Arizona Property, California Owner, LLC Questions
We just entered a contract for two four-plexes in AZ. Our broker and loan lady both recommended getting these into an LLC.
How does having an LLC protect us personally?
Should we have our LLC in AZ or CA?
Should we have two separate LLC's?
Should we get these LLC's in place before close of escrow?
Finally, there's probably a FAQ somewhere about LLC's that would answer some of these questions - where should I look?
1. LLC insulates you from lawsuits resulting from property. For example, pool accident, slip/fall, environmental claim... Also, a creditor can only get a charging order againt your interest in the LLC. Since you will likely control the LLC, you can avoid paying out distributions (which they could get). Note however that you're not protected from lender claims if you personally guarantee a note.
2. Use Arizona. California has ridiculous annual fees for an LLC. Arizona doesn't. Your income tax consequences will be the same either way.
3. If you don't mind the added cost and complexity, use two LLCs. This isolates the risk of one from the other. For example, if there is a judgment against your LLC interest in one property, the creditor can't go after your equity in the other property.
4. I'd wait until after escrow to avoid complications. Transfer the properties yourself after that's done. Don't worry about the due on sale clause.
Is setting up an AZ LLC an easy thing to do? How much would it cost to do it myself, or is it better to pay an attorney to set it (them) up for us?
Sure, you can learn how to do it yourself by going directly to the Arizona corporation commission's website: www.cc.state.az.us -- click on forms and filings.
If you don't have time to deal with the details, let me know how to reach you and my firm will handle it.