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Show Summary
In this episode of the Real Estate Pros Podcast, host Kristen Knapp speaks with Jonathan Feniak, a lead attorney specializing in LLC formations and asset protection for real estate investors. They discuss the importance of forming LLCs to protect assets, the differences between primary and investment properties, and the proactive measures investors should take to safeguard their investments. Jonathan shares insights on state-specific laws regarding LLCs, the various structures for real estate investment, and the risks of relying on social media for legal advice. The conversation emphasizes the need for proper consultation and guidance in navigating the complexities of real estate investment and asset protection.
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Investor Fuel Show Transcript:
Jonathan Feniak MBA Esq (00:00)
Fix and flips, what people often don’t realize is that every fix and flip you do, there’s a little bit of liability that builds up in that entity, right? You have contractor liability. What if there was undisclosed mold? What if there was faulty electrical, right? And so depending on what state you’re in, there can be a fairly long tail of potential liability associated with those fix and flips. It could be five years down the road.you could still have litigation from some fix and flip you did five years ago. If you’re doing everything in a single entity for those five years, if or when that litigation comes in, you wind up with all of your current projects could be in jeopardy, right?
Kristen Knapp (02:13)
Welcome back to the Real Estate Pros Podcast. I’m Kristen and I’m here with Jonathan Feniak, who is the Lead Attorney at LLC Attorney. So we’re going to get all into protecting your assets, forming LLCs, all that good stuff. Thanks for being here, Jonathan.Jonathan Feniak MBA Esq (02:26)
thank you so much. love talking to and I love talking to real estate investors so much. We were talking about this a little bit earlier. So much bad information out there on TikTok or otherwise ⁓ and trying to cut through all of that. And we’re not a law firm, but I am an attorney ⁓ and I am ⁓ one of the attorneys who have created our products and services to actually really work, right? Really deliver on the limited liability protection people sign up.Kristen Knapp (02:35)
Really?Incredible. Well, how about you tell everyone a little bit about your background?
Jonathan Feniak MBA Esq (02:56)
Yeah, I’m actually a third career attorney. I was in operations ⁓ in Manhattan for DHL, Airborne Express, Transpation Logistics. Got an MBA, went into finance, worked at some hedge funds as well as being a financial advisor. So I was security licensed, 766, as well as sold insurance products. ⁓ And then went to law school later in life, graduated law school 2019. I ⁓ took the bar ⁓ and ⁓ came to work for our originalcompany was Wyoming LLC attorney dot com still there ⁓ and people didn’t know that we could form LLCs or corporations in all 50 states and so it was like we we actually got the LLC attorney brand to to clarify ⁓ what it is what it is we did and so I’ve been here for five years and helped grow this company to where we’ve done now over a hundred thousand business formations for our customers and a huge portion of them are in the real estate space.
Kristen Knapp (03:53)
Yeah, and let’s go to the basics of just formation. Can you talk about, from a real estate perspective, how it protects you and what you need for people starting out?Jonathan Feniak MBA Esq (04:04)
Yeah, there’s two kinds of liability that we face that an LLC can help you with, and one is going to be liability related to the business activities itself, right? Your rent to somebody, the tenant slips, falls, hurts themselves. What do they sue? Who do they sue? Well, they sue the entity that ⁓ owns the property. That business entity, the limited liability protection, you form the limited liability company or form the corporation, almost always limited liability company.with the state and it’s an agreement with the state that they’re going to allow you to say how much is at risk. Whatever’s inside the LLC is at risk, right? That’s the amount you’re not going all in with all the assets or other businesses you have. Whatever’s in that LLC is at risk, but the trade off is you need to make it easy to sue that business entity. So it has to be a registered with the state. have to have a ⁓ registered agent. So it has to be formed with the state and then you’ve got a registered agent who is going to be there.
⁓ for nine to five or normal business hours anyone wants to sue they show up with that lawsuit and that’s it they’ve gotten good service much different than if it’s an individual they’re gonna track you down can they find you whatever else you can’t dodge a lawsuit when it comes to an LLC or a corporation part of what we do is professional registered agent services so having someone there staffed who can accept and will accept that service a process
So that is the main way we think about LLCs. The other way we think about LLCs and the protection they provide is what if there’s litigation against Kristen, right? You got sued because you had a car accident and they get a big judgment against you and they say, what assets do you own? If you say, well, I’ve got all this real estate in my personal name. They say, great, we’ll take it, right? I’ve got a bank account, my personal name, we’ll take it. Those things are super easy for them to get. If though you own your businesses, if you own your assets through an LLC,
particularly if it’s in a very favorable state like Wyoming as a holding company or otherwise we’ll talk about holding companies hopefully for a minute here, ⁓ those are going to be protected, those assets are going to be protected by something we call charging order protection. It means that the plaintiff, the person who sued Kristen as an individual, can’t break into your LLC, can’t disrupt your LLC, can’t take the assets in the LLC to satisfy their claim against you. The best they can do is sit on the outside of the LLC and wait.
And in five years, I’ve not seen anyone try to get a charging order against the Wyoming LLC because it’s effectively a dead end for them. So it puts you in a really strong position, both, you we call it inside out where they’re inside the company trying to get to you or outside in where they’re going after you and trying to get into the company. There’s also components of the LLC. That’s a liability side. Privacy is another huge component. And if you own the real estate in your personal name and you try to evict a tenant, right, they know who you are.
And they may show up at your house and in this crazy day and age, who knows what is going to happen. So if you own it through an LLC that you formed privately, through a Wyoming LLC in many cases, and then a subsidiary company, you are able to say, I’m not the owner, which is true, you’re not the owner of the property directly, indirectly you are, but you can also then avoid your home address or your name and those sorts of things being listed in any agreement with the tenant. ⁓
which protects you, whether it’s contractor or not everyone out there has good intentions. So you get your privacy ⁓ outside in and inside out protection with a company owning your real estate.
Kristen Knapp (08:21)
I mean, that’s amazing. It’s so important and I’m sure you get a lot of people coming to you when it’s a little too late. What would those times be?Jonathan Feniak MBA Esq (08:29)
These are proactive structures, right? So ⁓ once you, if you’re being sued personally and you don’t have your real estate inside of an LLC, moving it into an LLC after the horse is already out of the barn is gonna have sort of mixed, could have mixed results. Was that transfer of the property done to deprive your creditor now, a potential creditor of a claim against you? If so,There’s something called, it used to be called fraudulent transfers. treat it as a fraudulent transfer you made to deprive that creditor. A lot of the laws of change now be called voidable. So a court can say, yeah, the only reason you did this was to deprive your creditor and so it can be voided. The same thing if there’s litigation against the property and it’s in your name, the claim accrued during the period you personally owned it, you’re still on the hook. doing it, you want to do this proactively, not retroactively.
And a lot of times what happens is people come and they say well, you know, I’m getting sued I want to move my stuff into an LLC. I recommend don’t do that, right wait Until that’s resolved in some way because it can cause it like a taint against you. Like wait a minute You’re cheating you’re ⁓ not a someone who’s upstanding member of the business community But then as soon as that’s done, then let’s go right we resolve that one. There’s no other claims outstanding against you Let’s put the structure in place now to protect you going forward
Kristen Knapp (09:55)
Yeah, it makes a lot of sense. And should people be looking to put their primary properties through an LLC or just their investment properties?Jonathan Feniak MBA Esq (10:37)
SoLLCs or business entities are for business ventures, right? And if you put a personal asset into it, ⁓ one of the ways that an LLC can be invalidated or we call pierced the veil pierced is if it is not used for a valid business purpose. If you’re using the business assets for your personal enjoyment, right? That’s not what LLCs are set up for. The state doesn’t want to protect you from that. They want to protect you from, they want to spur.
business creation, entrepreneurship, and the deal is if you’re engaging in business through this business entity, then it’s going to offer protection. It’s not going to offer protection in a scenario with a primary residence. it’s for investments. It’s for ⁓ assets that are whether it’s, it could be stocks, bonds, mutual funds, those sorts of things are digital assets. We do a lot of digital asset ⁓ LLCs and videos and consultations on that. ⁓
Those are investment assets and you’ve got real estates and investment asset and the car wash you own or the taco truck you own or those are businesses, right? Those absolutely you’re entitled to that protection but putting your personal boat in it and some people put their personal vehicles and the like in it and I just, I think that is, ⁓ it’s not gonna assist you in the way that you ⁓ think it would. Definitely not a personal residence. The other benefit of personal residence is you get your exclusion from capital gains on it, right? ⁓
other potential tax abatement, property tax abatement, those sorts of things you can get with owning it in your personal name. And you would be in the situation where are you telling the tax authorities it’s yours personally, but you’re telling the world that it’s owned by a business. So who are you lying to? I don’t know. I never want my customers to be in a situation where you got to choose which lie you’re going forward with. Stick to the truth. That’s your personal residence. And you’ll, you know, in a lot of states,
There’s the homestead protection, right? You probably heard of Florida has an unlimited homestead protection, whatever the value of your primary residence is protected from your creditors. California recently, I’m not licensed in California, I’m only licensed in Wyoming and Colorado, but this is my general area of expertise. California recently raised, it’s like over $600,000 of equity in your home is gonna be protected from your creditors. So, you know, one of the things you can do, your primary residence, if you’re concerned, I know it feels good.
to own your primary residence outright, but having a mortgage on it and managing that how much is exposed, anything above in California, above that 600 or 650 is gonna be exposed to the risk of your personal creditors. So keep your house mortgaged, right? And then if you do your cash out refinancing on it or have a HELOC in place on it, so those sorts of things to protect your primary residence from ⁓ creditors, personal creditors or business creditors who might try to come after you.
Kristen Knapp (13:22)
I mean, this is so much information that people, it’s so hard to get it yourself, because it’s hard to know exactly what you’re supposed to do in every situation. So it’s great to have somebody like you who can just consult with somebody on their specific needs.Jonathan Feniak MBA Esq (13:37)
Yeah,so we understand, we’re not a law firm and most people don’t need to talk to a lawyer, but we have a team, they’re called the business success advisors. And the business success advisors, I have trained, you know, over 20 hours of training and they have great tools at their disposal to help you. can, you know, they don’t engage in the practice of law. The practice of law is when they apply.
the your particular facts to a legal question and then give you guidance or advice on that. don’t do that. What they say is, know, generally speaking, our attorneys would say X, here’s a video John did on it. Here’s a video one of our attorneys did on it. Or here’s a piece that they wrote. If you want application to your particular situation, you can actually schedule with one of the attorneys in our network, including me. You go in, I call a single serving attorney. You go book.
30 minutes at very reasonable rates, there’s no retainer you need to do or those sorts of things, get on the call, get answers to your questions, and then you’ll walk away with the ability to say, okay, here’s how I need to do it. And in nine times out of 10, those things you need to do, we’ve designed LLC attorney where you can do it easily and inexpensively, not attorney prices at LLC attorney.
Kristen Knapp (14:51)
Amazing. And can you go into kind of, because I’m sure there’s different situations for every state. Like you kind of talked about how some states are more friendly than others for this type of thing. Can you go into maybe some others?Jonathan Feniak MBA Esq (15:07)
Yeah, so the huge ⁓ dispersion of how wellare respected across the 50 states and there’s some, you know, the premier and you know, I’m a bit biased. ⁓ I’m licensed in Wyoming, but I actually got licensed in Colorado first and then got licensed in Wyoming because it was so darn good ⁓ for LLCs. Having an LLC in a weak law state, California is a weak law state, right? Veil piercing and then… ⁓
the ability of someone to get more than a charging order actually foreclose on your membership interest. Those things could happen in California. So most real estate investors, we recommend a Wyoming holding company, sort of top level holding company, and then subsidiary companies in the states in which the property is located. You’ve got property, Kristen, in North Carolina, Arizona, and California. Wyoming holding company owns a California LLC, which owns the real estate. Wyoming company, the same one, owns
the Arizona LLC, which owns the real estate. And this gives you that double layer of protection in the event there’s weak LLC laws in those particular states. And that’s for people who are, buying and holding, right? Buying a lot of properties, they’re building up their portfolio of properties, more and more doors they’re putting in there. And those kinds of folks, that holding company structure is really effective. the other type of, you know, I think we’re sort of three broad groups, right? Tell you what we’re talking about.
buy and hold investors, fix and flippers, wholesalers, right? Fix and flip and wholesalers, those folks have different types of risks. And one of the things with real estate that’s buy and hold is typically going to be completely, it’s gonna be partnerships or it’s gonna be disregarded entities. Meaning they’re not gonna do an S-corp, they’re not gonna be a C-corp, they’re not gonna make those tax selections because it’s so darn efficient, right? With your non-cash depreciation.
and then all the other write-offs and the ability to do 1031s and all those things, you generate a lot of cash flow hopefully, but not a heck of a lot of income when it comes to your real estate holdings. When it comes to fixing and flipping, that’s ordinary income, right? It’s your labor that creates your profit. So you’re doing a, it’s not a long-term capital gain situation on fix and flip. It is going to be it’s ordinary income.
buy it for 100, put in 50, sell for 250, you’ve got 100,000 of ordinary income. That may be, it may make sense to make an S-corp tax selection. That allows you to save money on those self-employment taxes, right? The other thing when it comes to S-corps is, and I would say the same thing applies when it comes to wholesaling, right? You’re getting that bit of earned income on it. It’s not a capital gain from doing the warehousing.
you sign up for the mortgage, you know, at X price or sign up for the, was saying sign the PSA for X price or a hundred thousand dollars and you’re able to find some of the buy it from you for 125, that 25,000 is just, that’s earned. That’s not a capital gain on it. ⁓ So in those cases, there may be a tax advantage to having an S corp tax selection, probably not a C corp tax selection, but ⁓ with those.
Fix and flips, what people often don’t realize is that every fix and flip you do, there’s a little bit of liability that builds up in that entity, right? You have contractor liability. What if there was undisclosed mold? What if there was faulty electrical, right? And so depending on what state you’re in, there can be a fairly long tail of potential liability associated with those fix and flips. It could be five years down the road.
you could still have litigation from some fix and flip you did five years ago. If you’re doing everything in a single entity for those five years, if or when that litigation comes in, you wind up with all of your current projects could be in jeopardy, right?
Because if they sue, whatever’s in the LLC at that point in time would be subject to their claims. So they can get a lien against the assets in there, They Liz Pence against the real estate inside of your LLC.
So when it comes to fix and flip and also with wholesaling, what I recommend, and I think I was the original one to at least name it this, call it the vintage structure. So you do vintages. We got your holding company is always there. Then 2025 fix and flips. You’re going to buy the properties. You’re going to fix and flip in 2025. You’re going to only do them in that 2025 vintage. When they sell it, maybe into 2026 that you’re done or maybe 2027.
You’re not going to do any projects in that after the 2025 year though. Then you start up a new one, 2026 vintage, 2026, maybe you got 10 properties you do over the course of a year. By the time those have rolled off and litigation doesn’t come the day after you sell the property, it’s three months, six months, a year later, when that happens, there’s no properties. There’s really no assets inside of that LLC. you’re not going to be, you may still have, they may still have claims against you, but it’s not going to disrupt the works and progress you have.
which is the real problem with those ⁓ keeping doing, continuing to do year after year after year inside the same business entity. The same thing with wholesaling. People say, well, wholesaling, there’s not a lot of risks associated with it. There is, right? And I’ve seen litigation related to those because of sometimes it’s buyer’s remorse. I often see a lot of times litigation, it winds up happening with ⁓ someone passes away.
And then like their kids come in or their trustee of their estate comes in and looks at everything everywhere. We thought, you know, mom and dad were richer than they are. And well, it looks like these guys, they signed the contract at a hundred and they sold it for 150. They must’ve defrauded these elderly, you know, it was elder abuse or something, right? And so they come up with something later on down the road that that kind of liability, every deal you do inside that LLC could subject your future deals to the same kind of risk. And so
For those situations where there’s all that risk there, I recommend you use this vintage structure for buy and hold, doing it as a holding company with subsidiaries, and then looking at it from a tax perspective, right? What makes the most sense? And sometimes when you’ve got your 10 properties that you’re buy and holding, sometimes it makes sense to start up your own management company. is something, you know, we sort of get into a deeper analysis here on, does it make sense to have a management company so that you can have
some earnings, right? Earned income, pay yourself a W-2 and also maybe set up a retirement account there, 401k or a pension plan or something else. Maybe that starts to make sense. So these structures are super flexible. And, you know, people think, well, I want to get it all right, right at the beginning. And they come up with these incredibly complex structures and they haven’t bought property one yet. It’s going to be okay, right? Go with something simple to start, get your, where are you going? We don’t know if this is going to be your first property or one of a hundred.
get that North Carolina LLC, buy the property in North Carolina LLC, and let’s see how it goes. Then you start scaling up. All right, now I’m gonna put a holding company, and you can add a holding company later on on top of the North Carolina, and then start scaling, and then do a management company. And then sometimes we work with folks on doing, they actually act as their own lender, creating their own lending entity, right? So they’re doing hard money loans to others, but then doing the hard money loan to your own properties as well is super.
valuable because in the event there is litigation, remember whatever is inside the LLC is subject to claims against it. So if the property is fully leveraged, then that’s positive for you. And it could be your buy and holds as well. If you own them for cash, then plaintiffs’ attorneys see that and they say, oh yeah, baby, we got a lot. We got a lot of cash here. got a lot. They have a lot to lose. If they look at your properties, say, Kristen has a 90 % LTV loan on this?
It’s not even worth it. We’re not gonna try to exceed her policy limits. So part of it is, I’m gonna say window dressing, but it’s signaling to those who might attack you. I’m not an easy target. I got my Wyoming LLC. This thing’s levered up. I’ve got my management company, right? I don’t have a lot if they look up the flicks and flips. The signals are, know, like a ⁓ porcupine, right? There’s easier targets out there. Go for the squirrel instead of the porcupine.
You’re going to be the porcupine. We want our customers to be the porcupine and those kinds of signals are ones you can send out.
Kristen Knapp (24:27)
Amazing and it’s cool how you guys work with people through the whole investment journey. Like it seems like you’re checking in throughout as they, you know, expand their asset portfolio.Jonathan Feniak MBA Esq (24:37)
Well, I’m going tosay, we’re here when you need us, right? That’s the thing. We’re not checking in with you. You can check in with us whenever you need it, right? That’s a distinction. I hate getting hassled. I talk to someone once, and my God, they’re coming after me, looking for, selling me something else. we’re there when you need us. Call in the phone number, existing customer, a new customer, call the number on the website and talk to our team. What are you trying to do? Hey, I formed 1LLC with you, but now I’m really starting to scale.
I’ve got, I’m gonna buy three more. I’m gonna do fix and flips. say, hey, watch this video John did, right? Check in, you check in with us and then the team will say, well, you really should talk to an attorney or you’re getting to the point where maybe there’s some tax guidance you need, schedule this kind of consultation. So it is a, we’re here when you need us. We are not going to be tracking you down.
Kristen Knapp (25:25)
You’re amazing. And we’re kind of coming to the end of our time here, but really quickly, I would love for you to go into kind of AI and TikTok and how people think that they can get their information that way and maybe the risks involved in that.Jonathan Feniak MBA Esq (25:43)
Yeah, there’s some good stuff from when it’s an attorney. So, hey, I’m a licensed attorney, I’m talking about whatever. I see those, and those are ⁓ usually good. They’re trying to sell you something, of course. I everyone assumes someone’s trying to tell you something, but are they giving you correct and accurate information? Attorneys have an obligation to tell the truth. ⁓ And so, if it is an actual attorney, ⁓on TikTok or on a video or something like that, then I think you can place more faith in that. lot of folks out there, the business structures, and I hear, you know, they’re going to do the Augusta rule, right? You hear the Augusta rule, you’re aware of that. If you rent your primary residence for less than 14 days in a year, then you don’t have to pay tax on that income. So, well, we’re going to do the Augusta rule and we’re going to have my house, my LLC is going to rent the house. So I get the deduction and blah, blah, blah. Oh, and then I’m putting my son, I’ve got a real estate construction business and I’m to put my son who’s 12 on as an employee.
so that I can do and set up a 401k or Roth IRA form. And then I’m gonna do this, I’m gonna do that, and I’m gonna register my car in Montana. And so I can get, I won’t have to pay ⁓ the registration tax on it and these sorts of things. And those people are pitching those strategies that I see are not, they’re not attorneys. They read it somewhere else, it’s iterative. ⁓ Or get your Cook Islands Trust or your Nevis LLC or in the Cayman Islands or those sorts of things. Real.
questions about the efficacy and accuracy of what it is they’re telling you. And so many of them, I think, are snake oil, right? This is going to fix all of these things. That thing, the Augusta rule and renting it to your own, your house to your own LLC or putting your kid on the payroll. There’s a lot of things, I call it the sweat on the brow test, right? If you were in an audit, how comfortable are you with having taken that position? And really, how much did it actually save you? I mean, you save a couple of grand?
You know, I don’t know, to me, ⁓ it’s too clever by half, right, some of these.
Kristen Knapp (27:44)
Yeah, well, tell people where to find you, and I know that you have a great discount code for everybody.Jonathan Feniak MBA Esq (27:49)
Yeah, LLCAttorney.com, that’s where you start. And then we do have a YouTube channel, LLC Attorney Official, I think it’s called. And then call the number on the website. And then anyone who’s ⁓ watching this or listening to this and you have a need to form a business entity, then you can use the code REALEST50, all caps on the order form. You get 50 % off of the cost of the formation.Kristen Knapp (28:15)
Amazing. Well, thank you so much. everyone check out that YouTube because you guys have a lot of great videos and a lot of good information. So thank you so much for being here, Jonathan.Jonathan Feniak MBA Esq (28:23)
Kristen, it’s absolute pleasure and ⁓ anyone needs us, we’re here. Otherwise, we’re not gonna badger you, so come to us.Kristen Knapp (28:28)
Yeah.Amazing. Well, thank you everybody for listening. Hope you learned a lot and we will see you back next time. Bye.
Jonathan Feniak MBA Esq (28:35)
Thank you.
