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How to operate a real estate rental property LLC?

With the stock market showing lackluster returns and the collapse of the real estate market well in the rearview mirror, many are turning back to real estate for a nest egg.

Your individual accountant and counsel are best to personally advise you regarding new investments. But a simple method to start your adventure into rental property is by creating a “Limited Liability Company”, or “LLC”. An LLC provides protection to the property owner but there are obstacles to utilizing this mechanism.

The benefits of an LLC are significant. LLCs provide personal asset protection for owners of real estate. This means if a creditor seeks to collect on a personal debt, the real estate covered in the LLC is generally sheltered from that recovery. However, there is no absolute protection. For example, if one of your tenants is exiting your property and is injured, your tenant could very well sue and recover against your rental property to the extent insurance proceeds were deficient. LLCs also provide the benefit of a corporate entity (personal asset protection) with the benefit of a sole proprietorship (income reportable on personal income tax returns). This combination provides protection without the double taxation of a corporation.

What is little known is how significant it can be to maintain the “formality” of your entity. An LLC can be easy to set up using the Ohio Secretary of State portal for small business. But this portal is full of pitfalls causing a simple action to become a chore. For example, personal creditors can and will successfully “pierce” the “corporate veil” of your LLC entity if you manage your LLC in a way which fails to maintain its separate and distinct existence from the owners individually. So how do you ensure this protection? First, make sure you obtain a Tax Identification Number (referred to as an “EIN” or “TIN”) from the IRS and use the same to open a bank account in the LLC name. Then, ensure all of your transactions involving your business flow through and are recorded in this LLC account. Be sure not to combine your personal and LLC assets. Meaning, when you get a payment, no matter how great or small, deposit it in the LLC account and track the income. The same goes for expenses. If you spend money for the LLC, write a check from the same account. If need be, open a credit card with a manageable credit limit in the LLC name and charge only LLC expenses to that card. Then pay the card only via the LLC checking account. Last, diligently
keep records of all LLC transactions. It doesn’t matter if you use a simple spreadsheet or a supercharged management software such as Quickbooks, neither
will effectively serve to protect you if you don’t input data regularly. Come tax time you will thank yourself for the ongoing bookkeeping.

Real estate can be particularly tricky working through bank financing when your ownership is through an LLC. With a shiny, new LLC in place banks aren’t exactly eager to lend substantial amounts of money with the lack of credit history. Therefore, with non-owner occupied properties (i.e. rental property) banks expect a larger down payment, higher interest rates and less favorable terms than in the purchase of your own home. You should expect a personal guarantee on the promissory note for the purchase. While this might seem to undermine the goal of personal asset protection of the real estate, bear in mind the bank wants security it will be paid back. What you are primarily protecting is other personal creditors from going after your rental property.

But be careful with banks. Many love to tell you the easiest route is to simply purchase the real property personally and then simply transfer the real estate, post-closing, to an LLC. Bad idea. First, mortgages contain what is a referred to as “due on sale/due on transfer” provisions. That means, if there is ever a transfer of the real estate (i.e. when you transfer it to the LLC) the Bank can at any time call the entirety of the Note due and owing in full immediately. Banks will tell you not to worry – “the bank isn’t going to call the Note due as long as you continue to make the payments…” Wrong! Banks can and will call Notes due particularly with regard to fluctuating property values. Second, what about homeowners insurance on that property. If you buy as an individual, that individual will be the named insured in case of a loss. If you simply transfer the property to the LLC, you have effectively divested the named insured of title to the property – that means no coverage. That means a big problem. Find a bank that can and will lend to you on a commercial loan and do it right from the beginning.

If you follow these steps and for more complicated legal and tax issues take the time to consult with a real estate attorney and CPA you are on track to get the most out of your investment.

Know Your OVI Rights | Dayton, Ohio Lawyers | Miller Walker Brush Attorneys
Dayton, Ohio is home to Miller Walker Brush Attorneys blog

KNOW YOUR OVI RIGHTS

Know Your OVI Rights

Many adults enjoy having a drink or two when out with friends or loved ones. Be it going to a game, out for dinner or just hanging out at your local bar, alcohol is a part of most adult’s lives. For the safety of yourself and others, please do not drink and drive. But what happens if you do get pulled over after you have been drinking? We have all experienced that nervous feeling when you see the flashing lights of a police car behind you. If you have been drinking another level of anxiety is added. In this situation, it is important not to panic and always be polite and courteous to the police officers.

The following article outlines your general rights from the initial traffic stop to the potential arrest for Operating a Vehicle under the Influence of Alcohol (“OVI”). It is by no means an exhaustive presentation of Ohio law. Every case is fact-sensitive, and you should consult an attorney regarding your specific case.

Operating a Vehicle under the Influence of Alcohol (“O.V.I.”)

In Ohio, it is illegal to drive at or above an alcohol level of .08%. The limit is lower for commercial drivers (.04%) and drivers under the age of 21 (.02%). A first time OVI offense is a 1st degree misdemeanor and carries a mandatory minimum of (3) days in jail and up to 6 months. The more O.V.I. convictions a person receives, the harsher the penalties. All O.V.I. convictions carry mandatory fines and license suspensions.

Initial Traffic Stop

Most O.V.I. charges start out as a routine traffic stop: turn signal violation, rolling through a stop sign, speeding, etc. After being pulled over, the officer only needs reasonable suspicion to believe you are under the influence of alcohol. Evidence the officer will take into consideration includes any smell of alcohol, blood shot eyes, or slurred speech. At any traffic stop, you are only required to comply with the officer’s request for your license, proof of insurance, and registration. All other questions are being asked for the benefit of the officer, and they will use your answers to enhance reasonable suspicion. Although your inclination will be to answer their questions, you are not required to do so. Just know when the officer asks whether you have been drinking, your answer will be used as evidence if you are charged with an O.V.I.

Field Sobriety Tests

Once the officer has reasonable suspicion you are under the influence, they will likely ask you to perform field sobriety tests: Horizontal Gaze Nystagmus Test, the Walk and Turn Test, and the One Leg Stand Test. Most law enforcement agencies use three basic field sobriety tests. When an officer asks you to perform these tests, they are attempting to determine the degree of impairment caused by alcohol or drugs to your driving ability. By participating in the field sobriety tests, you are giving the officer more evidence that can and will be used against you if charged with an O.V.I. If you choose to participate, Ohio law requires the officers to “substantially comply” with the National Highway Safety Administration manual when administering these tests.

Blood Alcohol Concentration Tests

Whether you agree to take the field sobriety tests or respectfully decline, the officer will likely ask you to submit to a Blood Alcohol Concentration Test (“BAC”). Ohio has an Implied Consent Law, which means if you are lawfully arrested for an OVI, you automatically consent to taking a BAC test. If you refuse to speak with the officer or refuse to take the Field Sobriety tests, there is no penalty. However, if you refuse to submit to a BAC test there are consequences, which are separate from the O.V.I. charge itself. A first time refusal of a BAC test, carries an automatic one-year Administrative License Suspension. And just like subsequent OVI convictions, subsequent refusals carry a significant increase in penalties. By refusing to submit to a BAC test, the arresting officer and the prosecutor will have less evidence to use against you in court.

Please drink responsibly. If you find yourself charged with an O.V.I. or any alcohol related offense, contact Miller Walker & Brush today. With over 50 years of experience, our dedicated and experienced lawyers know how to secure reductions and dismissals for our clients. Contact us today for a free consultation. (937) 434-2885

Miller, Walker & Brush

2233 Miamisburg-Centerville Road
Dayton, Ohio 45459

Phone: 937-434-2885
Fax: 937-434-8439