitalized and thus rendering my Land Trust agreements (held within) to be 'Dry-Trust' by some ZEALOUS lawyer or government entity!
Defeats the whole point of making money!
Don't be Dollar wise and ROI (Return On Investment) DUMB!
Invest in your REI business and grow it not only PROFITABLY but also with HIGH -VALUE & HIGH RETURNS!
Much Success!
Derrick Ali
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All good points. If you are short on funds and short on the know how of operations of entities then a Land Trust is a good smoke screen. One its cheap, easy to operate. You could use the Trust concept and stack trusts as benificaries and then use your LLC. C-corp or what ever. Here is a basic structure that I have been using here lately
Property into Land trust benificary is a Personal property trust. Benificary of Personal Property trust is LLC or C-corp. Currently I am using this with several homes that I am building. If you see the advantages with financing from private sources you can see the real benifit of using trusts. using trusts has allowed me to raise cash to build without using a Mortgage! It is a little advance for me to type but its pretty neat.
Hypothetical:
I have created a land trust that list the beneficiary as a corporation that I have created as well. How should I make out the contracts as a rental property? Should it be in the name of the land trust or the corporation? If it is in the land trust, then anonymity is preserved but is it legal to creat a contract this way?
I'd love to hear from you. BTW, if any of you need info on forming either of the above, contact me at my e-mail!
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In the NAME of the LAND TRUST or You'll LOSE All thePROTECTIONS YOU THOUGHT YOU HAD IN THE LAND TRUST!
Much Success!
DERRICK ALI
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