Asset Protection For Real Estate Investors in California

Real estate is big business all over the country, but savvy California investors must be aware of the limitations and unique concerns they face under state law. While California is a popular place for residents and investors alike due to its scenic nature and abundance of real estate opportunities. However, the state is not known for being especially pro-business. This means, you need to be aware of the information below before forming your asset protection plan. Read on to learn the importance of asset protection for your real estate investments, basics of what you will need for the most successful plan, the special circumstances of investing as a Californian, and how to get around state restrictions to grow your business at the lowest cost possible.

Why Do I Need an Asset Protection Plan?

All investors will need an asset protection plan eventually, and it's best to have one in place before you even start investing at all. The simple reason is this: without an asset protection plan, a lawsuit can absolutely ruin your life. Even if the suit is frivolous or irrational, you can still lose. You don't even have to be rich to become a target. You just have to have more than someone else. And everybody has something that is attractive to someone less successful than themselves. Unfortunately, we live in a country where 1/4 of our citizens will face a lawsuit in their lifetime. These figures are even higher for real estate investors.
As investors ourselves, we know that you work hard for your profits and properties. That is why we're so passionate about this subject. With a few simple preparations, you can be inoculated against a lawsuit that could clean you out of everything you own.

How Does Asset Protection Work?

Asset Protection works by minimizing your liability as well as the appearance of your assets' value. A good asset protection plan keeps your personal name off of your property, so that you are incredibly hard to find and nearly impossible to tie to your assets. This way, if anyone comes after you or your business, you won't look like an impressive target. Your personal assets are safe if a business asset is sued and vice versa.

In short: asset protection works by making you a pain in the butt to sue. Attorneys are money junkies. If you don't look worth their time, you're safe.

Key Asset Protection Tools for California Residents

California residents will run into unique issues as real estate investors. All investors should use an entity as the basis of their asset protection strategy. But in California, you will pay a lot more for an in-state entity. Some of the costs you will face are an $800 minimum franchise tax, higher annual fees to maintain the LLC, and unfavorable tax treatment. There are also more restrictions on how you're able to run your business. Fortunately, the following tools can help you minimize these costs, simplify your business's growth, and give you greater control over your burgeoning real estate empire. When employed together, these tools have proven time and again to be extremely effective lawsuit prevention methods as well. Let's talk about them one by one.

Series LLC from Out of State

California LLCs have high annual costs and do not offer the most effective structures for real estate investors. Fortunately, you have alternatives. You can form an LLC in a state with more favorable liability protections and overall costs. Even better, you can form a Series LLC. This entity will allow you to develop your real estate investments infinitely, streamline your business, and serve as the key structure for your asset protection plan. The three best options for Californian investors are:

No matter which of these options you decide to go with, you will have to register an agent. This person is your point-of-contact for all legal and business matters. Think of him or her as your in-state representative for business purposes. We've written more extensively about Registered Agents and how to find them, but all you need to know for now is that Royal Legal Solutions is here to assist you through this process. We can find you an affordable agent so that you can take advantage of the best Series LLC product for you. We can even serve as your agent for a Texas LLC.

If you already have an LLC, that's fine! Our experts at Royal Legal solutions can help you incorporate your LLC into a Series LLC based in another state.

Trusts and Anonymity Protections

Anonymity is absolutely essential to the success of your asset protection strategy. As you may recall, anonymity protects you by distancing your individual means from your investments and other assets. You may be wondering what tools you will need to accomplish this. Fortunately, we offer a full-service Series LLC with Anonymity Protection. We use lesser-known legal and financial tools such as:

  • Anonymous Trusts
  • Land Trusts
  • Clear and Strongly Written Contracts
  • Educational Tools for Business Finance
  • Advanced Understanding of Tax Treatment

Of these, trusts are the most effective legal structures. Anonymous trusts work by placing the ownership of your Series LLC or other business entity in a corporate name of your choosing. Employed correctly, this effectively prevents anyone from finding any record that you even own the property in question. Your name will be nowhere to be found on the public record. Even better: if the person suing you knows for a fact you own the land, they won't be able to prove it. Land trusts serve a similar function, and can be used on their own or in conjunction with Anonymous Trusts to further distance you from your property. But land trusts also have distinct tax benefits and can be held by accounts as well as entities.
So for all our Golden State readers, are you ready to form your asset protection plan? Proactivity on your part can guarantee the success of your business and security from lawsuits in the future. If you're already investing, don't wait until it's too late: consult with a qualified attorney and develop the best asset protection strategy for you today.

Last Updated: 
March 23, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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