Benefits Of LLC For Rental Property Ownership

As a rental property owner, you are accustomed to solving many different kinds of problems. Ensuring you are protected in case something goes wrong is one of the problems. So we're going to talk about the benefits of having a limited liability company (LLC) for rental property investing.

This is where many owners will say, “I have asset protection insurance, so I am protected if something bad happens” It is true that insurance covers accidents, but you'll start to understand the benefits of using an LLC  for rental property ownership if you watch this video:

Why an LLC Can Protect Assets Better Than Insurance

Insurance will not protect you from most lawsuits regarding the buying and selling of real estate. Every time that you're entering into a contract, selling a piece of property, or leasing property to a new tenant, insurance doesn't give you the asset protection strategy you need.

This happened to one of my clients after the sale of a property: After the sale took place the buyer emailed asking if my client had replaced the plumbing under the house. My client simply replied via email that he had replaced, “all of it.” In the context that would be understood as all the plumbing under the house. However, the buyer misinterpreted that email as referring to all the plumbing in the house.

These types of miscommunications happen all the time. Especially now that texting is more and more common between renters and their landlords! This is only one example of an issue that insurance may not cover. This is where the LLC comes in to save you.

Benefits of Owning an LLC For Rental Property

Real estate LLCs are powerful entities that separate the liability of your asset from your personal name. When there is a lawsuit against your rental property, it cannot impact your personal assets. It also means that if you are personally sued, your LLC assets will be protected. In addition, when a lawsuit occurs against the LLC, it will not impact your personal credit score.

Operating an LLC is quite simple, but must be done properly in order to reap its benefits. Forming an LLC is quite straightforward, but needs to be done correctly the first time. To create an LLC you need to select a name for the LLC that the state approves. After that, you choose a registered agent. You will need to file the Certificate of Formation and create an Operating Agreement. Finally, the state will assign you an Employer Identification Number (EIN.)

One LLC is Great! How About More?

An LLC is a great entity, but your rental property still holds a lot of liability. No investor likes having the possibility of losing an entire property to a lawsuit. Because of this, many will create additional layers of defense. The first of these layers is a secondary LLC. This LLC carries out the operations of the company. People refer to this LLC as a “shell company.”

The operations LLC doesn’t own any property. It simply functions similarly to a property management company for your “asset holding LLC.” That means it collects rent, pays contractors, and carries out the operations of that property. This tag-team duo is called a two-company structure. The operating LLC holds most of the liability and is most likely to be sued. However, you only risk the money in THAT LLC. The asset-holding LLC is not involved, and thus the rental property is still legally separated.

Have more than one rental property? You can scale your asset holding LLC up to a Series LLC. This entity scales infinitely with your portfolio. In this case, you can still be using the operating LLC to carry out the activities for all these different rentals without risking any of your properties directly.

Protect Your Investments From Claims

An insurance claim usually results from a "slip and fall" on a property or something else you would normally characterize as an accident. Typically this is what your insurance is willing to cover. But your insurance doesn't cover you for any intentional acts that might occur.

What's considered an intentional act? Well, that depends on what you consider to be intentional. And that's where the law comes in!

In the example above, my client was hit with a lawsuit alleging intentional fraud, an incident that insurance doesn't cover. Yet even after this simple misunderstanding, my client walked away from that lawsuit without paying a dime. This was all because she had a proper asset protection strategy in place.

Benefits of Forming an LLC (And A Few Risks)

By reading this article you are either a real estate investor or an aspiring real estate investor. You have surely talked with people discussing LLCs (Limited Liability Companies.) One of the struggles investors run into is finding reliable information that they can trust. Learning about the benefits of forming an LLC is no different.

Today I will tackle how to start an LLC. I will also list the risks involved in operating an LLC. After all, knowing the weaknesses of an entity can allow you to build a stronger strategy. This allows you to sleep well at night knowing all your bases are covered.

Benefits of an LLC

There are many benefits to using a LLC as the foundation of your real estate business. The most important benefit is that this entity limits liability and minimizes personal exposure in the event of a lawsuit. When a LLC owns a property it will be responsible for the property in court, not you. If the lawsuit it lost, the losses are limited to what is in the LLC.

Avoids the issue of “double taxation.” The LLC gives you the ability to file the property as a pass-through entity. You list any profits, or losses, on your personal tax return. But LLCs are flexible! They can be taxed differently depending on your needs. See our article on the tax benefits of the LLC for more.

The LLC can be formed and operated in all 50 states and is uniformly upheld across the United states. You can choose to form a LLC in your local state or in a any other state, depending on your needs.

A LLC can also function as a “operating company.” Sometimes also referred to as a “shell company.” Using a LLC in this way allows investors to limit their exposure even further! Utilizing a LLC as an operating company means that it holds the liability for your business operations. The difference is that you don’t place any assets in it. When it gets involved in a lawsuit you aren’t risking your properties, just your LLC. This article and video explains what this structure will look like.


Risks of an LLC

There is no “perfect” business entity, and the LLC is no exception to this rule. The important thing is to understand its strengths AND weaknesses to ensure your asset protection strategy is effective.

Most LLCs will have an annual fee and corporate management requirements. This will vary from state-to-state, so be sure to know what your state requires.

You need to form and operate the LLC to ensure it provides the liability protection you want. If you don’t form and operate the LLC properly, you are investing into an entity that does not protect you! This type of work needs to be done right the first time. You can also pay someone experienced who will file the entity and teach them you how to operate it right from the start.

The LLC will require separate banking, records and tax returns. This is to ensure that you are able to prove it operates separately from you. This also means more work for you. Once you get the hang of these entities it is very simple, but the learning curse can be rough.

All properties owned by a LLC are held in a “pool,” and are not protected from each other. This is why we recommend that investors with more than a single investment property use the series LLC instead.

Why Using A LLC For Asset Protection Benefits You

If you are a real estate investor chances are that you have already heard about using a LLC (Limited Liability Company) for asset protection. Creating a LLC takes some time and money. Because of this it turns a lot of investors away from the entity. Allow me to make a case for the benefits this entity offers you. After all, as a good investor you need to justify every cost! Otherwise you wouldn’t have wealth and assets to protect.

An investor who does not use some kind of entity to own their property is risking everything to a single lawsuit. Even worse, if that investor has entered into partnerships with other investors they likely used a general partnership (a handshake.) From an attorney’s point-of-view this ownership structure is ideal because it exposes the investor. This meas a judgement against the investor could take everything owned in your name.


Benefits of Investing with a LLC

By forming and operating a LLC properly will allow the liability of anything you place in the LLC is separated from your personal name. If a lawsuit does occur, the judgement is  limited to the assets within the LLC. Not only does this mean you are risking less in a worst-case-scenario, but it also means you are less likely to face that scenario. Why? People will have less incentive to sue you, since you are limiting the potential earnings they could take.

Take a scenario where someone initiates a lawsuit and you lose, but you hold that property in a LLC. The lawsuit would only impact the assets within the LLC. While you could lose that single property to a lawsuit, it is a much better option than losing the property AND your personal assets. The cost of forming a LLC protects your house and other assets from landing in a future settlement or judgement. And this protection scales for investors with large portfolios utilizing entities such as the Series LLC.


Operating a LLC for Asset Protection

Setting up a LLC can take anywhere between a few weeks to a couple months, depending on whether the state approves the name you select for your LLC. Once the LLC is formed you will receive an EIN and can set up a bank account. This allows you to operate the LLC separate from your personal finances. You will balance all collections and expenses through the LLC bank account, proving it can operate on its own. When tax season comes around most people simply have the LLC function file as a pass-through entity.

How to Protect Yourself as a Real Estate Money Partner

One of the more elegant features of the real estate world is the way the whole ecosystem encourages symbiosis. Investors often are stronger together, especially in the face of an obstacle. For most investors, start-up capital or even cash flow to expand will become issues at some point in an REI career. Money partnership is one creative way REIs are helping each other by offering complementary skills to one another and combining forces on an investment. This is a clever way to square a capital issue or get help finding deals, depending on your role. Everybody wins when these arrangements work out. Here are some of the things you need to know to make sure yours does.

Money Partners and Credit Partnerships Explained

The money partner is the term for the person in this arrangement who has capital to spare. As for the person that has time or scouting skills or other resources, they are sometimes called the entrepreneurial partner. Other terms for these types of arrangements include credit partnership and partner funding.

Many of our investor clients are at the stage in their careers where they’re richer in capital than time. But don’t get discouraged, most beginners start out rich in resources other than cash. It may be your willingness to spend time researching, number-crunching, your day job skill set, or even your charm or tenacity--but there is certainly something about you that makes you valuable to another investor even if you’re cash-poor. Eventually, as your career progresses, your time will become “expensive” enough that you may assume the other role. Many REIs transition into mentorship.

How to Protect Yourself as a Money Partner

If you’re the “bank” in any kind of deal, you’ve got to look out for yourself. Money partnerships aren’t any different. You’re taking a risk, so of course you want to take the steps you can to mitigate that risk. Here are some of the most important tools you can use to keep yourself protected.

Option #1: Create Clear, Thorough Contracts

If you’ve got concerns about what your new partner may do if they’re not responsible in their duties. But that’s why the smart folks in our early legal system (and its predecessors) gave us contracts: to get everyone’s roles, responsibilities, and rewards in ink. Simply using basic contracts to solidify your verbal agreements can prevent nasty disputes, and even lawsuits, down the road.

If you have specific concerns, address them in the contract. Ask your attorney what some wise provisions would be given the specific fears or worst case scenarios you’re aiming to prevent. Odds are good you can rule out a lot of shenanigans by simply taking the time to create an effective contract. Anyone who wants to make money with you should be willing to sign a contract with fair, reasonable, comprehensible terms.

Option #2: Use Entities To Limit Your Personal Liability

Where a contract can’t always help you out is in the realm of lawsuits. Unfortunately, partners sometimes get bad blood. Deals sometimes don’t go as planned. Of course, most people get angry and play the blame game. Some people’s preferred venue for the blame game just happens to be the courtroom.

Don’t become a victim to your partner revealing themselves to be bitter or litigious. Protect yourself by creating an LLC and operating it in a manner to a venture-specific LLC. Use your Operating Agreement to clarify your relationship to as fine a degree as you like, and even divvy up profits and losses as you agree is fair. The great thing is you can have equal power if you like, or a money partner may want a greater share of profits. These are all the details you can get on paper when you file your LLC, but filing your LLC serves a second purpose: asset protection.

The LLC limits liability around real estate investments. Moreover, a Traditional or Series LLC separates you from the asset and its problems. You’re separate and no longer “own” it, but control it. What’s great about not owning something is it’s impossible to lose it in court. But of course, you retain legal control. Clever business structures can have many benefits on top of helping you CYA in a money partnership.

5 Strategies For Protecting The Equity in Your Personal Residence

Equity stripping is something of a varsity-level real estate move, but it’s also an asset protection classic for a reason. The whole idea is to make your property look extremely undesirable on paper, even if it’s a beautiful and pricey asset to behold. Today, we’ll be talking specifically about five ways to protect the equity in your homestead or personal residence, and you’ll be icing greedy litigants and creditors in no time when you follow our tips.

1. Know Thy Homestead Exemptions (And Use Them!)

Ah, the homestead exemption, arguably one of the best “gimmes” a homeowner can get on the equity stripping front. Understand first that American law provides greater protections for our personal homes than any investment. 

Now, the exact value of your personal homestead exemption depends on a variety of factors, including where you live. Each state’s formula for calculating homestead exemptions is different, so your mileage may vary. But everywhere that has a homestead exemption option is giving its homeowners a gift of sorts. For instance, one of this tool’s main uses includes capping creditors’ abilities to tap into your home’s equity to satisfy a debt. If your state offers an exemption, you should most likely take it (unless professionally advised otherwise).

If you do some research and learn your state doesn’t offer such an exemption, don’t fret. That’s what our next four tips are for, and you can make up the difference by using some of the other tools explained here such as home equity loans and lines of credit. 

2. Obtain a Friendly Loan

Friendly loans may come from actual friends or even institutions where you have a good reputation or rapport. Any loan with good terms or lien constructed deliberately for equity stripping likely meets the investing definition of “friendly” lending. There’s nothing inherently unfair, wrong, or illegal about receiving a favorable loan or gift from a person or business. 

Of course, finding and securing friendly loans can be tough, particularly for newer investors or homeowners. Those who follow our next tip won’t have this issue.

3. Create Your Own Mortgage Company 

Even seasoned REIs rarely know you can legally do this. Creating your own mortgage company for equity stripping is surprisingly easy, and incredibly effective. You use your own Traditional LLC to issue yourself notes. You can proceed to use it for your homestead or your investment assets, assuming your coloring within the lines of the law.

Learn more from our explainer on how to form your mortgage company and start your equity stripping strategy. This basic premise can be used to completely encumber a property, making it repulsive to the career litigant and (often more importantly) their attorney. After all, the lawyer who sees equity stripping knows they won’t be getting paid. Not until the mortgage is paid off, anyway. And given you’re the one setting up the terms, you can make this part easy.

4. Use a Home Equity Loan or Home Equity Line of Credit (HELOC)

Both home equity loans and home equity lines of credit (HELOC) offer handy tools for the homeowner in need of equity stripping. The loan version is limited to the amount of equity presently in your home. Those who take out home equity loans receive the equity value in a single lump cash sum, a “riskier” move for the lender than a line-of-credit. 

By contrast, HELOCs are easier for most people to qualify for, and for many homeowners, easier to manage. When you have a HELOC, you only touch the money when you need it or for a planned reason. Both of these home equity-reliant options encumber your home further, serving your creditor and asset protection goals.

5. Second Mortgages May Be Options for Seniors

Qualifying seniors who own their homes outright may use second mortgages as both a way to get some much-needed cash on a fixed or dwindling income and for protecting their homes. Second mortgages may be difficult to qualify for, will be limited to seniors with high equity in the home, and can certainly have drawbacks, so learn the specifics about second-mortgages before considering using this type of encumbrance for equity stripping.

The Importance of Anonymity for Your LLC

The Limited Liability Company (LLC) has more than fairly earned its reputation as an excellent foundation for asset protection. But even the trusty LLC isn’t the be-all and end-all of your asset protection strategy. LLC anonymity is another piece of the puzzle.

True, LLCs and Series LLCs make wonderful entities for protecting your real estate investments and other high-dollar assets, but did you know these entities can actually become even stronger? The secret component that can strengthen any investor’s asset protection plan is actually critical for preventing lawsuits and even keeps identity thieves at bay. If you haven’t yet guessed, that secret ingredient is anonymity. And there’s more than one way to achieve a truly anonymous LLC.

Let's look at a few of them now.

Don’t Assume Your LLC Is Already Anonymous 

Unless you made a conscious choice to buy an anonymous LLC, odds are good that your traditional LLC  has membership recorded somewhere on the public record. If that’s the case, don’t panic! You can still take proactive action to increase your anonymity.

But of course, the best thing any investor can do is not compromise anonymity in the first place.

In most states, members of LLCs must be recorded by the Secretary of State. Those sites are a quick web search away, so anyone who can type can find an LLC’s owners. For this reason, most LLCs aren’t truly anonymous. If you record your real name, you can be directly tied to your LLC, which means it’s not really protecting you.

Although there’s a surprising amount of consistency between traditional LLCs, each state’s asset protection laws are unique. Most investors don’t even take an up-close look at the state statutes for LLCs/series LLCs until they’re planning to buy an entity for themselves. If you’ve already established yours, you should know if you took anonymity steps.

If your attorney took these extra steps, to make sure your LLC was anonymous, your attorney likely would have mentioned it at the time of formation.

If you have specific questions about how protecting your anonymity preserves your hard work, speak with a qualified real estate attorney as well as an advisor who is familiar with your investment market(s). Let’s shift gears and dive into the decision-making process you’ll use to select the entity for your real estate investing business.

Options for Forming Anonymous LLCs

We’ve chosen two of the easiest methods any investor can use to form an anonymous LLC. Let’s break down two of the most common options for real estate investors who need anonymous LLCs.

Method #1: Use Land Trusts Alongside Your LLC Structure

The Anonymous Land Trust is commonly referred to as a title-holding trust, because that’s exactly what it does. These revocable trusts can be used in conjunction with LLCs in several ways.

First, a land trust may be the owner of an LLC. So even if you must record your LLC’s ownership for the public record, you can still remain personally anonymous. The harder you are to tie to your LLC, the better protected you are. Anyone who goes digging won’t see your name on the public record, or that of your other members if it’s a multi-member LLC. They’ll see the name of your anonymous land trust.

If you want total anonymity, you can even pre-select an individual to sign in your place on business documents. Regardless, you can enjoy the other benefits of the land trust, which include the ability to easily assign interest to new partners. Anyone in your LLC or even a joint venture-owned property in a trust can be made a beneficiary of the trust. One of the many lesser-known perks of the anonymous land trust is it makes adding investors and dividing property simple.

Method #2: Purchase an Anonymous LLC From a Service Offering One

Not all real estate attorneys or even asset protection professionals offer a pre-fabricated anonymous LLC, but those who do generally can substantiate what they’ve done to make their LLC truly anonymous. If their webpage doesn’t offer an explanation on the anonymity benefits of such an offering, you can even dial up the firm and ask questions. 

Keep in mind that people in all sorts of positions pick up law firm phones, so you might get a great receptionist who takes a detailed note and gets you a callback, a busier staffer who simply takes your number, or you could luck out and get to talk to an attorney briefly about your question. Most firms have staffers who can help explain their products, so don’t assume only the attorney whose name you see on the sign is the only person who can help with your question. A reputable law firm will generally have many qualified people around to help you understand their services.

Knowing how to select a good law-firm option often comes down to asking the right questions. Some key things to look for if you’re not sure about an Anonymous LLC offering include these details:

If you’re willing and able to ask these questions, you can shop around and find the right offering for you. Don’t be afraid to look beyond your home state, either, particularly if you live in one that only offers the Traditional LLC. You may be able to solve two or more problems, like creating an out-of-state entity for real estate and managing multiple properties, with the Series LLC—an entity available in under 20 states.

Even if yours isn’t on the list of states currently offering Series LLCs, the good news is that REIs can select any state as “home base” for business. This is true no matter what kind of company you form. Learn more about the best states for forming LLCs or Series LLCs if you are considering making this type of move. You may also be interested in our article, Anonymity & The LLC: States Where Business Owners Love The Laws.

Bottom Line: Preserve Your Anonymity to Decrease Your Odds of Lawsuits

Let’s not lose sight of why anonymity is so important. An ideal asset protection plan must contain anonymity because personal anonymity is the easiest way to maintain legal distance from the liabilities associated with your real estate assets. Whether you achieve anonymity through vigilance about online conduct and information security, via anonymous land trusts, or by forming an anonymous LLC with an attorney’s help, you’ll find the peace of mind you get when you live free of worry is well worth the effort of creating your protections.

The Real Threats to Your Self-Directed IRA & How to Defend Against Them

One of the many reasons real estate investors love the self-directed IRA (SDIRA)  is the control they have over both their assets and participation with traditional custodians. But many investors are also aware of the SDIRA’s relative security as an asset protection tool. If you weren’t aware of this benefit before, you are now. 

Don’t make the same mistakes other investors make. Watch out for threats to your SDIRA’s security. If you establish an SDIRA, it’s smart to do what you can to protect it; read on to learn how.

How Safe Is Your Self-Directed IRA?

When pros like attorneys discuss self-directed IRAs being “safer” than other investment vehicles, they’re referring to safety in two senses of the word. Your SDIRA isn’t “safe” from any type of attack, but it does protect you legally:

So, this article isn’t intended to suggest IRAs are inherently risky, just to remind you how not undermine its protections. The sticky reality is that for real estate investors, self-directed IRAs can be riskier when they own assets (including REI property) that have liabilities attached.

Your Biggest Threat: Prohibited Transactions Explained

The biggest way you can be a danger to yourself and your self-directed IRA is by performing prohibited transactions. The prohibited transaction rules are a gift from our buddies at the Department of Labor. Basically, there are things you can’t do in a business context with your SDIRA:

  1. Self-dealing is the term for doing business with yourself via your self-directed IRA or other qualified retirement plan (QRP). You can’t do this, frankly, because of too many opportunities for corruption.
  2. Disqualified People.The DOL isn’t dumb. They disqualify certain individuals, namely relatives, spouses, and other types of people you might form “sweetheart deals” with like business partners. So to keep everyone playing fair, plan participants can’t allow their plan to make transactions with anyone the DOL labels a “disqualified person.” Expect to pay hefty penalties if you do.

For your convenience, we’ve compiled an educational resource about avoiding prohibited transactions, complete with examples. Our prohibited transaction resources can help you educate yourself to the point you avoid engaging in such transactions with your self-directed IRA. The only downside to the SDIRA’s freedom from custodians is such freedom means you are responsible for dodging prohibited transactions.

How to Protect Your Self-Directed IRA

You have additional options for protecting your IRAs. For those of us concerned about our real estate assets, the liability-limiting powers of the SDIRA LLC offer an elegant fix.

Consider a Self-Directed IRA LLC for Liability Protection

The ideal legal tool for a long-term SDIRA owning REI is the SDIRA LLC. This variation of the retirement plan is hybridized into an entity, a more secure option for investors.

The SDIRA LLC is an alternative to the IRA Business trust, another option for IRA-owned entities. Real estate investors are attracted to the LLC option because of its strong liability protections. Using an SDIRA LLC gets investors the flexibility to buy real estate with IRA funds and the protection of an LLC, or the best of both worlds.

Equity Sharing for Real Estate Investors: Methods for Acquiring & Protecting Your Shared Asset

Equity sharing is an increasingly popular way for investors to reap the rewards of investing even if they’re strapped for time or cash. Such arrangements can allow cash-poor or newer investors with time for pavement-pounding/vetting/reading to team up with time-strapped investors who like funding smart deals.

Equity sharing may benefit any investor. Those trying to break into REI, take heart that finding excellent deals is an incredibly valuable skill. A deal-finder will always find deal-funders.

To learn more about equity sharing arrangements, reasons real estate investors consider them, how common arrangements work, and protecting your assets when sharing equity, read on. If you want to learn a lot about equity sharing very quickly, you’re in exactly the right spot. 

What is Equity Sharing for Real Estate Investors?

Equity sharing may refer to any situation where one investor pairs with others to afford, finance, and purchase an asset. The investors split all profits or losses at the ratio the agree to (which need not be “fair” or even provided all agree).

Everyone involved in sharing equity has interest in the property. Family members sometimes use equity sharing to help transition mortgaged homes to the next generation, but our discussion is confined to REI today. In these cases, the interest is a business one. Equity sharing may be used to:

Equity sharing looks as different as the investors involved, but we’ll show you examples of your best options for asset protection of equity-shared properties. First, let’s look closely at why REIs get into equity sharing

Reasons Real Estate Investors Consider Equity Sharing Arrangements

We alluded above to one huge reason these arrangements work between investors: different investors bring different skills/abilities, pool them, then agree to share any profits or losses from the asset they have in common. While an investing newbie and more experienced partner are a common combo, the powers of any investors can be “pooled” in a complementary way. Some people mistakenly believe this is the job of a legal partnership, but with equity sharing, you don’t have to just have one “partner.” 

You’re also not confined to a single method. There are many ways to legally protect yourself while sharing the equity of a property with one or more people. We’ll get into some specifics, but for now, just understand that equity sharing does not preclude you from using land trusts, LLCs, or any other asset protection tools. While your arrangement may impact how to most effectively use asset protection or legal tools to protect the equity-shared asset, it doesn’t affect the options in your legal toolbox. 

What Options Exist for REIs Interested in Sharing Equity?

We promised there’s more than one way to share equity, and here’s where we deliver. These are our top three choices for protecting assets in equity-sharing arrangements. 

Option 1: Go the Joint Venture Route 

Using a Joint Venture for a new partnership isn’t just a smart move. JVs are also a great way to test-drive your new business relationship. See how you and your partner(s) handle challenges of the first asset in your equity-sharing arrangement while protecting yourself with a Joint Venture Agreement. 

You can choose to form a venture-specific LLC to further protect yourself, your asset, and your partners. Joint Venture-Specific LLCs can last for as long as you like, or for only the period the asset is under your control. You decide terms in the beginning, when you form the LLC’s Operating Agreement.

Option 2: Use Limited Liability Companies 

Owning a company with someone low-commitment. It’s not marriage: you get directions, a simple way to undo the arrangement, what’s allowed, what’s not, and literal rulebooks in the form of your Articles of Incorporation and Operating Agreement. You and your partner(s) may benefit tremendously from using an LLC to protect your equity-shared asset. 

A properly established LLC prevents either you or any individual from being directly associated with the asset. You may choose to use other tools to preserve anonymity on top of your LLC. If you already own an LLC that has never done business (AKA a “shelf” corporation) you might use that.

Note From Royal Legal Solutions’ Staff Legalese Translator:

Shelf companies are not the same thing as shell companies. That little “f” makes a huge difference. Shell companies control the operations side of businesses, normally preserving your anonymity. They’re never supposed to hold assets.

Shelf companies also don’t own or do much initially. Most REIs creating a shelf company form an LLC well in advance of needing it and don’t use it much or at all. After formation, the company stays “on the shelf” until a later date. Reasons investors form shelf companies include for their own eventual needs or to sell. Banks, lenders, and even partners are skeptical of “new” LLCs. But an LLC that has been “shelved” for years can be activated by simply performing a transaction. 

You can see why investors mix up these concepts. That Traditional LLCs are great entities for both shell and shelf companies doesn’t clear up any confusion.

Keep definitions straight by remembering what these entities do: a shell company hides your operations and identity from the world, just like a turtle’s shell. A shelf company, however, is one you make and stick “on the shelf” until someone needs it. Congratulations! You never have to get these ideas confused again. Back to your regularly scheduled investing content...

Option 3: Create a Private Arrangement Your Attorneys Can Agree On

Let’s say hate Options 1 and 2. That leaves literally every other legal structure and agreement, which trust us, includes many permutations of options. The quickest way for most investors to figure out their real preference is to get a trusted attorney’s opinion. If you and any partners do so, your interests may align. Your attorneys might independently give you the same thoughts, or some options and their benefits for your situation.

If you and your partners don’t wish to throw money at multiple separate lawyers (because honestly, who does?), you can always approach an impartial real estate lawyer together, tell them what you’d like to do, and ask their thoughts on the situation. Take notes! This doesn’t have to be the same lawyer who helps craft your solution. They’re just a qualified attorney you and your partners agree to trust to develop possibilities for your equity-shared asset protection strategy

After all, none of you want your property to get taken away by a lawsuit. Proactively defending your equity-shared asset can eliminate this terrifying, but all-too-common, possibility.

How Do Deeds and Titles Work For Equity-Shared Property?

A common question is who holds title to equity-shared properties. In the case of REIs conscious of asset protection, the question is what holds title (hint: sometimes it’s an anonymity-preserving entity/trust). Protected investors don’t like leaving their names on anything, especially titles and deeds. Deeds cause equal confusion, as the deed of an equity-shared property requires each owner to clarify their relationship to every other owner

But let’s suppose, just for example, that 14 investors enter into an equity sharing agreement. Which name would the title be under?

The real answer: it depends. On a few factors.

We’ve seen some beyond-sticky real deeds where, say, 12+ people want to share equity on a property and some are married couples. If each individual records their name, remember they will need to identify their spouse and also explain all other relationships to the remaining partners (however many there are). If you’re one of our 14 investors, you’ll ID your spouse if they’re involved, then explain the relationship you have to all other dozen investors.

Or, avoid this dilemma by controlling the entity without any partner directly owning it. All options above allow for this. LLCs, land trusts, and other legal options exist protecting equity shared properties. Number of partners won’t impact your level of asset protection, but can influence which option you want to use.

Anonymity on the Internet: Why Asset Protection Requires Online Privacy

Maintaining your anonymity can be harder than ever in the digital era. Anybody who can type can search for—and find—an astonishing amount of your personal information. Your name, insurance policies, companies you have an ownership interest in, and especially properties you own are all potentially compromising details that you likely don’t want spread far and wide.  

We also know that anonymity on the Internet is crucial to effective asset protection. So what’s the investor with an online presence to do? 

Your Personal Information Is Most Likely on The Internet

The simple reality is that unless you’ve taken measures to protect your personal information, it is likely somewhere online. Without taking precautions to preserve your anonymity, many of your personal details which you might consider private can end up on the public record. Anything on the public record can be easily located with a Google search. There’s no need for sophisticated skill sets or deep knowledge on the other party’s part.

Why is this a problem for real estate investors in particular? Frankly, we have more to lose from too much public information.

Of course, the simplicity of locating public records is one of the main reasons we encourage investors like you to never own property in your own name. This is just one of many steps you can take to secure your anonymity, and it is basic yet incredibly important.  When you own property in your own name, simply looking up the address leads straight to you, and by extension, everything you own. This is the most vulnerable position you and the asset can be in. Asset protection is largely about moving those easily seized assets out of your name and into a more secure structure under your control.

You might recall that investors can only lose money in two ways: bad deals and lawsuits. Anonymity helps address the threat of lawsuits. After all, for another person to successfully sue you, they will need to know who exactly you are. They will also need to prove your connection to the property or entity owning the property, a problem savvy attorneys can anticipate and prevent. Put simply, our job as asset protection attorneys is to complicate potential lawsuits as much as possible before they ever materialize. Anonymity helps stop lawsuits by complicating the initial research phase conducted by opposing lawyers to see if suing you is worth the trouble.

That said, you can undermine your own asset protection plan if you aren’t thoughtful about protecting your own privacy. The point is, the less information about you that is freely available online, the better.

Online Best Practices To Ensure Anonymity

Some common-sense techniques paired with simple awareness of the value of your anonymity can help you eliminate potential problems as you navigate an increasingly digital world.

Avoid Openly Discussing Investments or Finances

You’ll also want to steer clear of any behavior flaunting wealth. If you have it, that’s wonderful. But in order to keep it, it should stay your business. You can absolutely enjoy the luxuries of wealth, but you don’t need to Instagram your vintage Moet Chandon or post photos of your exotic car collection to Facebook. Instead, play it cool. Be mindful that the internet really is a public space.

Of course, it may be unavoidable for people to know that you are an investor. They do not, however, need to know the particulars of where you invest and what you own.

Be Wary of Info Scammers

Sadly, the web is crawling with scammers of all sorts. They come in the form of Facebook Marketplace ads that are a little too good to be true, leading you to a “third-party” registration that looks legitimate, but exists just to capture your information. They can also appear as friends of friends, love interests, wealthy relatives hoping to reconnect, and even as potential investing partners. Even if you realize you’re being scammed, some cons are so finessed that you won’t realize anything’s up until you get an obvious red flag.

Here are some quick and dirty tips that can help you avoid falling prey to scams that could compromise your anonymity on the Internet:

Bottom line: scams and breaches are best avoided by being tight with your security and smart.

Legal Solutions for Real Estate Investors Who Want Anonymity

There are also legal tools you can use to preserve your anonymity and limit the amount of personal information about you online. At the very least, you can obscure any connection between such information and your business and assets. Not everything can be “undone” online, and absolute anonymity is nearly impossible. What legal tools can provide you with is layers of protection that will make penetrating your anonymity, and therefore connecting you to your valuable assets and suing you for them, far more difficult.

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.

Why Lawsuits Against a Series LLC Go Nowhere

If you’ve got money, people want it. Lawsuits are one of the easiest, yet still legal, ways for people to take your money. The more money you have the more likely it is someone will try to take it from you in a lawsuit. The same applies to your LLC if you have one.

The more money you have located inside of any individual LLC, the more attractive it's going to be for someone to sue you.  Lawsuits against a series LLC, on the other hand, are a dead-end for money-hungry lawyers and litigants.

Lawsuits are all about how much money can I get out of somebody, and if there's a million dollars sitting inside of an LLC in equity or cash, well, that might be something that I really wanna go after.

That's why you should limit the equity of any individual LLC to $200,000.

Note: This is not the case if you're using a series LLC for real estate, because series LLCs allow you to compartmentalize those assets. So, you don't have the same worries there that we do inside of a traditional LLC.

However, I think that usually a few million dollars inside a series LLC makes it reasonable to be able to create a new entity just in case. Why not? Expenses that you're being able to incur by having to create a new series LLC,are far less than the amount of risk that you pose when you're risking millions of dollars in equity.

You can read about what the IRS thinks about an LLC here.  But know this: The more money or equity you have inside your individual LLC, the more attractive it’s going to be for someone to sue you. And when they do, all of your assets will be caught under one legal net.

That’s why, compared to an LLC, a series LLC offers far more protection for you and your assets when it comes to lawsuits. Compartmentalizing assets means you can spread your assets out so in case someone does sue you, only one of your assets will be at risk.

How to Protect Your IRA in Two Steps

How to Protect Your IRA in Two Steps

People will tell you that your IRA is safe and they're wrong. Your IRA is only safe from a lawsuit against you and somebody coming after your IRA. If your IRA is invested in an asset class such as real estate where it can be sued, the IRA itself is exposed. Your IRA is exposed in the sense that it can be disqualified. If any of the transactions of the IRA are exposed.

There's two things that we do. The first thing that we do is, we can split up multiple IRA accounts. That way if any one type of investment is disqualified or has some type of issue that the IRS would look at? This limits your exposure, because it's only that one account that we have to worry about.

The second thing that you could do is set up a self-directed IRA with an LLC. I like to do it with a Series LLC. What that allows us to do is if you look at our videos regarding the Series LLC structure, we can take each different asset belonging to the IRA and put it into its own series.

That way if there's an issue with asset A, it doesn't affect asset B, C, D, etc. And this way, if you have one property that has a lawsuit against it, somebody can't take your entire IRA amount. They could only take a very limited amount of that structure.  Be sure that your IRA is properly structured with asset protection, because it's not by default the safest way to do it.

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

Why Asset Protection is a Must

If you're a real estate investor and you own assets in your personal name, you need to pick up the clue phone. It's ringing.

You're in the most litigated industry and the most litigious country in the world. Do you really want to own assets in a way that allows anybody with a good lawyer to attack and plunder?

You're investing thousands and thousands of dollars into acquiring a property, right? It might be a smart asset protection tactic to spend a little bit of money and set yourself up to be protected.

Listen: Rich people don't "own" assets and there's a good reason for that. When you own assets, people can see your ownership and get to them.

You need a network of LLCs and trusts to protect your assets. Hide them from people looking to sue you to get after your hard-earned dollars.

When they look to launch a lawsuit against you, you need to make them understand that they're going to get nothing, Because it looks like on paper that you own nothing. You need to be legally judgment proof that even if somebody were to successfully sue you, it can't actually hurt you.

Advantages of Having an LLC Over Insurance For Asset Protection

Advantages of Having an LLC Over Insurance For Asset Protection

Insurance will not protect you from most lawsuits that will happen regarding the transaction of your buying and selling of real estate. Every time that you're entering into a contract. Every time you actually sell a piece of property, every time you lease to a new tenant. These are all things insurance doesn't cover. Because of that, the only way for you to save your hard earned dollars is an asset protection strategy. That is the proper LLC and company structure.

Set up an asset protection consultation today!

What is a Pass-Through Entity & How Does It Help Real Estate Investors?

A pass through entity is a business structure, such as an LLC, Series LLC, or S-corporation. We use the term “pass through” because you can claim the income of these types of businesses on your personal income tax returns. Ordinarily, you would have to file a separate return for your business (or businesses).

The chief benefit of using a pass-through entity is that you won’t be taxed twice. Nor will you end up paying a CPA  thousands of dollars to file a business tax return. Typically, other types of business structures will be obligated to file such a business return. We'll talk more about the best entity for real estate investors below.

Some of you may be starting to think this doesn't apply to you because you file a return jointly with your spouse. Well, you can relax. This poses no problems, and all the benefits described above would still apply. But there are some instances where you will have to file a separate return, despite using a pass through entity. The main case for this is if you're using a partnership return.

The Partnership Return and Taxes

Some states require at least two members in an LLC. So let’s say you file your LLC in one of these states and have another partner in it besides yourself.
In this scenario, you’re going to have to file a document called a partnership return. A partnership return is a separate return for your business itself. By separate, we mean separate from your personal taxes.

Due to the complexity of a partnership return and its filing process, you would be wise to recruit somebody to help you prepare it. I suggest you hire a CPA, ideally one who is also a real estate investor, to assist you in preparing your return. And now, onto the bigger concern for real estate investors.

Which Pass Through Entity Is Best For A Real Estate Investor?

I so love when the answers to complex questions like these are simple. This one can be answered in three words: the Series LLC. Hands down.
The Series LLC offers unbeatable asset protection, easy tax filing and is the foundation of a solid asset protection plan. To illustrate how this works, play along with the following example.

Say you own 6 properties. Instead of holding all 6 properties in one LLC, with a Series LLC you can create a “series” within your LLC. Each series will hold a single property.  So you'll have seven companies total: the parent company, and then 6 individual series for your assets.

The benefit of this is if someone sues one of your series and wins, only that one property in that individual series will be vulnerable to costly judgments. That means the remainder, and likely the vast  majority, of your wealth and assets would be protected. The Series structure protects those other assets and isolates them from the one in the line of legal fire.

Another great benefit is, no matter how many “series” you have within your LLC, they can all be filed on the same income tax return. This is a huge money-saver that you won't receive with a Traditional LLC. If you want to learn more, read my previous post about how the Series LLC works for real estate investors.


What is a Charging Order?

So what's a charging order? I'd like to answer this question with a story.

Let's say I'm a real estate investor (I really am) who has all his properties properly structured inside of an LLC. One day I get into a car wreck.

This results in a judgment against me because it exceeded the limits of the liability for my auto-insurance policy. Because of that they want to try and shake down my LLC.

But they can't touch my LLC.  This is due to the protections that an LLC gives you. It allows your assets to be protected from the personal actions you take in your day to day life. And then of course the charging order comes into play.

How Charging Orders Work

The charging order protects you from creditors. It's not something you get in the mail. In most states, there are 3 things a charging order prevents creditors from doing:

  1. Taking your membership interest in an LLC,
  2. Taking over the management function of your LLC
  3. Force your LLC to sell its assets

In the unlikely event you do lose a lawsuit with an LLC, you'll be okay for the most part. However, you don't just get off "Scott free" (ironically, my name is Scott and I get people off all the time when it comes to lawsuits.)

How a Lien Can Affect Your LLC

What they can do is put a lien against your LLC.  If the creditors put a lien against your LLC, that means any distributions from your LLC to you will go straight to your creditors.

Not to worry, there are ways around a lien if you do ever end up with one against your LLC, or an LLC you have an interest in.
One of the ways to get around a lien is to sell your interest in the LLC to another party. They won't be able to touch the money you gain from that sale, which makes the lien useless.

Make sure you know the laws regarding a charging order before you form one in a specific state. As always when it comes to an LLC structure. some states offer certain advantages and disadvantages.

Fun Fact: The charging order wasn't originally created to protect debtors. It was actually meant to protect co-owners of an LLC from having to work with creditors or a deceased co-owners spouse.

Thanks for reading. If you need assistance with your LLC, contact us today.

Your Insurance Company Won't Help You Protect Your Assets

We’ve been trained to believe insurance companies are there to watch our back. The reality is that your insurance provider is a company, just like Nike or McDonalds. They exist because they make more money than they spend.

These insurance companies are more than happy to take your money as long as things are going well. You would never have any reason to doubt their protection until you decide to file a claim...and get dropped! 

Have you ever noticed how people start suing insurance companies every time a natural disaster happens? Why do you think that is?

Now of course, you should have insurance and you should file claims. This is going to work out fine most of the time. But the reality of the situation is that when you file a big claim, they are going to take a second look and see if they can wiggle out of their responsibility to cover you (see our landlord FAQ article for more on this).

You may just find yourself suing your insurance company like the folks after disasters.

Your Insurance Company Won't Protect Your Assets

While everything's fine, your insurance company will take your money. Yet as soon as something happens and you decide to file a claim, you get dropped. The reality of the situation is, if you have a big claim you'll end up having to sue your insurance company just to get them to pay out.

As an investor you shouldn't rely on filing a claim with your insurance company to protect your assets. Sure, they're possibly going to cover the $5,000 slip and fall case that happened on your icy front porch.

But what they won't cover is where the real story is here. Here's an example of a claim that only an asset protection plan will help. Imagine telling your insurance company that grandma fell through the staircase, broke her hip, and now will be permanently disabled for the rest of her life. You'd almost certainly be unceremoniously dropped.

Don't expect their empathy, either. Instead, they're going to say it was your fault grandma fell through the staircase because you should've known there was something wrong. They'll say your claim is a case of "gross negligence", which is your fault and thus outside of your policy limits.

Your insurance company knows they can do this. The fact is, they have millions of dollars to spend on their legal team, whereas most investors only have a few thousand dollars to spend on ONE attorney.

Protect Your Assets By Being Proactive

Instead of relying on your insurance company to protect your assets, be proactive. You worked hard to get to where you are now, don't lose what you've built.

What you need to do is protect your assets with a proper asset protection strategy, incorporating anonymous trusts and LLCs/Series LLCs to keep people from coming after your money. These legal structures will stop lawsuits before they happen.

Asset protection involves making your ownership anonymous, as well as legally limiting your liability. People won't sue you if they think you have nothing worth taking. They certainly won't be able to sue you if they don't know what you own. Doesn't that sound a lot better than filing a claim? Learn more about basic asset protection strategy from the many articles here on the Royal Legal Solutions website.

If you have any questions, just comment below and I'll answer them as soon as I can. If you're not willing to risk everything you've earned on the futile hope that insurance will protect you, schedule your asset protection consultation today.

Your IRA Isn't As Safe As You Think It Is: Protect Your IRA

People will tell you that your IRA is safe. I mean come on, it's a retirement account. Yet in reality, they're wrong. Your IRA isn't safe.

The only protection you get by default with an IRA is that it's separate from your personal assets. What this means is someone can't sue you and your IRA at the same time. They'd have to choose to sue either you or your IRA.

But that doesn't make your IRA safe from litigation, especially if your IRA is invested in a lawsuit-prone asset class such as real estate. Also, your IRA is exposed in the sense that it can be disqualified if any of its transactions aren't IRS-approved.

The last thing you want is for the IRS to disqualify your IRA. The penalties are extremely costly.

How Do You Protect Your IRA's Assets?

There are two things you can do to protect your IRA.

The first thing you can do is split your IRA into multiple accounts. Doing this would limit your exposure. For example, if someone sues one of your properties, or if the IRS disqualifies one of your IRA's, the damage would be limited to only one IRA.

The second thing you can do is set up a self-directed IRA with an LLC. I personally like to use a series LLC.  What this allows you to do is take each different asset belonging to your IRA and put it into its own "series." Each series functions as its own LLC.

Let's say someone then sues one of your IRA held assets, which happens to be in a series. Worst case scenario, you lose the lawsuit. In that lawsuit only one of your assets would be affected. The majority of your IRA holdings and wealth will be protected.

Protect Your IRA Properly

By default your IRA is largely unprotected. This means that until you implement asset protection your IRA is exposed to attack, either by the IRS or someone else. If you've invested into multiple properties with your IRA I recommend implementing an asset protection right away.

I hope this information was useful to you, if you have any questions feel free to comment and ask me. Check out my other blogs to learn more about asset protection. If you need help setting up a Self-Directed IRA LLC or asset protection plan, schedule your personal consultation today.

What's The Due On Sale Clause and How Do I Avoid It With A Land Trust?

Despite what you might read on the Internet, you shouldn't worry about the due on sale clause.

Banks are in the business of making loans and collecting mortgage payments. It's true that the due on sale clause would allow them to foreclose on a property, but why would they do that? This could only hurt their interest. They can't collect on payments if there isn't a borrower to pay them.

The fact is, since before 1960 we haven't seen any banks foreclose based upon a violation of the due on sale clause while the borrower was making payments on time.

When Do Banks Invoke The Due On Sale Clause?

I've seen a couple instances where a bank did decide to invoke the due on sale clause. But in all of those situations the mortgage wasn't getting paid. The property was going to get foreclosed on anyway.

These days interest rates are at an all time low. This makes banks unlikely to invoke the due on sale clause. However, if interest rates were to go back up to the standard 6%, then they might change their minds. What exactly do I mean by that?

Let's say you're behind in payments on a 30 year mortgage with a 3.5% interest rate in a market where the prime rate is 6%. If the bank invokes the due on sale clause on your property and resells it, they'll be able to make more money. This is because the property will be re-sold with a 6% interest rate instead of a measly 3.5%.

How Do I Avoid the Due On Sale Clause?

It's important to remember that tens of thousands of real estate investors violate their loan covenants everyday. Yet the banks don't invoke the due on sale clause. But if the banks really wanted to, they could.

Instead of gambling with your properties, what you should do is use a land trust. By using a land trust, you'll be able to transfer your property without angering the bank.

For this method you'll need an LLC and a land trust. So first you'll create a anonymous land trust and place the property(s) into the land trust. Then you'll make your LLC a beneficiary of the land trust. Problem solved!

Not only will a land trust help you avoid triggering the due on sale, but it also helps with transfer taxes and keeping your real estate holdings private.

Get Help With Your Land Trust and Asset Protection Needs

If you have any more questions about asset protection or the due on sale clause, I'd be happy to answer them for you in the comments below.

Also, while we're on the subject of transferring property, you may be interested in our free educational resource on  how to transfer your property and keep your old insurance. We offer these to all of our prospective clients and fellow investors to empower you to make the best choice for your real estate business.

Total Asset Protection: Do What Rich People Do

"Asset protection" may conjure up images of top hat-wearing, cigar-chomping billionaires, but you don't have to be rich to preserve your wealth. You just have to make sure you don't lose what wealth you've earned so far. You especially don't want to lose money due to something unnecessary, such as a lawsuit.

And that's exactly what an asset protection specialist can help you accomplish. By separating your assets and making your holdings anonymous, you'll never have to worry about another lawsuit again. And that's exactly what we're going to talk about today.

Benefits of Investing with an LLC (Limited Liability Company)

A real estate investor who does not use some kind of entity to own their property is risking everything to a single lawsuit. Even worse, if that investor has entered into partnerships with other investors they likely used a general partnership (a handshake.) From an attorney’s point of view this ownership structure is a beautiful opportunity because it exposes the investor. This means a judgement against the investor could take everything.

are your assets covered? donkey photo

No ... We said 'Cover Your ASSETS' ....

Chances are that you have already heard about using an LLC (limited liability company) for asset protection. By forming and operating an LLC properly, assets you place in the LLC are separated from your personal name. If a lawsuit happens, the judgement is limited to the assets within the LLC. Not only does this mean you are risking less in a worst-case scenario, but it also means you are less likely to face that scenario. Why? People will have less incentive to sue you, since you are limiting the potential earnings they could take.

Take a scenario where someone initiates a lawsuit and you lose, but you hold that property in an LLC. The lawsuit would only impact the assets within the LLC. While you could lose that single property to a lawsuit, it is a much better option than losing the property AND your personal assets. The cost of forming an LLC protects your house and other assets from landing in a future settlement or judgement. And this protection scales for investors with large portfolios utilizing entities such as the series LLC.

Setting up an LLC can take anywhere between a few weeks to a couple months, depending on whether the state approves the name you select for your LLC. Once the LLC is formed you will receive an EIN and can set up a bank account. This allows you to operate the LLC separate from your personal finances. You will balance all collections and expenses through the LLC bank account, proving it can operate on its own. When tax season comes around, most people simply have the LLC function file as a pass-through entity.

Preserve Your Wealth with LLCs & Trusts

We have talked about LLCs and the protections they give you when it comes to lawsuits and money-hungry attorneys. But what you might not know is how you can benefit from using LLCs and trusts at the same time.

Did you know that you can actually use trusts to own LLCs? And since trusts are private documents, nobody will be able to find out who owns the trust, or who the beneficiary of the trust is. (You would be the beneficiary.)

What this means is you can own an LLC anonymously. And yes, you can do a lot to hide ownership of an LLC without a trust. But anytime you put a property in an LLC, you're creating a back door for lawyers to walk through and take your assets.

How? Because every property comes with a deed. Your name will be on that deed (most likely).

But when you have a trust you can put the trust on the deed instead of your name and then put that property in an LLC. Nobody will be able to connect your property to your company. And nobody will be able to figure out who owns your company or who owns your trust because the trust is a private document.

Total Asset Protection requires anonymity - man in hoodie

Anonymity is your friend.

Combine a Trust With An LLC For Total Asset Protection

So let me break this down for you real quick. To achieve total asset protection first you establish a trust. Then you file an LLC. After doing both of those you then buy a property using the trust and put said property in your LLC. End of story.  Now you have total asset protection.

Are You A Real Estate Investor? Help Is Available!

Are you interested in learning more about other asset protection plans? Our free resources are here for you to  learn more about asset protection plans. And always remember, if you want to preserve your wealth, don't put all your eggs (properties) in one basket (a traditional LLC).


Protect Your Assets With An LLC & Property Management Company

As a real estate investor, your priority is to get a return on your investment. But if someone, most likely a tenant or other business, files a lawsuit against you, your profits and assets will instantly vanish. You have to protect your real estate assets. If you think you can rely on your insurance to protect them, think again. Check out our previous post on why insurance is not asset protection for details on protecting your assets properly.

Would you believe me if I told you there's a new real estate investment method that not only allows you to protect your investments, but also save money and increase your return on investment?

I'm referring to the traditional, single purpose LLC. My new method is simple. First you form an LLC. Then you put your property in it. For each property you have, you form one LLC.

By doing this you'll be able to limit your personal liability and reap tax benefits depending on what state you form your LLCs in. You can form an LLC in any state you choose. Smart investors "shop around" to find the state that suits their needs best.

Let's say you have two LLCs, each one holding one separate property. Note that you can also use a Series LLC for this purpose.

What Happens To My Real Estate Assets If One of My LLCs Gets Sued?

Only the property held in the LLC which is subject to the lawsuit can be used to settle judgments. And that's only if you lose, which is unlikely with me at your side.

But if you do lose your other property will be untouchable, your credit will be safe and nobody will be able to bring down your mini real estate empire.
Protecting your credit is essential. Without good credit you can't get future financing, which means your days of real estate investing will most likely come to an end. One lawsuit can ruin everything you've worked for.

Then there's your family to consider if you have one. By holding your properties in an LLC, you will protect them from the fallout of lawsuits as well.

Using An LLC Alone Won't Completely Protect Your Real Estate Assets

Do you want the greatest level of asset protection? Consider putting your asset protection strategy on steroids by forming a corporation to act as your property management company.

This property management company is completely separate from your LLCs. And for a good reason too!

Let's say you have a contractor or tenant that would sue you. Or anybody else that's in business with your real estate company who would sue you. They would only be able to sue your property management company, because it's separate from your LLCs.

They won't have a single claim against any of your real estate investment properties. This is exactly what you want. If they sue you and win, they'd be lucky to get their legal fees paid. Learn more about how I can  make your real estate investment assets untouchable.

What Does A Nightmare in Litigation Look Like?

What does a nightmare in litigation mean? 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. This is the nightmare which causes the attorneys looking to sue you to lose sleep at night.

Think about all the commercials you see on TV about personal injury law firms. These guys advertise to get clients for these specific type of lawsuit because they know they can win them.

Now ask yourself this. As an investor and as a business person, do you go to Las Vegas rolling dice hoping that you'll recover (money, assets, etc...) ?

Probably not and neither will an attorney. Suing people is usually a gamble for attorneys because they tend to get paid from the settlement. However, in order to get a settlement they have to win.

No attorney is going to try and sue you if they think there's not a good chance of winning. They can't make money if they don't win. Attorneys are in the business of only taking cases that are guaranteed wins. They won't take a case they can't win and they won't dare try to sue you...

At least not when I've got your back. You wouldn't believe how powerful asset protection is.

At Royal Legal Solutions we Take Legal Asset Protection to The Next Level

Attorneys don't like to lose, and when you gamble there's always a chance you might lose. What we do is make it a gamble for attorneys to come after your assets. Most attorneys aren't willing to put in the time and effort to sue you when they know there's plenty of other people they could easily win lawsuits against.

We specialize in making your assets untouchable and intimidating to pursue in court/litigation. You could own a company generating over six figures in revenue yearly, or even millions, and nobody would know except you.

But let's say someone were to win a lawsuit against you. Because of the asset protection plan you have in place (thanks to us) their ability to come after your assets would be next to nothing.

Asset protection involves the use of LLC's, Series LLC's, Anonymous Trusts, and several other legal structures. These legal structures are proven to work, legal and cost effective.

How To Protect Yourself As A Real Estate Investor

The real estate industry is highly profitable. But like all things that come with a great reward, there's also a great risk. And in this industry, you're risking your hard earned dollars.
All it takes is one lawsuit and you're out of the game, permanently. Insurance won't save you. (Surprise: It's not even meant to anyway.)
Let's go over how to protect yourself as a real estate investor.

You need asset protection To last In this industry

You may have already heard of asset protection. If not, you're about to. Asset protection involves using legal structures and smart contracts anytime you do a real estate transaction. The legal structures I'm referring to include LLC's, Trusts, or shell companies.
Using those legal structures, combined with asset protection, allows you to stop lawsuits before they happen. Legal structures do this by first and foremost making you extremely difficult to sue.
It's not that people can't or won't want to sue you. It's just no lawyer is going to want to waste his or her time trying to.
Legal structures will allow you to mask your wealth. You could be worth well over 6 or 7 figures, and nobody would know. And even if they spent time investigating you, they'd realize you're extremely difficult to sue because you're using asset protection.
Think about it. Who's going to sue you if you have nothing of value to offer them? Furthermore, who's going to waste their time investigating you when there's no guarantee that you're even worth investigating? Nobody, especially a lawyer. (I would know, I am one!)

Asset Protection keeps you in the game

Without asset protection, you can lose everything. And no, I'm not joking. Real estate investors lose lawsuits everyday because they didn't have an asset protection strategy in place.

If you plan on owning several properties there's no reason not to get an asset protection strategy. The costs of asset protection are far less than the legal fees and time you'll spend defending yourself against a lawsuit.

You're vulnerable to a lawsuit every time you:

These are all things insurance doesn't cover. The only thing that's going to protect you and your hard earned dollars is an asset protection strategy. Period.
If you have any questions about how to protect yourself as a real estate investor I'd be glad to answer them in the comments below.
Learn more about asset protection.