Legal Question in Real Estate Law in California

Re: Legal protection, land trust, LLC, etc.

It can be wise to use entities to shield you from liability. Whether you need them or not depends on your situation. If you don't think insurance will be sufficient to cover your risk, then use LLC's to put a liability shield around each property. You can have each property in its own LLC which isolates liability to that property. Must multi-units always have an LLC to hold title. A trust does not create any liability protection, but can make it harder to find the true owner of the property. If you buy the property first, then transfer it to the trust, you've defeated the purpose of the trust. If you don't use an LLC to hold the property, I recommend at least having a trust for estate planning purposes. You can minimize or avoid probate altogether.

You may be able to use your NV LLC as a management comapny. However, if you live in CA, then whatever you make through the NV LLC will be subject to CA income tax.

Also, I am a licensed real estate broker. Because I am not associated with a brokerage firm, I am able to offer a rebate to my buyer clients, and a discount to my seller clients. I rebate 1/3 of the broker fee offered by the seller and list houses for 4.5%, down to 4% if I represent the seller and buyer in the same transaction.

I am in an office with a CPA. He gives advice worth listening to.

Feel free to contact me with any other questions. (415) 492-2041

-Austin Bosarge

Re: Legal protection, land trust, LLC, etc.

Everyone's situation is different, and can change based on the type of properties and locations. Sometimes, people who avoid lawyers in the beginning end up paying 10 times more to get them out of the situation they got themselve into.

As far as recommending a CPA, I have an attorney/CPA in my office, and I am both a tax and real estate attorney, and a licensed real estate broker.

Re: Legal protection, land trust, LLC, etc.

Legal fees to set up the corporation will run about $1500. I prefer the corporation to the LLC because of the ability to reduce self employment tax. Both the corporation and the LLC are equally good at asset protection, so the CPA should address the tax aspect of which entity is best for your situation. Although others believe that LLCs are simpler to operate, I do not perceive any significant diffent between a single-person LLC and a single-shareholder corporation.

I naturally favor using attorneys mainly because there are so many things that can go wrong if you try to do it youself. It sounds like you may also need an estate planning attorney as well.

I don't see any reason to use your Nevada LLC. It would still need to qualify to do business in California and would need to pay California taxes on income generated California. You're better off setting up a new entity in California.

I form LLCs and corporations in California. Feel free to visting my website for more info or call me for a consultation.

Re: Legal protection, land trust, LLC, etc.

These are all very good questions, and impossible to answer categorically without knowing you. So much depends upon your risk tolerance, experience as a business manager, other assets that need protection, the quality of your insurance coverage.

I would personally use an LLC for each property. It will cost something in franchise taxes and I'd have to start a new set of books and file a couple extra year-end returns or schedules. It would be worth it to insulate each property from each other and from my other assets. However, many multi-property owners are content to hold and operate everything as a proprietorship, relying (or not?) on insurance.

Insurance is essential, but imperfect...for example, most policies won't cover environmental liabilities nor punitive damage awards.

A revocable trust will not provide meaningful liability protection.

Both advisory camps are at extremes. You need to have a lawyer and an accountant (not necessarily a CPA) whom you trust that you can call upon when needed, but you don't need to include them in every day-to-day decision like a management team (unless you're in the 50 units and up size range). You'll also need day-to-day management to handle vacancies, rent collection, maintenance, etc.

A Nevada LLC would be useful for holding a property located in Nevada. For 99% of small businesses, forming an entity in a supposed "haven" jurisdiction like Delaware, Nevada, Wyoming, Maine, etc. is promoter hokum; unless the business operates in that state, you need to qualify and pay taxes to two states: the state of formation and the state of operation.

Re: Legal protection, land trust, LLC, etc.

You may contact me.