We recommend a two company structure at a minimum. One LLC to hold the asset. This is your vault. Nobody should see it, hear from it, or interact with it. If it does, it has just incurred legal liability.
Your second LLC is your face to the world. It will do everything, talk to everyone, collect rents, enter lease agreements. It does everything. It serves to protect you personally from lawsuits. Even if you own nothing in your name, you want the LLC to protect your credit.
Each new property goes into a new LLC so it is compartmentalized. Typically your financing company like Delaware for the creation, and then they want it registered in whatever state the property is located. They make the rules, so check with them first and then create the entity.
The traditional LLC is used as an “operating company” that owns nothing but does everything. It will enter into leases, sign contracts, send emails, etc. It is our “fall guy” that if there is a lawsuit they can’t maintain a legitimate suit against you or your asset holding company. This not only protects your assets but also protects your personal credit score.
A friend of mine lost over $3,000,000 in real estate from a single lawsuit and he was very well insured. The mistake? Holding property in his personal name. When you hold assets in your personal name, or all together in a single LLC, you create a big pot of gold for an attorney filing frivolous claims to come after. The solution is the series LLC which puts each asset in its own bucket so if there is ever a suit, you lose little to nothing.
People don’t sue people who look like they qualify for food stamps. That’s what anonymity does for you. When all of your assets are hidden from the public record, and it looks like you own nothing, the attorneys filing frivolous claims don’t want anything to do with you.
The reason? Frivolous lawsuits look for vulnerable people and an easy payday. Since you are protected, you are not longer a good target and these sharky attorneys simply go find someone else to sue.
Creating anonymity is effective when done with a trust created through a law firm. In this way your name is removed from the records to disguise the ownership and nobody can even ask about it because of the attorney-client privilege.
1 Bank Account, EIN, Number and Tax Return
Save you thousands in legal fees
Stops lawsuits before the start due to the anonymity and strong protection
One client doing a flip exchanged a few emails with the buyer about some of the plumbing in the house. Even though only the plumbing under the house was replaced, she wrote a single email that mentioned that “all the plumbing” was replaced. Three months after the sale, there was a plumbing leak in some unrelated plumbing in the house, but that email exchange was the basis for a letter threatening a $75,000+ lawsuit because of the damages. Because of the strength of the Asset Protection structure combined with the anonymity, it looked like my client qualified for food stamps and that suing her would have been horribly time consuming and expensive to fight through all the layers. The result? The lawsuit completely dropped without even paying a cent in settlement.
Your tax filings will depend upon the number of LLC’s you have and the number of partners if any. Where there is the same partners, you can have one LLC act as the parent company where you have your partnership agreement. Underneath that parent LLC you would then have individual LLC’s, each one holding a property. This provides the maximum protection while streamlining your taxes up through one company so you only have to file one partnership return.
Where there are different partners, you will need a separate “tree” of entities with this parent LLC and child LLC structure. Each different set of partners will require their own partnership return.
If it’s you individually or you and a spouse, then you can have the entire entity treated as a pass through structure and simply report the income on a Schedule – E.
Paying taxes is for the uninformed. A lot of people get this wrong and it’s one of the most powerful tools out there. I’m talking about growing your money in retirement accounts like Self Directed IRA’s and Solo 401K’s. You put yourself in control of your retirement funds. Between these two tools, you can shelter about $60,000 of your income from taxes every year.
The best part? With the Solo 401k you can loan yourself back up to 50% of the money. What’s even better? You and a friend can each loan each other money as well with the remainder. The net result? Having more cash on hand with the ability to use pre-tax dollars for your investing and living your life.
Picture how a normal business would run with an owner, property manager, and tenant. This is exactly how this structure works for payments. The tenant pays rent to the landlord, which is the traditional LLC. The traditional LLC is acting just like a property manager. The traditional LLC then turns around and pays out the money to the property owner. In this case the property owner is the Series LLC. At the end of the year, the Series LLC will distribute the profits to you for you to pay taxes (unless you’re using one of our tax savings strategies!).
You will need one bank account per LLC with separate books for each entity.
Always be well insured, but just don’t plan on a profit seeking corporation who makes money by collecting premiums and denying coverage to protect you. Your insurance should stay exactly the same way it is now.
There are advanced tax strategies with S-Corporations for more tax savings which can be used if your structure your entities correctly.
We’ll show you exactly how much you’ve been losing and give you advice on how to optimize your portfolio and tax strategy moving forward.
One and done, for forever. After your Living Trust is set up to own your asset holding company, you’ll never need to touch it again. No updates, ever. All of your assets go in and out of your Asset Holding Company and the Living Trust designates how the Asset Holding Company will be divided. This is far superior that titling assets in and out of the Living Trust directly because it is much more streamlined.
If you want to change your Living Trust, we let you do it at any time, for any reason, and always at no cost. Having a Living Trust in place protects your kids, protects your heirs, and protects your entire net worth from being broad casted publicly and on the internet. Along with the Living Trust, we recommend a Pour Over Will as a “catch all” to anything you forgot or elected not to put into your Asset Holding Company during your life.
Whatever way you do it, the structure protects you. Use your Traditional LLC in all instances whenever possible when contracting. Your Traditional LLC will serve as your property management entity through which you will operate. Alternatively, you can elect to have the Asset Holding Company directly contract with a 3rd party property manager. This is less secure, but sometimes it’s the only way they will do business.
It’s just as quick and easy with no title hangups.
With each new property, first consult the financing institution to be sure you are acquiring the property in the easiest way for the underwriting process. Then notify us and we can create the entity for you. Your financing institution may want a full diagram of your corporate structure which we can provide upon request.
If you are using a property management company, then use your traditional LLC to act as a buffer between your assets, yourself, and the property management company.