What's The Best Way To Hold Title To A Rental Property
I would like to find out people's opinions on the best legal structure for purchasing multiple rental properties.
Along those same lines, if I moved out of my current residence (which is in my own name) but wanted to hold onto it and rent it out, what is the best way to do this?
Thanks,
Nightshade
Rental property = LLC.
Some say one LLC for every property, personally I think that is overkill. I normally do one LLC for every 3-4 properties, depending on their value and my perceived exposure.
[addsig]
telemon is right.
If you want more privacy than an LLC provides, you may want to have a land trust hold title, and have your LLC be the beneficiary.
For simplicity, I'd start with an LLC. It's easy to move it into a trust later.
Thanks for your responses,Telemon and Hbilly. I live in California and hear a lot of advertisements for companies that offer Nevada corporations. Would a Nevada LLC really make a difference?
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On 2004-01-10 13:33, nightshade wrote:
Thanks for your responses,Telemon and Hbilly. I live in California and hear a lot of advertisements for companies that offer Nevada corporations. Would a Nevada LLC really make a difference?
When you say Nevada Corporation, are you talking Inc. as in Incorporating? If you are, my opinion is that this would be more headaches than you want to tackle as a beginner. A LLC (Limited Libility Corp) should be sufficiant to limit your libilities. A trust, if you are looking to be an anonamous owner.
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When you say Nevada Corporation, are you talking Inc. as in Incorporating?
I was under the impression that these Incorporation companies were offering LLCs, and that due to NV's laws, they provided more privacy than LLCs in other states...
Thanks,
NS
nightshade:
That is true they can provide very good protection. But it is a little more complicated. Complicated in my opinion is OK as long as it saves me money in the long run. I know a company in Nevada that does this, if you want to PM me.
nightshade:
That is true they can provide very good protection. But it is a little more complicated. Complicated in my opinion is OK as long as it saves me money in the long run. I know a company in Nevada that does this, if you want to PM me.
What kind of protection do these structures (LLC or Inc.) provide?
thanks
-J
"Complicated in my opinion is OK as long as it saves me money in the long run. '
How does incorporating in NV save you money?
My personal opinion is that too many landlord gurus sold tapes on the principle of hiding your identity to all extremes. Hell, if it were not the extremes then who would have to buy the tapes?
I know a guy who has each property in a unique land trust, with a NV corporation as the benfical, with a family relative (his last name is smith) as the trustee with only their first initial and last name used, and has a post office post for each property in another state. Geez ... just buy some liability insurance buddy.
In my opinion it is a trade off. All this smoke and mirrors does provide some protection because it makes it harder to find the owner for a frivolous lawsuit. But for me the trade off is not worth the extra level of $$ and complication. FYI - most tenants realize that the person that was their when they signed the lease and was there to collect the money is the owner.
Brenda
I hold properties whether rentals or flippers in seperate llc's using the house address (ex:999 Bass Dr.,LLC.)
If the tenant tells you about a broken window lock, you do not fix it, they get broken into and hurt - the owner is getting sued, the property manager is getting sued, and the LLC is getting sued. With one LLC per property, they could probably find something to prove that your LLC was nothing more than an asset protection vehicle and the corporate veil of the LLC would be peirced. Do you have seperate checking accounts for each LLC, always sign every contract and document using the LLC name, keep minutes of each LLC meeting, etc.
Brenda
Nightshade,
As you can see here, opinions vary. when you have some properties, hopefully you'll have an accountant, and an attorney. Talk to your accountant about the tax advantages of the different business entities that are available for you, and talk to your attorney regarding the diffenent levels of asset protection afforded by the diferent entities that you are considering. As you become successful, your needs will change, and you may feel more comfortable with even more protection.
Your comfort level, and your exposure will change as you move through life, and so will your needs. While it's never too early to consider asset/liability, and tax planning strategies, If your situation is that you have no assets to protect, a business entity is overkill.
I don't know your situation, so it's difficult to offer the best solution for you. Consult with the professionals on your team. They are intimately more in tune with your needs than we are.
Jeff
jeff12002 has given very good advice. It is good to read the boards to get some ideas, but ultimately it depend on you and your situation as to what is best.
I was just attempting to point out that if you create a complicated structure then you need to keep it up to the letter or you will not have the protection when you need it.
Brenda
I believe Delaware is the best place to form a LLC. I would recomend an out of state LLC so that lawsuits against you would be a federal matter. A federal case costs more for the lawyers, so this may hedge any nickel and dimes suites that come your way.
While a trust is a great vehicle for anonymity, it is NOT any kind of insulation for liabiltiy...and a trust could be penetrated a LOT more easily than a corp or LLC if there were to be a really determined plaintiff's lawyer wanting to sue somebody.
Where a trust IS used, this is one reason I like to use my lawyer as my trustee...because he/she CANNOT discuss my business, because of lawyer-client privilege...unless the lawyer knows or should know his client has committed a crime. And most lawyers are pretty guarded about answering any questions, even the seemingly innocuous ones, about their clients or their business.
You ask why a corp or LLC is a good protection vehicle?
Because when a corp or LLC is the owner, and John Q Public wants to sue, the corp/LLC name is the only one he can find or sue...and neither is all that easily penetrated by any claimant hunting YOU.
And if a J is granted for that Plaintiff, against your corp or LLC, ONLY its assets are liable for satisfaction of that J, unless the plaintiff can prove thah he should have the right to pierce that corp or LLC, whjich is NOT automatic or easy.
While a trust is a great vehicle for anonymity, it is NOT any kind of insulation for liabiltiy...and a trust could be penetrated a LOT more easily than a corp or LLC if there were to be a really determined plaintiff's lawyer wanting to sue somebody.
Where a trust IS used, this is one reason I like to use my lawyer as my trustee...because he/she CANNOT discuss my business, because of lawyer-client privilege...unless the lawyer knows or should know his client has committed a crime. And most lawyers are pretty guarded about answering any questions, even the seemingly innocuous ones, about their clients or their business.
Thanks to everyone else who posted replies to my question. I have an appointment with an attorney tommorow to discuss this, but I also wanted some objective viewpoints from other investors as to how they held their properties.
Thanks again,
Nightshade [ Edited by nightshade on Date 01/14/2004 ]
I BELIEVE THAT A NEVADA OR DELAWARE CORP OR LLC CAN PROVIDE YOU WITH PRIVACY AND FUNCTIONALITY AS REAL ESTATE INVESTOR. NEVADA AND DELAWARE CORPS AND LLC'S DO NOT REQUIE THE LISTING OF COMPANY OFFICERS IN THE FORMATION DOCUMENTS JUST THE MANAGING PARTNER OR PRESIDENT.
THE BEST WAY TO HAVE PRIVACY AND BE ABLE TO PURCHASE MULTIPLE PROPERTIES IS TO DO THE FOLLOWING:
FORM AN LLC OR CORPORATION, BUY PROPERTIES IN THE COMPANY NAME AND THEN PLACE THE PROPERTY INTO WHAT IS COMMONLY CALLED A "LAND TRUST" (INTER VIVOS TRUST). MAKE ONE COMPANY SUCH AS THE LLC THE TRUSTEE AND THE OTHER COMPANY,CORPORATION THE BENEFICIARIES OF THE TRUST.
YOU SEE IF ANYONE WANTS TO KNOW ABOUT YOU INDIVIDUALLY THEY WON'T BE ABLE TO FIND OUT WITHOUT ALOT OF LEGWORK.
YOU SEE THE PROPERTY IS OWNED BY THE TRUST AND TITLED WITH A COMPANY AS TRUSTEE AND THAT COMPANY HAS MANY OFFICERS AND THE BENEFICIARIES OF THE TRUST IS A CORPORATION WITH MANY OFFICERS AS WELL. THIS PROCEDURE GIVES YOU LAYERS AND LAYERS OF RED TAPE AND PRIVACY THAT YOU NEED.
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Talk to your accountant about the tax advantages of the different business entities that are available for you, and talk to your attorney regarding the diffenent levels of asset protection afforded by the diferent entities that you are considering.
Jeff,
I have an appointment to see a lawyer regarding this tommorow. I wanted to get some objective opinions from some experienced investors in the meantime. Thanks to you and everyone else who posted their opinions.
Have a good evening,
Nightshade
The best place to form an LLC is in the state you reside in. Many states require that you pay a "domestication fee if your doing business in that state. YOu can get an LLC set up for $79 + filing fees on one of the web sites that specializes in such.
YOu should put it into trust as well as that is cheap and may avoid a lawsuit.
An LLC is superior to all other forms of entity from an asset protection standpoint. An LLc cannot be forced to distribute profits with a judgment or charging order and a creditor cannot take over your LLC. THis is not true of a corporation. There are however more tax advantages to a corporation and many people have a corporation as a member of their LLC.
Good Luck!
You can also buy software from Nolo Press (guess their web address and do your own LLC, then file it with your state.
Nolo software is generally very easy to use, top notch in quality, and saves tons of legal fees. I've used their programs for several different legal, real estate and estate planning purposes.
MarleneM