Posted by David Krulac on February 19, 2002 at 09:56:31:
part of the property. a GP could have 0% or I have seen .1%. Perhaps in IL there is a requirement for 1% ownership but that is not universal. Some states have corporate/franshise/capital stock taxes which apply to corps but not to LPs. Therefore for STATE tax purposes many are organized with minimal or zero ownership of the LP by the GP. Also the steup costs for an LP are usually less than a corp. Another mode used often is to have ONE corp general partner owning minimal or zero amounts of multiple LPs. You could set up a seperate LP for each property and have the same GP/corp for every one.
I am getting into the Real Estate Investing business and wondering if I should form an LLC to protect my personal assets. I have heard conflicting info on what to do. Any help would be appreciated. Thanks
Posted by phil fernandez on February 15, 2002 at 20:26:37:
I’m a long term landlord and I have an LLC for each of my rentals. It spreads out the risk. If you are into flips I hear that Corps might be the way to go.
Posted by DavePA on February 17, 2002 at 24:38:21:
Forming an LLC lets the Govt. and Lawyers know you are small. Even if you have separate LLC’s for each property. Form a “C” Corp. or a L.P. the lawyers do NOT like to sue these. They get taxed on the proceeds!! Good Luck, dave
Phil,
I’m part of a 6-member LLC (all family) which owns approx 60 units. We currently have them all under one llc. I understand the benefits of multiple llc’s, but when I try to convince the other members they respond with concerns about paperwork, taxes, multiple bank accounts etc…How would you suggest I formulate an arguement to this (I really don’t know whats involved)?
I did e-mail one of them several articles and info on a llc workbook from Bronchick’s site.
Thanks.
Posted by Tim (CT) on February 15, 2002 at 20:55:17:
Phil, that’s really interesting. You create an LLC for every rental property you own? I suppose you do that so if one goes bad it doesn’t affect your personal residence as well as your “other” investment properties. Is that correct?
What kind of naming structure do you use for this and what’s your cost? (I know my cost might be different because I’m in CT.)
If it is a single member LLC… - Posted by David Krulac
Posted by David Krulac on February 18, 2002 at 11:17:51:
which includes either a single person or a married couple, you can elect to not be recognized by the IRS for tax purposes. Then there are no additional returns and the accounting costs should be the same as an individual.
Posted by phil fernandez on February 17, 2002 at 09:08:33:
Hi Carey,
I let my accountant handle all of it. To date I haven’t seen much of an increase in my accountants bill after doing my yearly tax returns. There must be a little more paperwork with the LLC’s, but the numbers pass through the LLC’s to my 1040 which have to be completed anyway.
Posted by phil fernandez on February 17, 2002 at 09:19:08:
For the added liability protection the extra paperwork is a fair trade off. That’s what I would tell your other LLC members. Once you set up your bank accounts it’s just a case of balancing the checkbook once a month depending upon the amount of activity within that LLC.
Maybe you could tell them that you would be willing to do the books on the variuos LLC’s.
naming an LLC, Corp. or LP - Posted by David Krulac
Posted by David Krulac on February 18, 2002 at 16:59:37:
each state has a dept. that handles the corp/llc/lp registration process. You can’t use a name already used or one that is too similar to one already used.
For example you can’t call yourself Ford Motor Company and probably can’t use Fiord Motor company either.
Also many states now have this function online for checking the availability of a corp/llc/lp name.
Posted by phil fernandez on February 17, 2002 at 09:28:40:
Tim,
You are correct. I like the seperation of properties for liability protection. Mainly as protection for lawsuits. The LLC could also protect you personally from financial obligations, however I have found that when I get a mortgage for my property in an LLC, the bank still wants you to sign personally for the loan. I have no problem with that.
Cost will vary from state to state and definitly can become a factor in deciding to go the LLC route or to use another type of entity. In my state, if memory serves me it was $75 to set up a new LLC , with a $15 annual renewal fee. So at those prices I can live with it. I understand that in states like CA. the set up fees are in the hundreds of dollars which might limit the number of these you might want to set up. But again for the protection it still is probably worth it.
As far as naming them, I just pull a name out of the air and use it assuming no one else has the name.
Posted by Brent_IL on February 15, 2002 at 22:52:48:
Tim,
I usually flip the financing, so my period of ownership is brief or non-existent.
What do you think about a land trust where the Limited Partnership is the sole holder of beneficial interest in the trust? I would be the 1% general partner to take care of business, and the 99% limited partner would also be the tenant of the trustee.
I want the trust for privacy and DOS considerations, and the LP to transfer the ownership. Thanks.
Posted by Brent_IL on February 17, 2002 at 01:42:40:
You’re entirely correct that the General Partner would have 100% liability anyway, so that person would still be risking their personal assets. 1% is the legal minimum for a GP.
As I mentioned to Tim, I don’t own the property very long. However, during that time, I need total control to make everything fall into place. At times there are several parties involved.
The trust doesn’t help with the personal liability. Despite all the non-recourse provisions in my contracts, I’m pretty much going to be liable anyway until I get cashed out, or my interest is reduced to a secured note. I hate to have someone else running the show as long as I’m around.
I haven’t really thought this through. I keep imagining problems, that I’m not actually sure are there. I was looking for a cheaper way to divest.