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hi Clint Kunz here and in this video I'm going to discuss the first LLC you should set up when you're looking to invest in real estate so with that let's get started alright guys when it comes to setting up limited liability companies there's a lot of information out there on the internet about setting up an LLC in your home state what type of LLC you should set up des Matta Delaware Wyoming you name it so I can see how it's can get confusing but here's what I want you to think about when you're going to create a business structure one of the first things that I always focus on is keeping my name off of title or off of that business unless I'm going to be out there actively promoting myself like Clint Coons com or you know Andersen business advisors where I want people to know that I'm associated with that business entity there is no reason why you should have your name tied to your limited liability company that is going to own rental real estate recently I was featured I didn't know this at the time on a segment on NPR where they were talking about privacy of limited liability companies and in this hour and a half long segment that they did discussing the fact that tenants cannot in certain circumstances find out who the owner of a limited liability company is that actually owns the property how troubling that is for these tenants who can't find this at find out this information now I didn't quite get the gist of the interview or the NPR program other than the fact to say that tenants need to know who the owners of the LLC is so that they can what harass them I mean if you have a legitimate claim you can always sue the LLC you don't need to know who actually owns it but they were making the point that yes we need to know who owns it and that people like myself they took one of my videos in an audio segment of it where I discuss using anonymity and they said these are the problems that prevent tenants from finding out who the true owners are because people can set up entities anonymously well guess what this is exactly why you should do it because you do not want tenants contacting you stepping into your life creating problems think on this let's say you have a tenant and they're disgruntled with you because you evicted them or you're about to a victim or maybe they want a new refrigerator and you're refusing to do it because they want the refrigerator with the icemaker you say you have a perfectly fine working refrigerator right now what could they do if they know about you have your personal information well simple they can get on the internet just trash your reputation what's to stop them nothing they can create multiple fake accounts start posting fake postings about you that other people will see your friends your business associates future tenants what could that do to your job you think you have me legal recourse against them no you could possibly get a temporary restraining order but that's gonna be expensive and time-consuming it may not be granted because you don't have proof that they're the ones actually doing it so it is for that reason when you're thinking about investing in real estate I strongly encourage you to create your structure so that people cannot discover who the actual owner is the way I go about doing this is I typically start with a Wyoming limited liability company that is gonna be the first LLC you set up and the reason why you're going to use Wyoming is because Wyoming does not list any information about the members or managers of that LLC now the Wyoming LLC should be used for residential real estate holdings all about to show you this in just a second if you're going to use if you're gonna be investing in commercial multifamily then I would go with Delaware and the reason why I look at these two structures is because with Delaware you're dealing with a different type of lender than you would be in Wyoming where you have single-family loans so there are different types of loans different types of lenders and so they look for different things when it comes to creating these structures so the way we set this up to protect your identity so someone cannot discover you if you first create your anonymity compliant we'll call it that an anonymity compliant LLC this can be in Wyoming it can be in Delaware let's just go with Wyoming here so I set up this Wyoming LLC that gives me complete anonymity so I'm the manager I'm the member of this LLC but no one knows that it's me because nothing's reported to the Secretary of State then when I go to create my let's say my Texas limited liability company up here here's the Texas LLC here's a Washington LLC right here then I'm gonna have these LLC's owned by this one Wyoming LLC so when you're creating them after you've set up this first base structure because this is gonna own all of your limited liability companies you don't need to do this one per once you have a whole bunch of Wyoming's just create one it will be the member in all of these the nation on the Texas Secretary of State's website will point to this company right here because that's what we're going to list when we file for our Texas LLC the name of our Wyoming LLC so if a tenant there in this Texas property right here they're disgruntled because you didn't buy in that new refrigerator they wanted that had the icemaker and the water dispenser in it and maybe the touchscreen so they decide well I'm gonna get back at you well who are they gonna get back at the limited liability company no they want to go you the owner to make your life uncomfortable so if they look up the LLC on the Texas Secretary of State's website it's gonna point them to Wyoming if they look up the Wyoming LLC it's gonna point them nowhere this is how you build out your real estate investing structure now this is on the residential side if it was a commercial property and I wanted to build the stuff out then this would be Delaware right here thought I'd be setting it up in so keep your business affairs private do not allow people to discover that you're the owner of these entities and a lot of times people say well Clint they're gonna know it's me because I'm managing the properties if you're self managing don't tell them you're the owner I mean one things often say is that if you're dealing with tenants yourself and you're self managing your properties and you're talking to them they're disgruntled about the owner well heck you can join them say you know what I think the owners a real sob myself I just manage the properties guy never responds to me so now you can kind of be one of them and they don't know that you own the property so they may look at you differently so this is how I go about creating structures I think it's very important the first entity you create in building out your limited liability company structure for real estate investing is going to start with an anonymity compliant LLC either in Wyoming or Delaware based upon the real estate you plan to invest in
Thanks for your comment Lorenza Joyner, have a nice day.
- Nathaniel Hamner, Staff Member
what is a holding company why would you set up a holding company in this video I'm gonna go over what the point is of forming a holding company and I'll be explaining how you actually set one up the differences between LLC's and holding companies as well as going over some examples of holding companies and real estate holding companies - if you're new here my name is Amanda and you're watching the business finance coach where I simplify business to help small business owners succeed I'm the creator of the small business MBA which is an online program that helps meet business owners step-by-step to set up their businesses as well as the county taxes and legality give away my free business spreadsheet template with so be sure to check out the links below this video if you're interested now let's jump into what is a holding company so people are often asking what's the difference between an LLC and a holding company or can an LLC be a holding company yes an LLC can be a holding company and the reason I bring this up to explain what a holding company is is because these are two totally different categories you can tell when someone asks those questions that they think a holding company is like an LLC but it's not those are different categories of types of businesses so an LLC a corporation those are legal types of businesses another common category for type of business would mean what type of business are you what does the business do so we have tax preparation businesses right online shoe-sale business or hairdressing business right so there's that type of business like what you actually do in the middle we have kind of another area of category where I would put holding company and the alt alternative side of a holding company would be operational company most company our operating companies operating company just means what the business is in the business of doing so for example those types over here in this category that I said you know tax preparation type of business shoe store type of business that's an operational business and most businesses are that way especially with small businesses a holding company on the other hand is a business for the purpose of separating liability from an operating company so what does that mean it means that the owners or some related party that's involved with the owners of the business wants there to be limb or limited liability more protection from the operations of the business and I'm gonna give you some examples in a moment but what is limited liability means well it just means that there's assets that people can't get at so if someone Sue's an operating company they're not going to get assets such as real estate that's in a holding company you know traditional limited liability as you form an LLC so that the owner's personal house and retirement plans and maybe other business or wife's business can't be used if the business goes under and it has debts to pay or if the business is sued because they did something wrong and they're found at fault limited liability the whole point of forming an LLC or corporation the the traditional point was this limited liability so that the owners aren't liable for the debts of the business Canon LLC be a holding company well an LLC can be a holding company and in fact a holding company is not legal type of business so yes an LLC can be a holding company and it usually is exactly how someone forms a holding company no next question is how do we actually form a holding company well you would go out and form a legal type of business whether an LLC or a corporation those are going to be the two main options and most people are gonna go with the LLC rightfully so because it's much easier to maintain than a C Corp then as they're setting up that LLC they're gonna be sure to wherever they're asked what is the operations of the business they'll say it's a holding company and in the LLC operating agreement they're going to have different clauses than an operating company that are specific for a holding company and for how this holding company is set up Ashley we are going over a holding company example and we're gonna use a small business example but the holding company is going to be for real estate because honestly it's most common for small business owners to use a holding company for real estate so in our example here we are going to use Tom who is a plumber and tom is doing great working for himself so he creates Tom's Plumbing LLC which gives him limited liability and reputable 'ti and so he is the sole owner of his LLC business and he's doing great and he notices a building for sale in his town and he really thinks that this would help his business so he does out a business plan and he realizes that it would be great if he could buy a building this building they found however he doesn't quite have the money so he finds a program through the SBA called a 504 B program and I have seen a business use this program exactly as we're going over in this example so he says ok he applies for the program that SBA is going to help him with a bank buy a building for his business and so he says okay well my LLC will buy my building right and they said you know the SBA says no well Tom's plumbing LLC that's your operating company and that means that that's where you service your clients and you do plumbing activities that you're in the business of doing so you know there's a lot of liability for the work that you're doing there so we would prefer if you set up another LLC to specifically buy this building so Tom creates Tom's of building LLC and this is a holding company to hold the real estate that he's buying for his business and then you can't just have a business for the purpose of only holding an asset the point of this business is to actually rent the real estate - Tom's operating LLC business so that's an example of a holding company where the SBA the bank they want this real estate in a separate business so that it's not exposed to as much liability as his operating business it just keeps it separate from that level Tom could still be the sole owner of both LLC's which actually makes things much easier for him for taxes to wrap up guys we've covered what a holding company is which essentially just means that it's a business for the purpose of holding a certain activity for liability purposes it's essentially a type of business like an operating business only it's a holding company which is specifically not an operating business well thanks for watching guys I'd love to hear from you in the comments below about why you are interested in a holding company what type of plans do you have in store and again if you need to get your accounting and quarterly taxes organized don't forget I have a free spreadsheet all in the comments below lots of links down there for you to check out and there may be a video that YouTube thinks you would like read about here so check that out as otherwise I hope to see you next time bye guys
Thanks John your participation is very much appreciated
- Nathaniel Hamner
About the author
I've studied evolutionary economics at Towson University in Towson and I am an expert in medieval archaeology. I usually feel indifferent. My previous job was ushers and lobby attendants I held this position for 5 years, I love talking about whittling and upcycling. Huge fan of Susan Sarandon I practice golf and collect match-related items.
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