Hi all,
I've been trying to wrap my head around the different ways of structuring our (future) property empire:)
We are Ozzies who will be purchasing in the States next year and I still can't make out whether it is best to form an LLC in the State we buy in, or just register the property in one persons name ie: hubby or wife. There's just too much info out there to filter through.
Or perhaps it is best to have everything done through Australia, but still have landlords insurance.
Does having an LLC give an extra layer of protection in case of getting sued, or does the Landlord Insurance take care of that?
Thanks
Hi Bevk,
I think I may have emailed you before, I am investing in the USA and I sought advise from a US tax accountant that is based in Sydney, he is also an accountant familiar with Aussi tax laws as well, he advised me to set up a LLC for tax reasons, I needed to get an EIN to be able to open a bank account.
I noticed on another forum that you were looking at Las Vegas to invest, all I can say id be careful because of the high vacancy rates there.
You will be able to purchase a property real cheap, but will you find a tenant.
jeff2investUSA wrote:Hi Bevk, I think I may have emailed you before, I am investing in the USA and I sought advise from a US tax accountant that is based in Sydney, he is also an accountant familiar with Aussi tax laws as well, he advised me to set up a LLC for tax reasons, I needed to get an EIN to be able to open a bank account. I noticed on another forum that you were looking at Las Vegas to invest, all I can say id be careful because of the high vacancy rates there. You will be able to purchase a property real cheap, but will you find a tenant.Hi Jeff,
Can you please provide us with your Tax Accountants details. Like Bev said, it's so ahrd to sift through all the information and dechipher the best moves, a infustry professional may be a good option.
Many thanks,
Zita
Zita wrote:jeff2investUSA wrote:Hi Bevk, I think I may have emailed you before, I am investing in the USA and I sought advise from a US tax accountant that is based in Sydney, he is also an accountant familiar with Aussi tax laws as well, he advised me to set up a LLC for tax reasons, I needed to get an EIN to be able to open a bank account. I noticed on another forum that you were looking at Las Vegas to invest, all I can say id be careful because of the high vacancy rates there. You will be able to purchase a property real cheap, but will you find a tenant.Hi Jeff,
Can you please provide us with your Tax Accountants details. Like Bev said, it's so ahrd to sift through all the information and dechipher the best moves, a infustry professional may be a good option.
Many thanks,
Zita
Hi Zita,
My email adress is [email protected]
I would prefer to give you the name not via the forum as my accountant may not appreciate his name being disclosed via a public forum
Thanks
Jeff
Hello all,
I believe purchasing as an LLC is the way to go for my situation (a couple friends and I going together to pool our money together) but I am not sure if it is best to have the LLC set up as Australian based or US based? Are there any particular disadvantages with either one?
Thanks
James
Hi James,
An LLC is a US based company which is incorporated in the state that you purchase the property in. ie if you purchase a property in Texas then you would have a LLC established and incorporated in the state of Texas. You and your friends would be members (shareholders) of the LLC. You can then decide who will be the manager of the LLC which is someone who can make decisions on behalf of all members.
Regards,
Speedy G
The LLC doesn't have to be based in the state your properties are in. If there is a group of you buying properties together then having an LLC will make life easier. Each of you will be a member with assigned managing members. Members don't have to own an equal share and members can change their share in the LLC without changing the actual property ownership.
The downside to having an LLC own your properties is your insurance can be more expensive and financing can be more difficult if you are looking to use business credit and not personal credit. Also there is a bit more paperwork and cost in running the LLC.
On the plus side it does add another level of liability protection, however Landlords Insurance is your most important liability protection
i had the same question.i decided that i ll purchase first ip in usa in my name.
if u purchase through llc,hardly any bank will give u money in the near future.
i ll purchase more properties in the future and have a better chance to finance through my ip in my name,which i ll purchase in cash.
another thing is the costs to set up and tax return etc.
in my name i can pay tax only in australia and dont need to lodge in the usahope this helps
Hi Bernie006
I have only just come back from a due diligence trip to Texas & had a detailed conversation with a US attorney while I was there that specializes in litigation. I explained that I am an Australian investor who wishes to build a property portfolio in the US. He suggested that I would be absolutely crazy if I purchased in my own personal name even if I had Landlord Insurance on a property as I would be minimising my risk of litigation. Even more so if I planned on paying cash as I would have equity that a potential party to a law suit would easily see from publicly available information.
You also have the issue that with IRS laws….a property manager would have to withhold 30% of your rental income and forward it to the IRS….if it were in the name of an LLC this is not the case.
For a small fee to set up an LLC it is well worth it. Plus you would still need to lodge a tax return in the USA even if the property is in your personal name.Hope this assists
>>I would be absolutely crazy if I purchased in my own personal name even if I had Landlord Insurance on a property as I would be minimising my risk of litigation
By wrapping a property in an LLC I guess that you limit litigation liability for a claim against that property (by a tenant or other party) to the value of the property itself as opposed to other US assets in your name.If you are only buying 1 property and it will be the only thing you own in the US then isn't an LLC ring-fence redundant. Litigants couldn't touch your assets outside the US I would have thought.
>>a property manager would have to withhold 30% of your rental income and forward it to the IRS….if it were in the name of an LLC this is not the case
An LLC is a 'pass through' entity for tax purposes so I would not have thought it would make a difference. Be useful to see a link for all these rules on the IRS website.
property manager would have to withhold 30% of your rental income and forward it to the IRS
Just heard back from an email conversation with a Miami based property manager and they have not heard of this rule.so maybe if you stick with PMs who haven't heard of the rule then you will be OK!
Buy it under your name but get Umbrella Insurance on top of landlord and building insurance. This will cover you up to $2million even if the tenant hurts his bum on the toilet seat! As if a property manager will forward 30% of your income to the IRS. Who made up this? LLC is useless as a bank will never lend to you in the future after and yes it is costly.
slightly off topic,
can you name the LLC anyname? or its it just "your name LLC"
Try this from the IRS website to see if this is how you understand it ??
http://www.irs.gov/businesses/small/international/article/0,,id=129631,00.html
I keep hearing that it is very difficult to obtain finance through an LLC. Why is this the case? Is it harder to get a decent credit rating as a company, if so why would this be the case.
James
I think the issue is that if you have an LLC that is newly established, then you don't have a credit rating. However, this can be gotten around, if you are a bit creative. For a start, if you are 90% sure you will invest there, set up your LLC and get "trading" … that will help. Then when you are ready to go ahead, you will find it more easily. There is a business, associated with my USA attorneys, that helps with establishing a credit rating for newly formed entities.
LLC is definitely the way to go according to my USA attorneys. The most protected states for litigation for LLCs are Wyoming, or Nevada if you have more than one shareholder. I am happy to share the details of my attorneys if you want the info. The will do the registering of an LLC for just under $700, and have good packages to deal with ongoing issues like mail and agms, etc. If you buy property in a different state, you just register for operations in that state too.
Wyoming is very cheap, as it is trying to establish itself as a good state for people to incorporate.
However, you also need to insure.
The structure of an LLC protects the personal assets of an investor. It also protects any unrelated investment assets. Eg, if you have 20 houses, in say 5 different LLCs, and someone sues, they can only sue *that* specific LLC … the other investments are safe.
Also, the way Wyoming and Nevada laws are written, the way compensation can be accessed is more difficult for the complainant, and protects you that way too.
hypothetical here…
say you form an LLC and lending was at normal practice/ pre GFC, could you just leverage up and take more risks cos there is no risk to personal assets? I assume its yes?
Hi Marthamel, I am thinking to setup LLC. Could you pls share the details of your attorneys. Cheers, Klimmy
Marthamel wrote:JamesI think the issue is that if you have an LLC that is newly established, then you don't have a credit rating. However, this can be gotten around, if you are a bit creative. For a start, if you are 90% sure you will invest there, set up your LLC and get "trading" … that will help. Then when you are ready to go ahead, you will find it more easily. There is a business, associated with my USA attorneys, that helps with establishing a credit rating for newly formed entities.
LLC is definitely the way to go according to my USA attorneys. The most protected states for litigation for LLCs are Wyoming, or Nevada if you have more than one shareholder. I am happy to share the details of my attorneys if you want the info. The will do the registering of an LLC for just under $700, and have good packages to deal with ongoing issues like mail and agms, etc. If you buy property in a different state, you just register for operations in that state too.
Wyoming is very cheap, as it is trying to establish itself as a good state for people to incorporate.
However, you also need to insure.
The structure of an LLC protects the personal assets of an investor. It also protects any unrelated investment assets. Eg, if you have 20 houses, in say 5 different LLCs, and someone sues, they can only sue *that* specific LLC … the other investments are safe.
Also, the way Wyoming and Nevada laws are written, the way compensation can be accessed is more difficult for the complainant, and protects you that way too.
To Marthamel,
I would also be grateful to get the name of your attorneys for incorporation. I have spent the better part of 4 weeks trying to find the right person and am starting to fret.
MTiA
No worries guys, I will PM
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