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Question for landlords-S Corp or LLC or just own rentals in your name.

By lostand confused following x   2017 Sep 11, 8:30am 407 views   26 comments   watch   quote     share  

So, now that I own more than my home-bought two units at a very cheap price and fixed and renting it out for now-as don't need the cash.

Am talking to my lawyer, but since there are some landlords here-how do you deal with the rental properties- LLC in your nae, an S-corp, just keep it in your name(assuming that will open you up to liability) and any other methods?

Which works best for you-Thanks!

#realestate
1 YesYNot   2017 Sep 11, 8:43am   ↑ like (0)   ↑ dislike (0)     quote        
LLC is more popular than s-corp for these things, but I'm not sure how much actual limitation on liability there is. You will be told to get umbrella insurance even if you use an LLC. If you are in CA, each LLC will cost you about $800 a year, IIRC. Other states are cheaper. You also might get additional increased costs. For example, you may have to sell the house to the LLC and pay county taxes. It may trigger a new loan and impact the loan rate. OTOH, you could pass the house down to another generation without triggering an increase in property taxes.
I'm curious to see what responses you get. But the particulars (making it better or worse) are probably very local.
2 lostand confused   2017 Sep 11, 1:45pm   ↑ like (0)   ↑ dislike (0)     quote        
Thanks! Any landlords here-how do you handle your rentals?
3 Strategist   2017 Sep 11, 1:59pm   ↑ like (0)   ↑ dislike (0)     quote        
I just own rentals in my name. I did get a $2 million umbrella policy. I have landlords coverage. Make my tenants get renters insurance. Even carry home warranties, so I can just call the service every time an appliance breaks donor something.
4 anonymous   2017 Sep 11, 2:18pm   ↑ like (0)   ↑ dislike (0)     quote        
If you are the one forming the LLC, you will still be personally liable for any wrongdoing you commit during the course of your business.

You should get insurance and just regular Corp it.
5 bob2356   2017 Sep 11, 3:47pm   ↑ like (0)   ↑ dislike (0)     quote        
lostand confused says
Am talking to my lawyer, but since there are some landlords here-how do you deal with the rental properties- LLC in your nae, an S-corp, just keep it in your name(assuming that will open you up to liability) and any other methods?


What does your lawyer advise?

Personal ownership is risky. You can be sued personally and all your assets are at risk including future earning. Even umbrella policies can be limited or have restrictions.

LLC limits liability to the assets of the LLC. Your personal assets are protected. The taxes are pass through for a single owner entity. No double taxation like a c corp. You can gift the shares in the LLC to your heirs without transfer or recording since the property is owned by the LLC. You can't commingle personal and LLC funds or pay yourself ahead of creditors. This will pierce the corporate shield. .

S corp rules and regulations are not appropriate for property ownership.

I use an offshore entity because I own property offshore as well as in the states. Biggest reason is so probate can all be done through a single entity. US lawsuits are a non issue is also a big factor.
6 iwog   2017 Sep 11, 4:03pm   ↑ like (1)   ↑ dislike (1)     quote        
It's cheaper for me to just buy the liability insurance to cover all of my properties. I've considered LLCs but the 800 per year cost per house is too high and besides that requires a forfeiture of the house if you get sued for any serious amount.

I've heard all of the horror stories about insurance companies not paying up however if you've got a good handle on your property and you aren't breaking any laws and you're to code, you should be fine.
7 anonymous   2017 Sep 11, 5:36pm   ↑ like (0)   ↑ dislike (0)     quote        
iwog says
It's cheaper for me to just buy the liability insurance to cover all of my properties. I've considered LLCs but the 800 per year cost per house is too high and besides that requires a forfeiture of the house if you get sued for any serious amount.


Add to that the extra accounting costs to file the taxes for the LLC.
Also add liability insurance for the LLC.
If there is a lawsuit, you cannot represent yourself. You will need a lawyer.
In California it's just cheaper to get an umbrella policy.
8 just_passing_through   2017 Sep 11, 8:52pm   ↑ like (1)   ↑ dislike (1)     quote        
iwog says
I've considered LLCs but the 800 per year cost per house is too high


Yeah it's insane what CA charges for LLCs. I've looking into this a bit myself @lostand confused but so far am too busy to deal with it and have used iwog's strategy. There are plenty of utube vids out there you might want to check out - before approaching both an RE lawyer and accountant with experience in this area.

Say @iwog - do you know if the yearly $800 fee applies if you set up shop outside of California? Main reason I'm asking is mine are in Texas and Hawaii yet I live in CA.

My perception on the benefits:

1. Better tax treatment - although I'm not certain this is true nor can I explain it. Just see lots of utubers mention that.
2. Liability - perception that it may prevent someone from taking all of my properties vs. one or any. I guess if I get drunk and slide into a family of six some night they'd still get it all. Just prevents something house related from getting at me for everything. I could be way off on this too.
9 just_passing_through   2017 Sep 11, 8:56pm   ↑ like (0)   ↑ dislike (0)     quote        
BTW,

Most interesting vid I saw on utube suggested something like:

1 LLC per property (or per ~$200K equity if you have a couple cheap ones). Get the LLC in the state the property resides in. Then. Some other entity (if I recall they used an S-corp) that owns all of the LLCs. The S-corp should be in Wyoming I think? Better privacy and protection laws or something to that affect.

It gets complicated due to laws, how the taxes are paid or passed around each level, how you may move money amongst them if you need to and how you pay yourself.
10 just_passing_through   2017 Sep 11, 8:58pm   ↑ like (0)   ↑ dislike (0)     quote        
There are mortgage issues you can run into as well - if you have those. Bank finds out they can call your loan.
11 BorderPatrol   2017 Sep 11, 9:36pm   ↑ like (1)   ↑ dislike (1)     quote        
not worth the time & money unless you are rich. but i believe it works very well for inside and outside protection if set up correctly. this involves multiple LLC's, with some in certain states.

how much are you worth? lets start there.
12 bob2356   2017 Sep 12, 8:26am   ↑ like (0)   ↑ dislike (0)     quote        
anonymous says

Add to that the extra accounting costs to file the taxes for the LLC.
Also add liability insurance for the LLC.
If there is a lawsuit, you cannot represent yourself. You will need a lawyer.
In California it's just cheaper to get an umbrella policy.
just_passing_through says

1 LLC per property (or per ~$200K equity if you have a couple cheap ones). Get the LLC in the state the property resides in. Then. Some other entity (if I recall they used an S-corp) that owns all of the LLCs. The S-corp should be in Wyoming I think? Better privacy and protection laws or something to that affect.

It gets complicated due to laws, how the taxes are paid or passed around each level, how you may move money amongst them if you need to and how you pay yourself.


There is so much misinformation here it's scary.

Best states to incorporate LLC in are Delaware, Nevada, or Wyoming. I used to use Nevada. Nevada doesn't tax business income, capital gains, or inheritance. In addition, it has no franchise taxes, It does have nominal business license and annual fees. Moreover, Nevada doesn't require annual meetings or operating agreements in order to stay compliant with state law. Nevada also has no information-sharing agreement with the Internal Revenue Service (IRS). The state doesn't require much disclosure at all, allowing Nevada LLC owners to remain anonymous in public filings, which means privacy. All three states have fast processing.

Taxes are pass through for sole owner. The IRS treats one-member LLCs as sole proprietorships for tax purposes. This means that the LLC itself does not pay taxes and does not have to file a return with the IRS. As the sole owner of your LLC, you must report all profits (or losses) of the LLC on Schedule C and submit it with your 1040 tax return. Since you would have to calculate the same numbers if you personally owned the property it isn't any additional work.

Anyone that would represent themselves in a lawsuit other than small claims court is a fool.

The only mortgage issue would be if you lied to the bank about putting the property into an LLC. You would still be personally liable for the mortgage since you signed the note.

Why anyone would recommend mulitple llc's owned by an s corp is pretty mysterious. Especially using CA llc for properties in CA where it sucks to set up an LLC. It makes zero sense from a tax perspective and I'm not even sure it could be done under the s corp rules. I'd like to see some explanation of that.

Getting financial planning information from youtube? Really?
13 Strategist   2017 Sep 12, 8:46am   ↑ like (1)   ↑ dislike (1)     quote        
just_passing_through says
2. Liability - perception that it may prevent someone from taking all of my properties vs. one or any. I guess if I get drunk and slide into a family of six some night they'd still get it all. Just prevents something house related from getting at me for everything. I could be way off on this too.

If you get drunk and mov down a family or a school bus full of kids, no LLC can protect your assets. They will come after you and everything you have got, including the shares in your LLC. A large umbrella policy might protect you.
14 Strategist   2017 Sep 12, 8:49am   ↑ like (1)   ↑ dislike (1)     quote        
bob2356 says
Getting financial planning information from youtube? Really?


You are giving financial planning on the internet. What's the difference? Lotsand is just asking for some basic information.
15 iwog   2017 Sep 12, 8:54am   ↑ like (0)   ↑ dislike (0)     quote        
Strategist says
If you get drunk and mov down a family or a school bus full of kids, no LLC can protect your assets. They will come after you and everything you have got, including the shares in your LLC. A large umbrella policy might protect you.


That might be true but that's not the purpose of creating LLCs for your rental homes. You're correct that the ownership of an LLC constitutes an asset and that this asset can be taken from you if you aren't protected.

The purpose of an LLC is to isolate liability from your tenants. If a tenant electrocutes himself for example and sues you over bad wiring, your loss is limited to the assets held by the LLC which is usually the value of the home. For this reason, many landlords keep their rentals mortgaged to the hilt so there is very little equity to claim if this should occur.

A huge problem with LLCs is that many people are not well suited to maintain the paperwork and other requirements of a corporation and inevitably co-mingle their assets. It's called "Piercing the corporate veil" and is done frequently in liability cases. I'm one of those people who is too lazy to deal with it and for that reason and several others I have a large umbrella policy for all my business assets. It's not perfect either but it's a lot cheaper and a lot less work.
16 Strategist   2017 Sep 12, 9:10am   ↑ like (0)   ↑ dislike (0)     quote        
iwog says
The purpose of an LLC is to isolate liability from your tenants. If a tenant electrocutes himself for example and sues you over bad wiring, your loss is limited to the assets held by the LLC which is usually the value of the home. For this reason, many landlords keep their rentals mortgaged to the hilt so there is very little equity to claim if this should occur.

A huge problem with LLCs is that many people are not well suited to maintain the paperwork and other requirements of a corporation and inevitably co-mingle their assets. It's called "Piercing the corporate veil" and is done frequently in liability cases. I'm one of those people who is too lazy to deal with it and for that reason and several others I have a large umbrella policy for all my business assets. It's not perfect either but it's a lot cheaper and a lot less work.


I'm in the same boat. I even had an LLC that I got rid of because of all the hassles. Might be OK to hire an asset protection lawyer if you have 50 rentals, but with half a dozen properties and a bunch of vacant lots I did not see the need for myself.
Nevertheless, it's always a good idea to talk about it and get different opinions just to make sure you aren't missing something critical.
17 Strategist   2017 Sep 12, 9:17am   ↑ like (0)   ↑ dislike (0)     quote        
iwog says
For this reason, many landlords keep their rentals mortgaged to the hilt so there is very little equity to claim if this should occur.


I just keep an open equity line on the rentals. That way the maximum credit limit shows up as the mortgage amount on public records, but in reality you may not owe anything on the property.
18 bob2356   2017 Sep 12, 10:40am   ↑ like (0)   ↑ dislike (0)     quote        
Strategist says

I'm in the same boat. I even had an LLC that I got rid of because of all the hassles. Might be OK to hire an asset protection lawyer if you have 50 rentals, but with half a dozen properties and a bunch of vacant lots I did not see the need for myself.


What hassles were involved? Is it a CA thing? I used a Nevada LLC for many years and there weren't any hassles. A couple forms and a couple fees. No big deal at all. You have to do exactly the same accounting no matter what the ownership is so that isn't a hassle.

Strategist says
bob2356 says
Getting financial planning information from youtube? Really?


You are giving financial planning on the internet.


I'm not giving planning of any type. I'm stating the facts about LLC's. Facts that could be easily looked up by anyone that wanted to bother. Period. Someone recommending setting up multiple LLC's controlled by an s corp is doing financial planning.

Strategist says
iwog says
For this reason, many landlords keep their rentals mortgaged to the hilt so there is very little equity to claim if this should occur.


I just keep an open equity line on the rentals. That way the maximum credit limit shows up as the mortgage amount on public records, but in reality you may not owe anything on the property.


If you think this is going to protect you from an aggressive lawyer you are wrong. If you own rentals personally then everything you own is in play, including future income. Serious lawsuits aren't common so It's a gamble with pretty good odds. I don't have the desire to take the gamble even though I don't own a lot more properties than you. If you do then bon appetite.
19 Strategist   2017 Sep 12, 11:19am   ↑ like (0)   ↑ dislike (0)     quote        
bob2356 says
Strategist says

I'm in the same boat. I even had an LLC that I got rid of because of all the hassles. Might be OK to hire an asset protection lawyer if you have 50 rentals, but with half a dozen properties and a bunch of vacant lots I did not see the need for myself.


What hassles were involved? Is it a CA thing? I used a Nevada LLC for many years and there weren't any hassles. A couple forms and a couple fees. No big deal at all. You have to do exactly the same accounting no matter what the ownership is so that isn't a hassle.

Yes, it's a California thing. Maybe I should look into a Nevada LLC. It can't hurt.
Thanks for the input.

bob2356 says
I just keep an open equity line on the rentals. That way the maximum credit limit shows up as the mortgage amount on public records, but in reality you may not owe anything on the property.


If you think this is going to protect you from an aggressive lawyer you are wrong. If you own rentals personally then everything you own is in play, including future income. Serious lawsuits aren't common so It's a gamble with pretty good odds. I don't have the desire to take the gamble even though I don't own a lot more properties than you. If you do then bon appetite.

Yes, I agree. If something serious happens, they will come after you no matter what. The idea to show the world little or no equity is to dissuade potential frivolous lawsuits.
20 bob2356   2017 Sep 12, 12:36pm   ↑ like (0)   ↑ dislike (0)     quote        
Strategist says
The idea to show the world little or no equity is to dissuade potential frivolous lawsuits.


An LLC isn't to protect against frivolous lawsuits. Its' to protect when someone gets really hurt or killed and lawyers are looking for the deepest pockets and a sympathetic jury that isn't interested in if it was your fault or not.
21 justme   2017 Sep 12, 1:41pm   ↑ like (0)   ↑ dislike (0)     quote        
Wow, many more landlords on patnet that I did not know about.
22 just_passing_through   2017 Sep 12, 6:58pm   ↑ like (1)   ↑ dislike (1)     quote        
bob2356 says
Getting financial planning information from youtube? Really?


Dude, chill the fuck out!

1. I said I wasn't sure about it and that I personally hadn't taken any steps toward any of it.
2. I also said I'd watched several utube videos that may or may not be useful for the op - to get acquainted with this stuff before approaching a RE attorney and an accountant with experience in this area.
23 goat   2017 Sep 12, 8:30pm   ↑ like (0)   ↑ dislike (0)     quote        
bob2356 says
Strategist says
The idea to show the world little or no equity is to dissuade potential frivolous lawsuits.


An LLC isn't to protect against frivolous lawsuits. Its' to protect when someone gets really hurt or killed and lawyers are looking for the deepest pockets and a sympathetic jury that isn't interested in if it was your fault or not.


I've read the same advice many times - make it look like you have little lawsuit-accessible money / equity. First, make sure the tenant's rental unit is in an llc so that (hopefully) they can't reach outside the llc to your other assets, immediately making the upper bound on what they can likely sue for much smaller. Second, make it look like you have little equity - lawyers are less likely to go after you if there's little potential reward.
24 anonymous   2017 Sep 14, 3:51am   ↑ like (0)   ↑ dislike (0)     quote        
How about a land trust if your paying cash for the property
25 bob2356   2017 Sep 14, 8:10am   ↑ like (0)   ↑ dislike (0)     quote        
anonymous says
How about a land trust if your paying cash for the property


I researched land trusts years ago.

Advantages. They can hide flipping, they can disguise a transfer so the bank doesn't demand a refinance (a due on sale clause), trusts are exempt form a lot of HOA restrictions, you can make a trust anonymous using a nominee trustee.

Disadvantages: The laws for land trusts are widely varied state by state so you would need an attorney intimately familiar with the states laws to set one up. A really aggressive creditor can force a Writ of Execution against your interest in the trust so a land trust does not offer protection like a LLC. Setting up an LLC to hold the beneficial interest of the land trust would provide protection, but it's more complicated.
26 P N Dr Lo R   2017 Sep 14, 8:43am   ↑ like (0)   ↑ dislike (0)     quote        
bob2356 says
Advantages. They can hide flipping


In other words fraud?

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