Forming An LLC For Real Estate Investing – (NEW for 2019!)
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Forming An LLC For Real Estate Investing – (NEW for 2019!)

Hi, Clint Coons here with
Anderson Business Advisors and in this segment I’m going to discuss how to form a limited liability company for your real estate investing. (upbeat theme music) Alright, let’s get started. Now, when it comes to setting up an LLC for your real estate investment, there’s a lot of questions that go into you know, what type of
LLC I should set up, where should I set up the LLC, when should I set up the
limited liability company? Well I understand it can
be tremendously confusing when you go out on the
internet and there’s thousands upon, hundreds of thousands of articles and videos of
individuals talking about setting up LLCs for their
real estate investing. Well at the end of the day
it really comes down to some basic principles
is the way I look at it. So we want to know when, where, and how, I need to set up that LLC. So let’s talk about the first one. When should you be setting up a LLC for your real estate investing? Well the way I look at it is, what type of real estate you intend to acquire. If you’re looking to purchase commercial real estate, so if I’m going to buy commercial property, alright, then I want to set up the LLC now. All right, you want to get that LLC set up before you acquire the property. Ideally you should make the offer for that commercial
property in the name of the limited liability company. Now if you’re unsure what
constitutes commercial property it’s more than four units. So if you’re buying
something that has 5 units or greater that is considered
to be commercial real estate. So, you would set that
up now and make the offer in the name of the LLC. Now, if you messed up
and you didn’t set it up before you made the offer, don’t worry, most commercial
lenders understand that, they want you to close in the name of the limited liability company
so you can set it up after the fact, but I think it’s much cleaner
if you have it set up, ready to go ahead of time. So, commercial you want to set it up now. So, let’s talk about residential,
cause this is a problem. All right, I run into this a lot with people with residential. If you have residential real estate, you need to look at how you’re going to be paying for that property. If you’re paying cash for the property, alright so let’s break this
up even further into things. So if I’m paying cash, for
my residential real estate, then we go to now, so you’d
want to set that up now if your going to be paying
using cash to buy it, you’re not using financing, again, make the offer
in the name of the LLC, close in the name of the LLC
when you’re buying for cash. If you’re using a portfolio lender, okay, so a portfolio lender typically
is a community lender, someone who is not going
to be selling your loan, they’re going to hold the loan and finance themselves internally. If you’re using a portfolio
lender for residential real estate then again,
I would set it up now. All right, so let’s get that thing set up ahead of time, knowing
that I’m going to be using a portfolio lender so I make my offer in the name of the
limited liability company. Now if you’re using
Freddie Fannie products, traditional lenders okay, so I’ll just call that traditional. All right, if you’re going to
work with a traditional lender then I’m going to say do it later. Alright, there’s no rush to set up that limited liability company
with a traditional, if you’re using traditional financing, Freddie Fannie type products, because you can’t close in the LLC. They look at this as a commercial, an LLC would have to be a commercial loan. The thing is under
Freddie Fannie guidelines if it’s under, four units or less, that’s residential property, you’re not eligible for a commercial loan, so you’re forced into
the residential side, and therefore you can not close in the LLC because that would have to
be a commercial product. So what happens here typically is that with the residential Freddie Fannie, what we’re going to do is set up the limited liability company after we close, or even when you’re
getting close to closing and you know your money’s gone hard it might be a good idea then to look at establishing that LLC. So after you close in your own name and financing is secured, then you’ll deed the
property into that LLC. So it’s not one of those things where we’re going to be able
to close in directly. All right, so that’s the when. Let’s talk about the where. Where am I going to create this limited liability company? Well for most part what I tell people, when you’re buying property, residential real estate,
commercial real estate that you intend to use, you know generate income, then that property, that LLC
needs to be set up in the state where the property is located. Now so this is for rental stuff, flips completely different, watch one of my other videos
where I discuss flipping, and I’ll talk about using Wyoming limited liability companies for your flips because your not engaged in regular and continuous business
in a particular state. But, when you buy property let’s say in Florida as a rental, well you’re going to hold that long term, you’re engaged in business
there by collecting rent, so it necessitates registration there. Again, these are all general topics, if you want to get more
specific about your situation, be sure to sign up for one
of my free strategy sessions. In the show notes you can see the link to get that Strategy Session. And the reason why I say that is that, there’s always nuances to this. If you live in California
you may not want to create a California
limited liability company for your residential real estate. Because you have eight properties and you start doing the math and you realize eight times eight, meaning the franchise tax, that’s $6400 a year. Don’t worry, there are
work arounds for that, we can talk to you offline
on a Strategy Session, I don’t have time to go into it here. So, where do we want to set up these LLCs? Typically it’s going to be the state where the property is located. Okay, where the property is located. That’s where I’m going to create the limited liability company. Because it’s doing business in that state. Can’t tell you how many
people will contact me, with this problem that
they went to one of those internet sites where, entity
mills out of Las Vegas, these companies that, you know, you get a salesman on
the phone, they’re like oh, you need to set up here in Las Vegas, and here’s all the benefits
of owning or having a Nevada limited liability company. And where’s you property? Oh, it’s in Illinois? No problem, we’ll set
it up in the Nevada LLC. Or if it’s in Florida we’ll
do a Nevada LLC for that. That stuff all works, you can do it, but as soon as you try to
evict your tenant, good luck. Because your LLC’s not
registered to do business there, didn’t foreign file there, they didn’t tell you that little piece. Because if they did
then you would question why did I set it up in
Nevada to begin with? Why am I paying two state fees in order to protect this property? I should’ve just gone to
Illinois’ at the outset. Well the answer is because if you did that then that company that set it up in Vegas, they’re not making any extra money off of you on an annual basis. So, they have financial
incentive to set you up in the wrong structures unfortunately. So, I’ve seen people
run into this problem, they have the Nevada LLC
owning property out of state residential real estate,
they try to evict the tenant, they can’t evict them because that fact is brought up in court, and then they have to
start all over again, pay back penalties and
fees and things like that for not being registered there, so you just create a problem for yourself. So, generally speaking,
state where the property is located is where you’re
going to create the LLC, we’re going to put that in quotes because, in some situations we’re
going to use land trusts, we’ll use out of state LLCs
and that’s why you need a Strategy Session to determine if that’s the right approach for you. This covers about 75% of the real estate investors we work with. Now, when, where and
how, okay the big one. How do we create the LLC. So if you watch some of my other videos you know I’m a strong
proponent of privacy. In a recent, there’s a video
I talk about how New York is looking to find out who
the owners of LLCs are, that they think that
information needs to be made publicly available to people. In fact they actually passed a law in 2019 regarding that,
that you have to make all real estate
transactions involving LLCs, all the owners information
needs to be publicly available. Now, my take on it, there’s
only one reason to do that, and that is if you’re concerned about it, tenants can bring pressure
against the owners, even thought their legal
recourse only rests with the LLC. So when I’m creating LLCs and
we’re talking about the how, I think you should always start with an LLC that offers anonymity. So it becomes a holding LLC
such as Wyoming or Nevada or Delaware, start with this holding LLC, to begin with so this is step one, and we’ll just call this my anonymity, Anon LLC right here that I own. It’s not going to hold the real estate, it’s there just to serve as a buffer, to keep my affairs private. But we like to talk about is you can’t sue what you can’t see, so that’s a good way
of thinking about this. And then you’re going to
create the LLC in the state where the property is located, so this is state where
property is located. State of prop. And it’s going to be a member managed LLC. So here’s the how, how am
I going to create this? I’m going to create this
as a member managed. Member managed LLC. So, the idea here is that
when you set up this LLC, if you did this number one, which you should do, then if anybody looks
here, they see this LLC. And if they see the
anonymity compliant LLC, they obviously don’t see you because your information isn’t on there. So this is the how. You set this one up down
here as a manager manged, okay we gotta make sure
that ones set up right, manager manged, okay that’s number one, then you create your in state LLC as member managed pointing back to that manager managed limited liability company. Now there’s some tweaks you
can put into it as well, typically when we create
these structures here, it can be cumbersome to try
to operate in this fashion where this one is the manager of that one. That’s why we build in
special officer provisions inside of here, information that does not have to be disclosed
to the secondary state because they don’t collect it, but it gives you apparent authority. So you can operate out of
this LLC as the president to do everything you need to do, on behalf of that company, and that information isn’t
publicly disclosed anywhere. So they come up with ways to always try to collect more information, we can always find ways to
keep that information private. As a good asset protection firm, that’s what you should be looking for in the individuals you’re working with. Someone who understands real estate, how to create these
structures to meet your needs. All right guys, my name’s Clint Coons with Anderson
Business Advisors, be sure to sign up for
a free Strategy Session, to make sure you’re setting
up your LLC the right way to make sure that your assets
are completely protected. (relaxing music)

10 thoughts on “Forming An LLC For Real Estate Investing – (NEW for 2019!)

  1. I understand that part, but the question is do you have to still create a foreign filing in the state that you are in to have your holding company you create in WI or NV to be the owner of the member managed LLC that you create in your state? No one is talking about that either…๐Ÿ˜• This is a yes or no question that no one seems to answer. ๐Ÿ™

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  3. Clint makes it as easy as 1, 2, 3.
    Step 1: Set up your Holding Company LLC (Anan LLC)

    Step 2: Set up your Property Owner Company LLC (POC LLC) which is owned and operated by your Anan LLC

    Step 3: Make all taxes and fees pass through your POC LLC to your Anan LLC

    Step 4: Go buy property in the name of your POC LLC

  4. For residential RE, Iโ€™ve always heard that deeding the property into an LLC after closing runs the risk of triggering the Due On Sale clause in the mortgage. Is that not a concern?

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