I have 22 properties in my LLC is it going to be hard to get a line of credit ? And is it negotiable as regards to how much? Or does is solely depend on the equity?
It will depend on the same things that it would if you were applying for credit personally. Debt to income ratio, credit history, Bank statements, how long has it been in business etc. You have to take steps to establish credit in the LLC, Just as you did when you first tried to get credit personally. Also, the lenders may still require you to sign personally for any loans that they approve for your LLC.
Jeff
Jeff12002 gave you good advice. I would like to add a bit about asset protection and then suggest you follow Jeff12002's advice.
Next, take what I've posted only as information that may be helpful, talk with a qualified lawyer for before relying on any information posted.
What happens if a tenant/buyer/guest in one of your properties sues you and your LLC? If all 22 properties are held by one LLC then all 22 properties may be attached to satisfy a judgement against the LLC (or potentially your interest in the LLC depending on the state of registry for the LLC). My suggestion is: use a Nevada LLC to hold (own) 22 other LLC's which have only one property each. Make certian that you do not hold property directly in the Nevada LLC so that the Nevada LLC cannot be sued for damages etc. as anyone who is sucessful in attacking the Nevada LLC might gain rights to the 22 other LLC's/properties.
Then take Jeff12002's advice and establish credit, but do it for the Nevada LLC (which has a great balance sheet and cash flow statement because it "owns" 22 other companies/properties). Your lenders will have recourse against the Nevada LLC if you cannot pay back the loan but this will greatly improve your liability situation and establish credit for a company you will be keeping (the Nevada LLC) regardless if you sell off individual properties, etc.
However, even these steps will not eliminate the risk of your being personally sued and your interest in the Nevada LLC being attached. The good news is that Nevada limits a creditor's right to collect against an LLC to a charging order (if there are multiple owners of the LLC), that is; creditors can't force your removal as a partner in the LLC or participate in it's managment without the other partners approval. Other states do not limit judgements against LLC's to charging orders, hence my suggestion you use a Nevada LLC.
Lastly, you need to discuss the ownership of the Nevada LLC with an attorney and a professional asset protection firm. What happens if you are the sole owner of the Nevada LLC and you are sued? Far better for the Nevada LLC were owned by a Family Limited Partnership in which you were the general partner with only a 1% interest and the remaining 99% limited partner (non voting/controlling) interest belonged to your family or was placed in an overseas (Nevis) asset protection trust. Just some basic ideas, though be careful when selecting asset protection advice, most companies selling such advice are not properly dealing with tax issues and/or what happens if your APT structure is ever attacked. Ask for operating examples and then ask these, and many other, questions when seeking such advice and then have a qualified attorney review before signing anything.
How much does it typically cost for an asset protection service? I am investing in my first sub-2 and rental property and want to start off right. I am not even sure how to take deed to the sub-2 but i am doing it to an LLC that me and my partner will own.
Quote:
On 2004-09-09 23:50, Mantis wrote:
Jeff12002 gave you good advice. I would like to add a bit about asset protection and then suggest you follow Jeff12002's advice.
Next, take what I've posted only as information that may be helpful, talk with a qualified lawyer for before relying on any information posted.
What happens if a tenant/buyer/guest in one of your properties sues you and your LLC? If all 22 properties are held by one LLC then all 22 properties may be attached to satisfy a judgement against the LLC (or potentially your interest in the LLC depending on the state of registry for the LLC). My suggestion is: use a Nevada LLC to hold (own) 22 other LLC's which have only one property each. Make certian that you do not hold property directly in the Nevada LLC so that the Nevada LLC cannot be sued for damages etc. as anyone who is sucessful in attacking the Nevada LLC might gain rights to the 22 other LLC's/properties.
Then take Jeff12002's advice and establish credit, but do it for the Nevada LLC (which has a great balance sheet and cash flow statement because it "owns" 22 other companies/properties). Your lenders will have recourse against the Nevada LLC if you cannot pay back the loan but this will greatly improve your liability situation and establish credit for a company you will be keeping (the Nevada LLC) regardless if you sell off individual properties, etc.
However, even these steps will not eliminate the risk of your being personally sued and your interest in the Nevada LLC being attached. The good news is that Nevada limits a creditor's right to collect against an LLC to a charging order (if there are multiple owners of the LLC), that is; creditors can't force your removal as a partner in the LLC or participate in it's managment without the other partners approval. Other states do not limit judgements against LLC's to charging orders, hence my suggestion you use a Nevada LLC.
Lastly, you need to discuss the ownership of the Nevada LLC with an attorney and a professional asset protection firm. What happens if you are the sole owner of the Nevada LLC and you are sued? Far better for the Nevada LLC were owned by a Family Limited Partnership in which you were the general partner with only a 1% interest and the remaining 99% limited partner (non voting/controlling) interest belonged to your family or was placed in an overseas (Nevis) asset protection trust. Just some basic ideas, though be careful when selecting asset protection advice, most companies selling such advice are not properly dealing with tax issues and/or what happens if your APT structure is ever attacked. Ask for operating examples and then ask these, and many other, questions when seeking such advice and then have a qualified attorney review before signing anything.
An AP structure formed by a reputable company will run from $10K to $25K. For this you should get not only the company structure but a means of controlling the assets without "owning" them (by owning only a small "controlling" stake personally), use of a family limited partnership (FLP), foundation, charitable service organization, etc. This protects you from your property side as well as from personal lawsuits, etc. The structure choosen must suit your personal goals so a good planner will accomodate this. For example, if you were already well off and wished to pass money to charities while still drawing a salary, conducting business, etc. then a charitable service organization would likely be a good fit. A CSO is not a good fit for someone just starting that will not be able to give much to charity for some years, etc.
You can easily implement a program to protect you from your properties just by having one LLC hold other LLC's (or possibly land trusts, though I would ask a lawyer if this will shield the owning LLC) and keeping reasonable company records. This option costs only the amount to set up and maintain the companies, which can be fairly minimal if you do most of the work. You still need a lawyer though.
In either case ensure that your top level company has a real "presence" in the state of registry by using a registered agent and considering other services such as mail/phone, etc.
Do not place reliance on trusts themselves without an FLP, foundation, etc. as the entity settling the trust because trusts are not true seperate legal entities but are creatures of contract and US courts have "ignored" or pierced protections based soley on trusts on several occasions. However, properly used, trusts can be a very valuable tool.
I found the white papers at www.offshorelaw.com and www.rjmintz.com helpful in framing the issues but have not used either firm.
If you were to choose an offshore option, do not do so on your own, professional help is required as the legal and tax environments are complex and require professional planning. The benefit is even better asset protection.
Sorry for the off-topic post but this subject is very important to one's continued good credit.
One last statement I've adapted from the Rich Dad series of books. Having a solid corporate/APT structure in place that displays accurate balance sheets, income statements, and cashflow statements will go a very long way towards convincing someone to loan you money. The APT structure is for you, when well presented through the appropriate financial statements you generate confidence in yourself/your organization that you are knowledgable, responsible, and organized and are therefore a good credit risk.
It will depend on the same things that it would if you were applying for credit personally. Debt to income ratio, credit history, Bank statements, how long has it been in business etc. You have to take steps to establish credit in the LLC, Just as you did when you first tried to get credit personally. Also, the lenders may still require you to sign personally for any loans that they approve for your LLC.
Jeff
Jeff12002 gave you good advice. I would like to add a bit about asset protection and then suggest you follow Jeff12002's advice.
Next, take what I've posted only as information that may be helpful, talk with a qualified lawyer for before relying on any information posted.
What happens if a tenant/buyer/guest in one of your properties sues you and your LLC? If all 22 properties are held by one LLC then all 22 properties may be attached to satisfy a judgement against the LLC (or potentially your interest in the LLC depending on the state of registry for the LLC). My suggestion is: use a Nevada LLC to hold (own) 22 other LLC's which have only one property each. Make certian that you do not hold property directly in the Nevada LLC so that the Nevada LLC cannot be sued for damages etc. as anyone who is sucessful in attacking the Nevada LLC might gain rights to the 22 other LLC's/properties.
Then take Jeff12002's advice and establish credit, but do it for the Nevada LLC (which has a great balance sheet and cash flow statement because it "owns" 22 other companies/properties). Your lenders will have recourse against the Nevada LLC if you cannot pay back the loan but this will greatly improve your liability situation and establish credit for a company you will be keeping (the Nevada LLC) regardless if you sell off individual properties, etc.
However, even these steps will not eliminate the risk of your being personally sued and your interest in the Nevada LLC being attached. The good news is that Nevada limits a creditor's right to collect against an LLC to a charging order (if there are multiple owners of the LLC), that is; creditors can't force your removal as a partner in the LLC or participate in it's managment without the other partners approval. Other states do not limit judgements against LLC's to charging orders, hence my suggestion you use a Nevada LLC.
Lastly, you need to discuss the ownership of the Nevada LLC with an attorney and a professional asset protection firm. What happens if you are the sole owner of the Nevada LLC and you are sued? Far better for the Nevada LLC were owned by a Family Limited Partnership in which you were the general partner with only a 1% interest and the remaining 99% limited partner (non voting/controlling) interest belonged to your family or was placed in an overseas (Nevis) asset protection trust. Just some basic ideas, though be careful when selecting asset protection advice, most companies selling such advice are not properly dealing with tax issues and/or what happens if your APT structure is ever attacked. Ask for operating examples and then ask these, and many other, questions when seeking such advice and then have a qualified attorney review before signing anything.
How much does it typically cost for an asset protection service? I am investing in my first sub-2 and rental property and want to start off right. I am not even sure how to take deed to the sub-2 but i am doing it to an LLC that me and my partner will own.
Quote:
On 2004-09-09 23:50, Mantis wrote:
Jeff12002 gave you good advice. I would like to add a bit about asset protection and then suggest you follow Jeff12002's advice.
Next, take what I've posted only as information that may be helpful, talk with a qualified lawyer for before relying on any information posted.
What happens if a tenant/buyer/guest in one of your properties sues you and your LLC? If all 22 properties are held by one LLC then all 22 properties may be attached to satisfy a judgement against the LLC (or potentially your interest in the LLC depending on the state of registry for the LLC). My suggestion is: use a Nevada LLC to hold (own) 22 other LLC's which have only one property each. Make certian that you do not hold property directly in the Nevada LLC so that the Nevada LLC cannot be sued for damages etc. as anyone who is sucessful in attacking the Nevada LLC might gain rights to the 22 other LLC's/properties.
Then take Jeff12002's advice and establish credit, but do it for the Nevada LLC (which has a great balance sheet and cash flow statement because it "owns" 22 other companies/properties). Your lenders will have recourse against the Nevada LLC if you cannot pay back the loan but this will greatly improve your liability situation and establish credit for a company you will be keeping (the Nevada LLC) regardless if you sell off individual properties, etc.
However, even these steps will not eliminate the risk of your being personally sued and your interest in the Nevada LLC being attached. The good news is that Nevada limits a creditor's right to collect against an LLC to a charging order (if there are multiple owners of the LLC), that is; creditors can't force your removal as a partner in the LLC or participate in it's managment without the other partners approval. Other states do not limit judgements against LLC's to charging orders, hence my suggestion you use a Nevada LLC.
Lastly, you need to discuss the ownership of the Nevada LLC with an attorney and a professional asset protection firm. What happens if you are the sole owner of the Nevada LLC and you are sued? Far better for the Nevada LLC were owned by a Family Limited Partnership in which you were the general partner with only a 1% interest and the remaining 99% limited partner (non voting/controlling) interest belonged to your family or was placed in an overseas (Nevis) asset protection trust. Just some basic ideas, though be careful when selecting asset protection advice, most companies selling such advice are not properly dealing with tax issues and/or what happens if your APT structure is ever attacked. Ask for operating examples and then ask these, and many other, questions when seeking such advice and then have a qualified attorney review before signing anything.
An AP structure formed by a reputable company will run from $10K to $25K. For this you should get not only the company structure but a means of controlling the assets without "owning" them (by owning only a small "controlling" stake personally), use of a family limited partnership (FLP), foundation, charitable service organization, etc. This protects you from your property side as well as from personal lawsuits, etc. The structure choosen must suit your personal goals so a good planner will accomodate this. For example, if you were already well off and wished to pass money to charities while still drawing a salary, conducting business, etc. then a charitable service organization would likely be a good fit. A CSO is not a good fit for someone just starting that will not be able to give much to charity for some years, etc.
You can easily implement a program to protect you from your properties just by having one LLC hold other LLC's (or possibly land trusts, though I would ask a lawyer if this will shield the owning LLC) and keeping reasonable company records. This option costs only the amount to set up and maintain the companies, which can be fairly minimal if you do most of the work. You still need a lawyer though.
In either case ensure that your top level company has a real "presence" in the state of registry by using a registered agent and considering other services such as mail/phone, etc.
Do not place reliance on trusts themselves without an FLP, foundation, etc. as the entity settling the trust because trusts are not true seperate legal entities but are creatures of contract and US courts have "ignored" or pierced protections based soley on trusts on several occasions. However, properly used, trusts can be a very valuable tool.
I found the white papers at www.offshorelaw.com and www.rjmintz.com helpful in framing the issues but have not used either firm.
If you were to choose an offshore option, do not do so on your own, professional help is required as the legal and tax environments are complex and require professional planning. The benefit is even better asset protection.
Sorry for the off-topic post but this subject is very important to one's continued good credit.
One last statement I've adapted from the Rich Dad series of books. Having a solid corporate/APT structure in place that displays accurate balance sheets, income statements, and cashflow statements will go a very long way towards convincing someone to loan you money. The APT structure is for you, when well presented through the appropriate financial statements you generate confidence in yourself/your organization that you are knowledgable, responsible, and organized and are therefore a good credit risk.