Real Estate Basics: Asset Protection for Real Estate Investors

The basics of asset protection comes down to two parts.

One is we separate the investor's assets from the operations. All of the assets are held in one company. And this particular company doesn't interact with anybody, doesn't do anything, and has no contact with the outside world. You hold your real estate assets under anonymous names, inside of anonymous trusts and anonymous structures that nobody can even find out who owns them.

The operating company is a shell company. This company owns no real estate assets but it conducts all of the business. It's your face to the world, it's the one that we want people to sue if there's ever a dispute. In fact we want to structure our contracts that says if we have a problem you have to sue only this company. That protects us from all types of liability.

Whenever you're setting up a good asset protection strategy, remember: Keep assets on one hand, complete anonymity and separation, operations on the other.

Series LLC Record Keeping Rules

Everything should be kept on record when doing business. It is always a smart idea to have everything in writing to ensure it is all done right.

The same goes for a series LLC and a regular LLC business. Whether you have a one owner business or multiple owners in your business, you need to keep records. Here are a few different record-keeping rules to remember.

Keep Everything Separate

This means you need to keep records of each LLC within the series. A series LLC is several, individual LLCs. Each one needs to be separated and each one needs to have their own records kept. This is because each LLC in a series is distinct from the other one. The reason for a series LLC structure is to be able to manage different businesses. It keeps the management process straightforward and simple.

One thing you need to always remember about a series LLC business is to keep everything separated when record keeping. You don't want to combine them all into one. The reason is because it can leave you unprotected in the business.

Name a Registered Agent

Naming a registered agent for your series LLC is a requirement in most states. A registered agent is a physical address within the state you are located in. If this is a requirement in your state, failing to do so could leave your series LLC business without protection.

Make Sure to be Licensed to Run a Series LLC Business

Many states require business owners to have a license to run properties if they are owned by other people too or if you are managing a property management company. Not only can not being licensed to run a series LLC business put your business at risk, but you can run the risk of a lawsuit too.

Have Separate Bank Accounts

This should be something that everyone already knows since a series LLC is several, individual LLC businesses. Since you are already keeping the records separate for each cell in a series LLC, you should probably also have a separate bank account for each individual LLC in the series. By doing this, you will ensure you are being as careful as possible with everything in each LLC that is under a series.

Make sure you understand each of these series LLC record keeping rules for your series LLC. Also, make sure to abide by all of them and other rules there may be beside these main ones above.

Land Trust Mortgages: How To Borrow Money Using a Land Trust

I’ve been harping on for years about the importance of setting up a land trust for your real estate investments. Today I want to touch on one of the issues many real estate investors struggle with – how to borrow money using a land trust.

There are times when you may want to borrow money to make improvements or preserve assets held in a land trust. There may also be a need to refinance the property at some point. You need to make sure that the trust has the power to borrow money. It may not always be the case and this is normally covered in the trust deed.

Let me get right into the mechanics of it all.

What Do I Need to Get a Mortgage Loan Using a Land Trust?

The first step you’ll need to take is to have the trustee sign the mortgage or note. However, you will need to apply for the loan and sign the guarantee or the note since the trustee won’t be signing personally.

Alternatively, if you have your property in a land trust already and want to borrow money against the beneficial interest, then the lender will need to serve a Notice of Collateral Assignment on the trustee. The trustee will then write an acknowledgment of the assignment.

When this happens, the trustee is no longer able to transfer title of any property held in the trust or encumber or mortgage the property without the lender’s written consent.

Here are the five things the lender will be looking for when granting the loan:

  1. The lender will need to review the trust instrument.
  2. The lender will need to confirm the grantor and trustee identities.
  3. The lender will need to establish whether the trust grants the trustees power to borrow money and pledge or encumber trust assets.
  4. The trustees may be required to sign a trustee certificate reciting some key terms of the trust and confirming the authority of the trustees to take out a loan.
  5. The bank will need evidence that the property is actually owned by the trust. For this, you will be required to provide the deed on record for review.

If you’re seeking to obtain a loan against trust assets, you need to consult with an expert trust administration attorney. You do not want to take any action that might potentially harm the assets of the trust. 

Funding Your Series LLC

When you are ready to start your own business and place it under a Series LLC, you do need to put money into it to make it a profitable one. When funding your Series LLC, you will be better off putting the money into a bank account for your business. There is more than one way to fund a Series LLC. Here is more information on how funding your Series LLC works.

Open a Bank Account

When funding your Series LLC, the first and most important thing to do is to open a bank account for it. Your very first deposit will be to pay for your equipment you need for your business. Such equipment includes office equipment and supplies, office furniture, and whatever else you will need for your business. There are two ways you can do this. Keep reading to learn how to fund your Series LLC with your bank account.

Invest in Your Company

The first funding option for your business is to invest in it. However, if it is a Series LLC, you will not be the only person investing in the company. Although there will be more than one owner if more than one person invests in it, make sure to bring them into the company at the same time. You don't want to bring in other investors and owners at different times. Also, don't forget that investing in a business has to go under both federal and state laws. Another thing to remember is to not bring in other business owners without proper legal advice first.

Loan Yourself Money for Your Series LLC

The other way to fund your Series LLC is to loan yourself money for your business. You should do this for startup and operating expenses. You can always put the money back in after you start making a profit. Or, you can make payments back into the business to pay it back. Because the Series LLC doesn't think of this as income, you will not have to report this to the IRS for tax purposes. However, if this is the option you choose to fund your Series LLC, you will have to keep records about it. The best way to record the loan and the payment back is to write out a Promissory Note as well as a resolution statement from the other members of the LLC saying that they approve of your loan.

Another thing about using the second option to fund it is that you will have to add interest to your own loan. The reason for this is because if you don't, the IRS can do it themselves. This could mean that it will end up being taxable income for the lender, but without an offsetting expense on it.

Protect Rental Property Assets With Separate Land Trusts

One thing I tell all my clients is that they need to put their investment properties into a land trust—rental property assets included. A land trust is a very simple and inexpensive instrument for purchasing and retaining title to a property. The privacy a land trust affords you is one of the key elements of the asset protection strategy we recommend.

Protect Rental Property Investments With a Land Trust

To keep your assets away from the prying eyes of predators, you need to set up a separate land trust for each of your rental properties. Doing this keeps your properties insulated from each other such that any liens or judgments against any of the properties don’t affect all your investments. Some of the benefits of using a land trust include:

  1. Privacy
  2. Protection from liens
  3. Protection from title claims
  4. Discourage litigation

Any judgments or liens against the beneficiary of the land trust (you) cannot attach to the property. Unlike an LLC, the owners of the land trust (beneficiaries) are not publicly available. If you held the property in your own name then you’d be in for a rough ride. If someone tried to sue the trustee, then they would first need to find them.

I can assure you this is not a job that any attorney with a good head on their shoulders would be looking to take on. This is because all of our trustees are located out of state and their last names are different from those of the beneficiaries. Furthermore, the addresses listed on the deed to trustee are P.O. boxes. This scenario makes you an undesirable target to any would-be litigant. No one wants to fight a ghost.

If the litigant was hell-bent on getting one over you, they would have no option but to sue the trust through a publication in the newspaper in the county in which the property is domiciled. I can assure you that this will only add to the expense and trouble of the plaintiff. It’s a dead end.

Making An LLC The Beneficiary of the Trust

The takeaway message from all this is that you should hold all your investment property in separate land trusts. You can make an LLC the beneficiary of the trust without putting your property at risk. If the LLC (beneficiary) is sued, then a judgment against it would not affect the title to each property since the LLC doesn’t hold title to the property.

Let Us Help You Structure Your Land Trust

Asset protection is not a do-it-yourself gig. My name is Scott Smith. In addition to being an attorney, I’m a real estate investor myself. Before I began specializing in land trust rental properties, I would play for the other side.

If you’re considering a land trust, let us help you protect your valuable investments with a foolproof asset protection strategy from people who’ve been around and seen it all. Contact us at [GLOBAL VAR=phone-number] for a free consultation. We’ll help you make your investments bulletproof.

3 LLC Basics Investors Need To Know

Since the 1970’s, the traditional LLC has been the business entity of choice for smart business owners and investors. These popular LLCs are a type of “pass through” entity that make up a huge chunk of U.S. companies. Don’t waste hours going down the LLC rabbit hole. In this article, we’ll review three LLC basics you should know about, plus details on how to start an LLC today.

#1 The Traditional LLC is a Pass Through Entity

The traditional LLC is considered a pass-through entity because its profits and losses pass through the individual. This is why profits and losses are reported on the personal tax return, as opposed to a separate business filing. Although the LLC’s financials are filed within the personal tax return, the individual still enjoys protection from personal liability in the case of any negative action related to the LLC. In this sense, the traditional LLC provides owners with the same protections as they would get with a corporation.

LLC Basics - vintage lawyer

This guy is coming after your assets. Are you ready?

#2 The Traditional LLC Protects You From Lawsuits

The liability associated with real estate is no exaggeration. We’ve seen several prudent investors hit with frivolous lawsuits in connection with their property.

Let’s look past the abstract and examine a practical example of an LLC providing personal protection. Think of the case of my good friend Kelly. Like many of you, she’s a real estate investor. A tenant claims that she was injured in one of her properties. The tenant wants to hold Kelly accountable for negligence in maintaining some wood paneling which collapsed causing minor injury.

A lawsuit would do tremendous damage to Kelly’s name. However, under an LLC, Kelly as a member can’t be named in the lawsuit. Members or managers of an LLC are insulated from personal liability. Thus, Kelly can enjoy the potential profits of real estate investing without assuming the high personal liability. 

#3 The Series LLC Is A Different Beast

We see only rare cases where real estate investors hold a single asset requiring LLC protection. In most cases, investors handle multiple assets. However, it’s not cheap to form an LLC for each. You don’t want to protect one from liability, yet leave the others exposed. Yet, you don’t want to pay upwards of $800 and maintain separate administration of each.

The solution is the series LLC. We’ve already discussed the benefits of a series LLC. However, not every state recognizes this entity.

How Do You Set Up A Basic LLC? 

These are the two main documents to file when forming a traditional LLC:

  1. Articles of Organization. This is usually filed with the state’s LLC division. Today, several states provide a simplified one page form. Here you will list name, contact information and other basic information regarding the LLC. Note that the filing fee can range from $100 to $800.
  2. LLC Operating Agreement. While this is not mandatory for state registration, it’s a must for specifying member rights, responsibilities and profit shares.

Royal Legal Solutions can help you set up either a basic (traditional) LLC or series LLC based on your state requirements and liability protection needs. Call us today for a consultation. Don’t wait until you are facing a lawsuit. We specialize in creating proactive asset protection plans customized to suit your needs. 

How to Protect Yourself in a Joint Venture Deal

How to Protect Yourself in a Joint Venture Deal

Whenever you going into a joint venture deal, you'll almost always be inside an LLC where you'll be a partial owner of that company.

A lot of times you're protected because the property's going to be owned by a limited liability company (LLC). So if anybody were to sue you or your partner, they can't get to the ultimate asset.

Imagine a scenario in which you and your friend form a company together to buy a house. But your friend gets sued, and therefore there's now a charging order against the LLC. If you don't know what a charging order is, look at our other video regarding that.

Essentially, a charging order dictates that if there's any money distributed from the LLC it has to be used to pay off the creditors to the extent that your friend has an interest in the LLC.

Now your friend has to pay back those creditors before you can get any money out of your investment

This is not the case if you guys both enter into it with your personal LLCs that you used as investment vehicles. Use your own LLC to become members of the LLC used for the JV agreement. This will allow you to distribute money that you can now control without having to pay off those creditors.

 

How Real Estate Investors Lose Money

How Real Estate Investors Lose Money

Real estate investors lose money in two ways. The first is because the actually made a bad investment. The second is because somebody took it from them. And they can do that easily through a lawsuit.

Lawsuits are basically just legalized stealing. So one of the key things that we have to do to guard against Half of the way that we would lose our money in real estate investing through litigations, let's protect ourselves from that. That's what an asset protection strategy is.

How Title Insurance Works

 

How Title Insurance Works

Anytime you transfer property, you must consider the title insurance implications. Title Insurance will generally being validated upon the transfer of the property. However, title insurance isn't invalidated. If you transfer the property to a wholly owned LLC, that is an LLC that is completely owned by you, the person that also own the property, will also will invalidate it.

If you add your spouse to title for example, that'd be a transfer. But in that circumstance they're not going to invalidate. You also can transfer the property to an inter vivos trust where you are in the settler of that trust. This is the type of strategy that we'll be using with inside of our anonymity land trust and we start transferring properly.

My name is Scott Smith. I'm an asset protection attorney. I'm a real estate investor and I want to help. Click here to set up a consultation today!

Fraudulent Conveyance: How a Land Trust Protects You

A fraudulent conveyance happens when someone illegally transfers assets or property into someone else's name, such as spouse, friend or family member, or even a business partner, in an attempt to avoid creditors. If they are selling your property or other assets to someone they know for an insignificant amount of money, they are either trying to evade creditors or trying to keep the property or assets out of the reach of a creditor.

Let's look at how to make sense of fraudulent conveyance and the land trust.

Are You Going to be Sued?

If you are going to be taken to court soon, there are ways to protect yourself and your property and assets legally:

Proving You Are Not Doing a Fraudulent Conveyance

There are certain things the courts will look at when deciding whether or not you are potentially commiting the illegal act of a fraudulent conveyance:

The solution to the problem of fraudulent conveyance is to act before one of these "warning signs" happens. A land trust with an LLC as beneficiary can help you protect yourself before you are taken to court. You want to ensure everything is done legally, however, because if they can prove a fraudulent transfer was made, you will be in some major trouble, legally speaking.

What Happens When a Trustee is Directed to Sell a Trust's Property Assets?

Even experienced investors are often unaware of the ins and outs of the land trust, even if they are hip to its many benefits.

Today, we're going to talk about the sales process. What happens when you want to sell property in a land trust? Are there legal implications you should be aware of? If you're not sure how to sell property from a land trust, you're not alone. Read on to learn what you should know about the sale of trust property.

Selling Land Trust Assets

Selling an asset from a land trust is more of a process than an ordinary transaction. For starters, the trustee can't make the decision alone. Normally, the beneficiary must direct the trustee to sell the underlying asset.

Some states ensure trustees are compensated for their services. Typically, when a sale is executed, there are laws in place that state the trustee must be paid anything he or she is owed at that time. Exact figures on how much will depend heavily on your location and the terms of your trust agreement. You may also want to see our article, Can A Trustee Sell Trust Property To Himself or Herself?

What Happens to Property Sold From a Land Trust?

The actual sale of trust property kicks in some legal matters most people aren't familiar with. When you sell a land trust asset, as soon as the sale goes through, the funds remain in the trust. However, the money itself is automatically converted into a Personal Property Trust.

Personal property has a different legal function than real estate. The purpose of the Personal Property Trust is to hold any money from the real estate transaction for the beneficiary. The trust system and all of its parties remain in place, and any cash earned from the sale is still secured within the trust.

Occasionally, the trustee is able to recover funds from real estate sales under certain circumstances. This will only generally apply if the trustee is owed compensation for services rendered prior to the sale. Your trust agreement will spell out how this could happen, but ordinarily, the trustee would be able to recover however much is owed to them directly from the sale. Some states also permit trustees to get "first dibs" on any foreclosed properties.  Note that these situations are completely avoidable if you ensure your trustee is being compensated properly.

Bottom Line: Manage Your Trust Agreement Well

The critical part of ensuring smooth sales from your land trust is a well-crafted trust agreement. You might be an awesome real estate investor, but contracts are the domain of attorneys. We never recommend that any investor go DIY on contracts. Leave this matter to the professionals, and do what you're good at: running your real estate empire.

Royal Legal Solutions is one of few firms in the nation that routinely assists with land trusts. We are attorneys, but we are also investors just like you. Whether you need to establish your land trust, seek advice on managing it, or make a sale from within it, we can help.

Before you make any sales, schedule your confidential land trust consultation to ensure you're doing it by the book.

Real Estate Investors Can't Just Rely On Insurance

Real Estate Investors Can't Just Rely On Insurance

[00:08] Insurance companies are basically a criminal business. Their whole business model is built around collecting premiums from you and denying coverage whenever it is that you asked for something that they should otherwise cup, and the reality of the situation is if you have a big claim, you end up having to sue the insurance company just to get them to pay out. I don't think as an investor, that is something I want to rely on when it comes to the big ticket items. Sure, they're going to cover the $5,000 slip and fall case that happened on your front porch because it was a little icy outside, but what they're not going to cover as grandma falling to this staircase, breaking your hip and now being permanently disabled for the rest of her life. Well, what then that case where they're going to say this, you should have known about the staircase. This is a case of gross negligence that's outside of your policy limits. You can sue us and spend thousands of dollars against our millions of dollars hoping that we'll actually end up paying anything out too.

[01:15] Okay.

[01:16] What you need to protect yourself to protect your assets as a proper asset protection strategy, incorporating and not a truss and LLCs to keep people from coming after your hard earned dollars. My name is Scott Royal Smith. I'm an asset protection attorney. I'm an a real estate investor myself and I'd like to help you

[01:43] if you thought this content was good, you have to go see the bigger pockets podcast that I did. It was the top 10 things every real estate investor has to know about asset protection, and you can go listen to it right here.

How to Protect Real Estate Equity

How to Protect Real Estate Equity

If you have equity in your property, you're at risk. The reality of the situation is that equity is what people are looking for whenever they wanna sue you. There's a couple of different ways that you can protect yourself against this. One is that you could actually take out a true mortgage on the property, going through a bank and going through that entire process and physically pulling the money out. Now that has its own drawbacks, right. I mean, you have closing costs as well as you're having to pay interest on that money. Another option would be to actually disguise the equity. It doesn't actually protect you if there's a lawsuit, but it'll make it look like the property doesn't have any equity attached to it. You do that with a home equity line of credit. A third option is to establish your own mortgage company. And by establishing your own mortgage company, you can issue a mortgage basically to yourself In a way. Through the company structure, this allows you to be able to have a no-cost way of establishing mortgage, besides the recording fees, and attorney's fees in setting that up. But that's always gonna be lower than the closing cost of something you would do at the bank. And you never actually have to do much with it after that. Because it's a true mortgage that's recorded on the property, if there's a lawsuit That mortgage actually has to get paid out before a creditor could collect. My name is Scott Smith, I'm an asset protection attorney with real estate, I'm a real estate investor myself and I wanna help you.

Series LLC For Real Estate Investors

Whether you're a veteran investor, or a new investor just beginning to build your real estate empire, the series LLC for real estate investors has many features and benefits you should know about.

If you've been using a traditional LLC for asset protection and have never heard of the series version, prepare to have your investing world changed forever.

The series LLC is one of the most effective entities a real estate investor can form. When you take advantage of this structure, you'll not only be able to streamline and grow your business, but you'll also receive the benefits of lawsuit prevention and asset protection.

As both an investor and an attorney, I believe that the series LLC is the best structure for real estate investors who want asset protection while they build their real estate empire.

What is the Series LLC?

The Series LLC is very similar to a traditional LLC (see our Series LLC vs LLC article). The only difference is, instead of being one big company, the series LLC is a network of LLCs. It uses a parent-child structure. Your parent company is its own LLC, and it can have as many "children," or Series, as you have assets to place within them. Each asset will have its own LLC, complete with liability protections and many more benefits we'll discuss below. Take a look at the following diagram for an example of what this looks like in practice.

The set-up is elegant in its simplicity. The operating company, dubbed "Big Daddy" above, is in charge of the kids. Each kid is its own asset. Of course, you could have any combination of properties or property types.

Biggest Benefits of the Series LLC For Real Estate Investments

The benefits of a Series LLC are numerous. Here are the top reasons you should consider this structure.

Scalability: One Structure, Infinite Real Estate Investments Assets

With the Series LLC, incorporating new assets is easy. Suppose you spot a cute little fixer-upper property at a great price. When you buy it, all you need to do is a little bit of paperwork and have your attorney sign off on it to add it into the structure. If your Series looked like the one above, your new asset would be "Series 4."

 And you aren't restricted to just real estate, either. Any asset can go into its own series - cash, gold, cryptocurrency caches, your midlife crisis Jaguar, etc. If you can think of it, you can stick it in the Series LLC.

Tax Benefits and Cost Savings On Real Estate Investments

The Series LLC allows for pass-through taxation and its benefits. This means you'll dodge hefty corporate taxes and get to file any profits on your personal return. For most people, this is infinitely cheaper. With the help of a competent CPA, you could save thousands.

Other cost savings are relevant for Series LLC owners as well. The clearest of these is evident when you consider how much it would cost to have each asset in its own Traditional LLC. The annual fees would add up. With the Series version, you're getting an infinite amount of LLCs for the price of just one.

Asset Protection Made Simple For Real Estate

A Series LLC is the foundation of a superior asset protection plan. Real estate investors especially need this structure as a starting point. It offers the single most powerful liability protection of any entity one could possibly form. The reason for this is simple: each "Series" holding its own asset keeps it isolated from everything else you own.

How the Series LLC Prevents Real Estate Investment Lawsuits

You may think that you don't need any additional protection from lawsuits because you run an ethical business, have insurance, and try to treat your tenants and customers well. Sadly, if you believe this, you are mistaken. Did you know that one-fourth of Americans fall prey to a lawsuit at some point in their lives? This figure is even higher for real estate investors, up to one-third according to some sources. Why? Because we tend to have more assets for litigious people to want to pursue in court.

The cold truth is that lawsuits are a ruthless, cut-throat business. And like all businesses, they're after one thing: cash. That means, the more wealthy you become from your real estate ventures, the more likely someone is to try to come after your cold hard cash and any assets. Since success makes you an attractive potential payday for unscrupulous and greedy people. Insurance won't bail you out of this situation, and neither will your good reputation or even the best business practices in the world. Lawsuits don't even have to be valid or logical to cost you everything you've worked so hard for.

To avoid this fate, you will want as much protection as you can get. Fortunately, the Series LLC can have your back. In addition to being a less attractive target, the Series LLC's isolation of assets means that if you are sued, only that individual asset is on the line. When implemented properly along with other precautions, Series LLCs are the core of an asset protection plan that is powerful enough to stop lawsuits before your name is even typed out on filing papers.

How Do I Set Up My Series LLC?

Setting up the Series LLC is very simple, but it must be done correctly. Investing in an asset protection plan is one of the wisest moves you can make as an investor, but if you don't do it correctly, you won't get the full benefits of asset protection. One mistake with your anonymity or Operating Agreement, and the plan you've so cleverly devised could be rendered completely ineffective. That's why we offer a full-service product where we complete all of the steps for you, and guarantee your anonymity.

Maybe you already have an LLC for your property. This is great, but the Series version is far superior to the LLC alone. Fortunately, you can incorporate your existing LLC into a Series LLC easily. Even better: it won't cost you any more than you're already paying for your Traditional LLC.

It's never too early to establish or beef up your asset protection plan. But you can certainly wait too late, and the consequences will be dire. If you haven't set up anything yet, you are completely vulnerable. Take care of this before you consider buying any more properties. If you have property in your own name, this is even more urgent.

 

Our experts are here to advise you on what methods will work best for your individual situation. We're here to help you set up your Series LLC and everything else you need for a bulletproof asset protection plan. Keep the predators and money-hungry attorneys at bay: take action and set up your Series LLC consultation today.

Investment Property Insurance Questions You Should Ask Your Agent

Real estate investors that do well are smart folks, but it can be hard for smart people to admit they aren't experts at everything. Many of us have successful careers outside of investing. Maybe you're a CPA or a neurosurgeon, or an attorney like myself. But smart people like ourselves need to be mindful that we are also wise. Wisdom is knowing that there are things you don't know.

And what do the wise among us do when we don't know something? We ask questions! Insurance is vital, and typically a legal requirement for your investment properties. Insurance alone is not an advisable strategy for asset protection purposes. At Royal Legal Solutions we highly recommend insuring your properties as your first line of defense.

Question 1:  What Types of Policies Are Available To Me?

Typically, you'll find policies along a spectrum of Basic, Broad, Specified, and Comprehensive. The first is exactly what it sounds like: the bare minimum. Comprehensive is the opposite end of the extreme, and the most all-inclusive kind of policy you can acquire. A good starting point is to write down what you have; i.e. assets, debts, dependents, monthly income, monthly expenses, and how you make a living. This way you can formulate a plan for what coverages you will need and work from there.

Question 2: Can You Please Explain My Policy And What It Covers?

This is fairly straightforward. You may also take this opportunity to ask what other types of investment property insurance the home already has (fire, etc.) to get the best idea of your needs.

There's a second part to this question: you will also want to ask what your policy does NOT cover. Some policies cover slip-and-fall accidents, and some don't. Many investors need this coverage, especially those who flip or rehab homes. Think about it: with all the contractors,  laborers, and both prospective and future tenants coming through the property, you can't risk not having your backside covered. Asking what isn't covered will help you make the most informed decision possible.

One major concern you should know about your policy is whether it covers the loss of rent. Landlords can face this in situations as extreme as natural disasters (just ask the landlords who had to rebuild after Hurricane Sandy) or as mundane as a few teenagers armed with spray paint defacing your property. (maybe also add about short-term rentals, where damage to the property or furnishings in the property cause a loss of revenue? Assess your risks alongside your agent, but remember insurance is cheap when you think in terms of loss so investors who can afford it should take advantage.

Question 3: What Information Do You Need For An Investment Property Insurance Quote?

This may seem obvious, but the details of your situation will help the agent get you the most appropriate and accurate quote for your needs. Here are some typical things you will have to provide:

Question 4: What Is My Property's True Replacement Cost?

TRC is different from the value of your home but critical for real estate insurance purposes. It's usually measured in square footage, and a good agent will work with you to determine your need. Feel free to shop around with various agents to ensure you're getting the best, honest deal. There are over 4000 different factors that go into determining the assessed value of a property.

Final Notes: The More You Know, The Better Off You'll Be

You want an agent who is both transparent and able to answer all of these questions. You can start by researching reputable agents online. If an agent won't answer these questions, that's a giant red flag. Move on.

Still stuck? We now have an in-house insurance agent on staff to assist real estate investors. Together we can streamline coverage through the policies we offer to ensure that you are protected and that your loved ones are cared for in the event something unforeseen occurs. We offer a single point of contact for all of your policies including auto insurance, property insurance, and life insurance. To get started, take our Insurance Quiz and book your free consultation. You've got nothing to lose in requesting a quote and everything to gain if we can save you money.

Property, LLC, and Company Structure

Property, LLC, and Company Structure

As a real estate investor, you have to understand that lawsuits are a business and they're serious. Insurance will not protect you from most lawsuits that will happen regarding the transaction of your buying and selling of real estate. Every time you're entering into a contract, every time you actually sell a piece of property, every time you're leasing a property to a tenant, these are all things that insurance doesn't cover. The only thing that is going to save you and your hard earned dollars is an asset protection strategy. That is the property LLC and company structure. What I do, is I make it, so that if anybody looks to sue you, it'll look like you own nothing. That if they were to sue you, that it'll make it a nightmare for them to try to come after you. And what does a nightmare mean in litigation? It means having to risk thousands and thousands of dollars with the mere hope of being able to get something out of the other party. Now ask yourself, as an investor, and as a businessperson, do you go to Vegas rolling dice, hoping that you'll recover? Probably not, and neither will an attorney, that they might have to take the case on contingency. Unless attorneys are in the business of only taking basically guaranteed wins. And we make it such that it is a gamble for them to try to come after your money. They just won't do it and that's what we specialize in. We make it as difficult as possible at Royal Legal Solutions for anybody to find out what you own or for them to succeed against you in a lawsuit. And even if they were to succeed against you in a lawsuit, their ability to come after your assets would be minimalized to the fullest extent of the law. My name is Scott Royal Smith, I'm with Royal Legal Solutions. I'm an asset protection attorney who specializes in real estate asset protection. I'm a real estate investor myself and I'd like to help you.

What's The Right Business Structure For Multiunit Real Estate Investors?

Real estate investors love multiunit properties. These rental properties are in high demand, with renters scrambling to find duplexes, fourplexes, and of course, traditional apartment complexes in the parts of town close to work and play.

Multiunit investments are also surging in popularity in part because they are more resistant to inflation than traditional single-family homes.

While many of the same principles of business entities for real estate investors carry over to this topic, there are certainly special considerations that multi-unit investors must take into account. Below, we'll talk about the types of business structures that favor these investors, how they work, and what to keep in mind if you're considering adding a multi-unit to your real estate empire

Joint Venture Arrangements

Joint Ventures (JVs) are a popular choice for beginner investors, as well as those who prefer quick, one-and-done deals. They allow investors to pool money and equitably share risks and profits alike. Multi-unit residences and industrial properties make for a logical application of a JV agreement, as they easily divided for practical purposes.

JVs are a great option because they are clearly defined from the beginning. If your investment or partner(s) don't work out, you aren't locked in for life. But if you're successful, the JV leaves the door open for future collaboration.

Limited Partnerships

Limited Partnerships are most useful for investors operating their property with one partner. The terms of LPs are flexible, so your partner can be a fellow investor, property manager, angel investor, or anyone you see fit.

LPs are agreements that offer investors a high level of control over their terms. If you're considering this option, ensure you share your needs with a qualified attorney. Strong contracts will ensure you're getting the deal you want and will beef up your asset protection system.

The Series LLC

The Series LLC is among the strongest structures for any investor, and multi-unit real estate investors are no exception.  This structure is extremely versatile. It's easy to form a multi-member Series LLC, but it works just as well if you're investing on your own.

Common reasons multi-unit investors love the Series LLC include the following:

We hope this has given you a starting point on the best business structures for multi-unit investments. Of course, everyone's situation is unique.  Ideally, you want your structure in place before making any investment.

Interested in learning more? Check out our article, When It Comes to Taxes, Is Managing Rental Properties a Business or an Investment?

 

Should You Worry About the Due on Sale Clause?

Should You Worry About the Due on Sale Clause?

Despite what you might read on the internet, don't worry about the due-on-sale clause. The fact is is, since before 1960, we haven't seen any bank foreclose based upon a violation of the due-on-sale clause while the note's performing. The fact is is that banks are in the business of making loans and collecting mortgage payments. The due-on-sale clause would allow them to foreclose on your property by transferring the asset. But why would they do that? This could only hurt their interest. Like I've seen it a couple of times, where banks have foreclosed based upon it. But those were always in situations where the mortgage wasn't getting paid, and that was gonna get foreclosed on anyway. So in that sense, don't worry about it. Protect yourself with your proper asset protections strategy. My name is Scott Smith. I'm an asset protection real estate attorney, out of Austin, Texas, and I wanna help you.

How to Hold Real Estate Notes in a Land Trust

Chances are if you're reading this, you already know a little bit about land trusts. Maybe you've even taken the next step and secured some of your real estate investments in a land trust.

But if you're new to investing or land trusts, you may not be aware of the fact that you can actually use them to hold all sorts of things, including real estate notes. Learn more about how, and why, you may want to use this fact to your advantage below.

What Can I Hold in a Land Trust?

Most investors who are already familiar with land trusts aren't hip to their level of versatility. Most people think of land trusts as a place to stash a property and title. In fact, almost anything connected to your properly at all can be secured in a land trust.

We'll talk more about real estate notes below, but some other things your land trust can hold include deeds, financial agreements, accounts for regular upkeep services related to the property, and more.

The practical applications here are broad. Let's say you learn your new investment home is sitting on top of a natural gas deposit. Cha-ching: that's great news! The even better news is once you hammer out a contract to capitalize on your new-found resource, the rights to the natural gas (or oil, etc.) can also be protected by your land trust.

What Are Real Estate Notes?

Just like you don't want to hold property in your legal name, you don't want notes tied to your identity. This is a rule of thumb for any asset. There are several reasons for this, and most of them have to do with asset and liability protection or staying out of civil court. But there are also considerations specific to note holders.

Notes can be a risky business for everyone involved. If you're just now learning about notes, they essentially function like loans. While notes and other types of loans can be very lucrative, there is always a definite risk that the recipient will default, or otherwise fail to pay up. Traditional lenders will find this costly and annoying, but note holders have an additional problem on their hands when things go south: foreclosure.

That's right: if you are holding in a note and your arrangement goes sideways, you're left holding the bag in the event of a foreclosure. And even if you're one of the wealthiest and most successful investors out there, you don't want a foreclosure dirtying up your record.

Why Should I Hold a Real Estate Note in a Land Trust?

The good news is, you can completely sidestep this problem by holding your notes in a land trust. If you do a lot of this type of business, a default is nearly inevitable at some point. But the use of a land trust will protect you and your good name from the consequences. It's only fair, considering you're not the one who failed to keep your end of the deal.

This strategy works because the land trust keeps you as an individual separate from any properties, notes, or other related assets. Your trustee's name will appear instead of your own on the documents. But you are the one that will be spared the bruises to your budget and reputation.

The mechanics of moving your notes into the land trust are the same as they would be for any other asset. Our experts at Royal Legal Solutions can help you. If you're in this business, or planning to incorporate notes into your investments, make the smart move. Schedule your consultation before issuing anything.

Understanding How Important Rental Property Liability Protection Is for Modern Investors

Are you a landlord? Do you run your business in a haphazard and lax manner with no regard to how your tenants and other potential litigants perceive you? Are you totally clueless about how to reduce risks and limit personal liability? Then you’re what we refer to in legal circles as a high-profile target. You’re basically walking around with a “SUE ME!” neon sign on your forehead.  To understand the importance of taking a proactive approach towards rental property liability protection, you need to be aware of some of the flimsy and not-so-flimsy reasons that can result in substantial damage awards.

7 Ways You Can Lose Your Shirt Without Rental Property Liability Protection

Disagreements

The number one reason for lawsuits is disagreements as demonstrated by one of our clients. You can do very little to prevent them from happening, even on your best behavior. If you don’t have an asset protection strategy in place, then you might as well hand over the keys to your castle to a complete stranger. We recommend setting up a Series LLC and shell companies to hide your assets from litigants.

Injury on the Premises

You will be held personally responsible for injuries to tenants and guests that occur on your property. If the litigant can prove that the injury was caused by negligent behavior on your part, then you might be in for it.

Dangerous Conditions

Sometimes, it’s not even necessary for the litigant to prove negligence. If they can show that you know, or should have known, about a dangerous condition on your property and you failed to remedy it or give adequate warning, then you will have to pay up.

Vehicle Liability

Any vehicle used by your business including those of employees and agents can result in a claim that can expose your business to a liability. It may have nothing to do with your tenants but you may have little recourse if you have not adopted smart liability protection strategies.

Dogs and Critters

Pets and other animals can also expose you to liability. This is the reason why most landlords prohibit dogs on their property. While you won’t necessarily assume liability for your tenant’s dog, all that the litigant needs to prove is that you “knew” or “should have known” the dog was dangerous or that you exercised some control over it. As you can imagine, it wouldn’t take much doing to prove this.

Security Issues

It’s not your responsibility to protect tenants from criminal acts. However, the law has evolved to a point where it’s possible in some circumstances to take responsibility for the tenant’s security. You’re expected to keep the common areas such as stairways, hallways, and elevators safe from criminals.

Bad Tenant Behavior

You may assume liability for the bad behavior of a tenant. If you are aware of any obnoxious, unlawful or other bad behavior by tenants, you should take the necessary steps to protect the other affected tenants. Failure to do this could result in a lawsuit.

There are plenty of lawsuits based on liability claims that can arise from other sources such as invasion of privacy, libel, slander, and discrimination based on religious beliefs, race, or even evictions.  This is why you need to establish an LLC as the first step towards protecting your investment from liability claims. We can help you come up with an asset protection strategy that will hide your personal assets and make you an undesirable target. 

 

How Should I Separate My Personal Property From My Real Estate Investments?

Separating your personal property from your investments is absolutely critical for real estate investors. Ensuring that you do this correctly is important for both saving and making as much money as possible. Also, doing so will ensure your assets are protected.

Fortunately, the law is on your side. Even ice-cold Uncle Sam respects the needs of homeowners. Your home gets certain protections that your investments do not. We will show you below how to take advantage of these protections, establish clear boundaries between your investments, and defend all of your properties with simple legal tools.

Keep Your Home in Your Name

The law distinguishes between your home and your investment properties for a reason.  It may not surprise you that this reason comes down to taxes.

Some investors get so fired up about the LLC or Series LLC structure that they want to protect their home by sticking it in a corporate structure, just as they do with their investments. This is a bad call for two reasons:

  1. You will save far more money keeping it in your own name and taking advantage of the tax benefits, like the homestead exemptions discussed below.
  2. Having your personal home in your SLLC or other structure will "comingle" your personal property with the company.  This is a legal no-no that completely destroys your anonymity and undermines the asset protection properties of the Series LLC.

Know and Exploit Homestead Exemptions

All Americans receive homestead exemptions on the federal level, and 48 of the 50 states offer them at the state level as well. These exemptions are amounts you can claim on your taxes to save you costs related to your home. How much you will save will depend heavily on where you live, but this is fairly easy to research. Of course, our professionals at Royal Legal Solutions are well-versed in this information and are also happy to walk you through it.

However, if you try to use the business strategies for your home, you will almost certainly end up losing access to these exemptions.
 

Use the Series LLC Structure for Your Real Estate Investments

Of course, you could use other business entities as well. A Traditional LLC is just fine for a single property. But if you're even considering growing your investment portfolio over time, level up to the Series LLC. We tend to recommend the Series LLC for real estate investors, primarily because it comes with all the perks and protections of a Traditional LLC, and many, many more. We're so passionate about this tool because it costs the same as an LLC (sometimes less, depending on your state), but offers asset protection, liability, and taxation benefits.

And it gets better: the Series LLC costs exactly the same as the Traditional LLC, but has a host  of additional benefits. The biggest perk for investors is that you have the ability to grow your real estate business infinitely, and create as many Series as you like--and you won't pay a penny more than you would for a Traditional LLC. Essentially, you're getting an infinite amount of LLCs for the price of one. Not all LLCs are equal:  the best states to form your Series LLC in are Texas, Delaware, and Nevada.

Ensure You Are Banking Properly

Use personal accounts for matters related to your home. As discussed above, you want your home in your name. So you want to treat any expenses related to your homestead as personal expenses. The best way to ensure the lines don't blur between your own house and your investment properties/corporation is to keep absolutely separate accounts for both.

If you're making a real estate transaction, or an expense related to your rental property, you will want to use a business checking account. The owner of the account isn't you--it's your corporate structure. This will ensure you have the legal standing to prove they are separate entities, should you ever find yourself in court.

Don't worry, you can still pay yourself for your rental properties. Just make sure you're doing it correctly. Check out our play-by-play on how to pay yourself from your LLC structure for more details.


Bottom Line: Separate Business and Pleasure

The old axiom is true. Think of your home as your pleasure palace, and your investments as your business.

We're here to help you set up your Series LLC and everything else you need for a bulletproof asset protection plan. Keep those money-hungry attorneys at bay: take action and set up your $150 consultation today.

Title Holding Trust (AKA Land Trust), Explained

Land trust or title holding trusts are used for anonymity, but they don't actually provide protection from a lawsuit.

An LLC is required to provide that protection.

A trust is made of three parts. You have a grantor of the trust, a trustee, and a beneficiary. A trustee is used to actually control the property of the trust and manage the trust itself. The beneficiary is the person entitled to all the benefits of the trust, all the money flowing from the trust.

Now in some circumstances you'll be required to be able to disclose who the trustee of a trust is. In these cases, you can use a nominee trustee. This is a person listed on the trust document who has defined powers. These powers might include filing a tax return on behalf of the trust with the comptroller or the tax agency for the state or perhaps just for filing purposes of the deed.

The nominee trustee can be limited to have no other powers inside of the trust besides those specified.

Anybody that's looking to actually alienate a property, sell it or dispose of the trust asset will want to look at the trust agreement before they know that they're going to buy an asset from your trust. In that agreement they'll see that the nominee trustee doesn't have those powers.

So you don't have to worry about somebody running away with your property and the person that will have those powers will be laid out in that document. And that person can be you.

 

Advantages of Using an LLC to Buy Investment Property

With 2,654 new renters entering the market every day, it’s easy to see why owning investment property is a lucrative and exciting venture.

However, in an increasingly litigious society, your rental property can create liabilities. This is why protecting your assets through an investment property LLC (limited liability corporation) is a smart approach.

Let's go through the biggest advantages of using an LLC to buy investment property:

Protection of Personal Assets

You’ll get sued by tenants and predatory litigants for the flimsiest reasons. Sure, if a tenant trips on a wobbly staircase, they can sue you for damages. But some injuries aren't your fault. That doesn't mean a disagreement won't land you in court.  

Forming an LLC enables you to protect your personal assets since your liability is limited to the amount of equity you hold in the entity. Any amount beyond these parameters is the responsibility of the LLC. This means your personal assets won’t be affected.  We recommend that you consult an asset protection expert for sound advice on the type of structure to use for your particular situation. 

Separation of Properties

Using an LLC not only allows you to separate your property from your personal assets but also your rental properties from each other. Setting up a separate LLC for each property insulates it from liability claims. This means that if someone filed a lawsuit on one property, then the rest of your properties would not be affected by the claim.

If you have multiple pieces of property, go for a series LLC instead of a traditional LLC. A series LLC includes an umbrella LLC that oversees other LLCs that are separate legal entities for liability purposes. Some of the benefits of setting up a series LLC over an LLC include:

Tax Advantages

Establishing an LLC allows you to take advantage of “pass-through” taxation whereby all income passes through to you as the business owner. This way, you get to report the LLC's losses or profits on individual tax returns, which attract a lower rate. This reduces the amount of money taken out of your income for taxes.

Easier Ownership Transfer

Want to transfer your property through gifting or inheritance at some point? Then an LLC is the way to go. You won’t need to execute a new deed to transfer ownership shares in the LLC, and you’ll have less paperwork and lower fees.  

It is recommended that you set up the LLC sooner rather than later to avoid the hustle of trying to convince your lender to approve the transfer after you’ve made the purchase.

Whether you have one or several properties, you will definitely benefit from creating an LLC and structuring your business the right way.