The Two Biggest Reasons Why New Real Estate Investors Lose Money
Welcome to the real estate industry! You'll quickly find out how easy it is to lose money when you don't know what you're doing. And even if you do know what you're doing, you can still lose money if you're not careful. But let's assume you're new.
I'm not trying to be a "party pooper" or anything like that. As a real estate investor myself, I just want you to know what you're getting into. So what exactly are the two biggest reasons why new real estate investors lose money?
You Will (Probably) Make Bad Investments
While it's not necessarily a guarantee that you'll make bad investments, the probability is high. However, it's only natural to be "bad" at something when you first start doing it. *wink wink*
But is there really any other way to learn other than from your mistakes? Yes and no. I recommend new investors do joint ventures with more experienced real estate investors before they go out on their own. Just make sure you find someone who knows what their doing if you choose to do that.
So what's the other big reason why new real estate investors lose money?
You Will (Probably) Get Sued
This one might surprise you. The truth is anyone can and will sue you if you're worth enough. It could be a random person off the street or even a business partner. You never know when it'll happen, but you have to be prepared. Otherwise you could lose everything.
Luckily for you, preventing lawsuits is easier than learning how to not make bad investments. The most proven way to prevent lawsuits is through asset protection. Asset protection involves the use of LLCs and other legal structures when doing real estate transactions and signing contracts.
Like I said earlier, anyone can sue you. But that's only if you're worth enough. Asset protection can make it appear as if you're worth nothing. Or, you can use asset protection as leverage to convince someone not to waste their time suing you.
Well that's everything. As always, if you have any questions feel free to ask me in the comments below. For questions about your individual situation, contact us directly.
Real Estate Investor
As a real estate investor, you have to understand that lawsuits aren't a business.
If anybody is looking to sue you, they're looking to get money out of you.
A proper asset protection strategy keeps people from finding out what you own.
If they ever were to see you, it limits what they can get from you.
More importantly, a great asset protection strategy exhausts their will and their resources to fight you.
This keeps people from continuing with the lawsuit.
It gets them to settle early. It gets them in most cases to stop the lawsuit before it even starts.
What you have to understand is that because lawsuits are a business the main part is how do we get money out of somebody when we sue them?
This is what asset protection strategy fights.
This strategy protects the assets from being seized by somebody via a judgment. This person doesn't believe that they are getting anything out of their investment in a lawsuit.
Lawsuits are only paid for in two ways: Either you pay an attorney to sue or the attorney takes it on contingency.
If an individual is researched and found to have no assets on paper, how much money should you be willing to risk for a judgment?
Moreover, there's no attorney who is worth his salt that is ever going to take a case like that on a contingency. Contingency is free for the client. The attorney risks everything.
In addition, attorneys only accept fire cases that they are very confident they can win and collect on. So, when you ask yourself how do I protect myself from a lawsuit? what you should really be asking yourself is: how can I make it seem as if I don't own anything? Scott Smith, an asset protection attorney for real estate investors, is a real estate investor himself and would like to help you.
The Asset Protection Basics: Anonymous Structures & The Shell Company
Asset protection is the art of eliminating your liability and protecting your assets from potential lawsuits. I say potential because once you have a solid plan, nobody will bother suing you. Even if they think they can win. And before any internet ethicists jump down my throat, understand that this is all done legally.
Also, I realize you may already have an LLC. If you think that's all you need to protect yourself, check out our previous piece on why an LLC alone isn't an asset protection plan. Anyway, let's get down to business. Asset protection involves two main things.
Anonymous Structures and Separation of Assets
When it comes to the asset protection basics, anonymity is a cornerstone. We make you anonymous by separating your assets from your operations. This way if your operations become liable, your assets will still be safe.
So how do we separate your assets? By putting them all in one shell company. This particular company doesn't interact with anybody. It doesn't do anything and it has zero contact with the outside world. It's held using anonymous names inside of Anonymous Trusts and anonymous structures. Multiple layers of anonymity protects you and your property from litigation.
Nobody except you will know who owns these structures. Which means nobody will be able to come after those assets in a lawsuit. But of course, we can't talk about the asset protection basics without mentioning the shell company.
Operating Company As a Shell Company
The shell company owns no assets but it conducts all of the business. It's your face to the world. It's the face (company) we want people to sue if there's ever a legal dispute. Yes, you read that correctly. We actually want this to be the target. Think of it as a legal decoy.
In fact, we want to structure our contracts to say that "if we have a problem you can only sue this company." The company we'd list would be your shell company. It sounds simple, but doing it will eliminate virtually all of your liability.
When it comes time to set up your asset protection plan, always think: assets on one hand; complete anonymity, separation and operations on the other.
Asset Protection Kills Lawsuits Before They Happen
A formidable asset protection plan will always include anonymity and a shell company. Most of the time, this will be an LLC or a Series LLC. I hope you enjoyed my short blog post and video about the asset protection basics!
Are you interested in learning more about how these plans can protect you from lawsuits? Contact us today to take your first steps towards becoming litigation-proof.
Litigation Proof? How the Right Business Structure Can Save Your Hide
Making your company litigation-proof is like trying to make a house tornado-proof. There's a lot you can do, but there's always going to be some vulnerability there.
Business owners and investors might as well think of lawsuits as a force of nature. You can't predict them, and you can barely protect yourself from one. This is even more true once the lawsuit has been filed. These life-ruining events pick up momentum from the beginning, just like a tornado.
The reality is you will be sued as long as the conditions are right. The only thing preventing a lawsuit is the correct set of circumstances.
Don’t assume probability will save you. One in four Americans are sued in their lifetimes. Business owners and investors are even more likely than a regular Joe to be sued. It could easily happen to you!
Remember, lawsuits are like nature: they're inevitable. It's a question of when, not if, they will happen or not.
Why Do Lawsuits Happen?
There are three conditions that make a lawsuit extremely likely. If all three are active at the same time, then a lawsuit is almost guaranteed to happen.
Legal Precedent. The first question someone who wants to sue you must answer is whether they have a reasonable position based on law. What is the likelihood that the courts will approve their reason for suing you? Is there a relevant precedent (prior reason to believe their lawsuit will succeed)? If there is, you can bet the plaintiff's legal team will be happy to consider bringing a case against you in court.
Factual Grounds. Over the years I've come to realize a lawsuit usually takes place because of some type of disagreement or unfortunate event. It is usually not malice or greed. Unfortunately, these things tend to happen randomly. It’s hard to foresee every potential risk. Once triggered, the only question is whether the plaintiff (the person suing you) has enough evidence to stand a chance of winning the case.
Recovery Value, The final element to consider is how much wealth is involved. Nobody sues homeless people because there is nothing to gain from them. The plaintiff's legal team will research you and your assets to determine the value of the case. As soon as the equation becomes net positive they'll be ready to sue you.
How To Make Your Company Litigation Proof
While there is no way to make your company immune to a lawsuit, you can definitely lower the probability of one taking place. A good asset protection plan addresses each of the conditions/steps I mentioned above. The goal is to stop, prevent, or make it extremely difficult for a plaintiff's legal team to go through each step.
So how do you make it difficult for them to go through each step? The solution is simple.
Limited Liability Companies (LLCs) prevent someone from suing you personally. You can learn how to start an LLC here. However, storing all your assets in one place is still a risky strategy. What you want to do is spread your holdings across multiple business entities. This will reduce your exposure and make it difficult for someone to determine your net worth.
Title Clouding & How To Avoid It
Time and time again, I've told you how using a Series LLC can protect you and your assets. Today, I'm going to tell you another way you can protect your assets. If you're a real estate investor, you definitely want to pay attention. Get ready to learn about title clouding.
Lis Pendens (latin for "suit pending") much like the name of your high school's prom queen, sounds nice. But it can screw you over if you're not ready for it. A Lis Pendens may be filed against your property if it's involved in a lawsuit. If someone does file a Lis Pendens against your property, you won't be able to sell it. Not until your "legal problems" resolve themselves anyway. In the field of asset protection, we call this "title clouding".
Why Should I Care About Title Clouding?
Title clouding is just another tactic enemy legal council will use to put pressure on you to cave in to their demands. It's a strategy favored by lawyers with costly, unreasonable demands. Think about how much money you can lose if you're not able to sell a home you bought just to flip in a short amount of time. What if you need cash and want to liquidate an asset? Title clouding can and will screw you over.
Lawsuits can take years to resolve. All the while, you have to hold on to your asset. At any time one of your properties can get hit with a Lis Pendens and force you to deal with the title clouding that comes with it. Technically, you can still sell your property while it's dealing with title clouding. But who is going to want to buy it when it's the subject of a lawsuit? Think about that question from the perspective of a real estate investor.
If your property does get hit with a Lis Pendens and you end up winning the lawsuit, you can sue whoever filed it for the monetary losses you took as a result of title clouding. And that's where I come in.
My name is Scott Smith. I'm an asset protection attorney based in Austin, Texas with clients all over North America. I'm here to help protect you and your assets from lawsuits.
Call now or schedule your consultation today. Whether you're dealing with title clouding, trying to avoid it, or just need to cover your assets, I'm here to help.
How To Make Your Assets Judgment Proof In A Lawsuit
If you’re a real estate investor, you are at risk from lawsuits whether you know it or not. You may already know the real estate industry is a breeding ground for lawsuits. Now add in the fact that you live in a country where people can sue you for nearly anything. As a real estate investor, you’re at risk of losing everything: equity, assets, and even your reputation. This is especially true if you hold assets in your personal name.
Did you know that a lawsuit is ranked one of the top three things that people find the most distressing events in their life? Lawsuits rival only with divorce and bankruptcy. The good news is, I can make your risk disappear. This means you’ll be untouchable when it comes to lawsuits.
How, you ask? First there’s something I’d like you to know: the truth about how the wealthy protect their assets.
The Truth About Protecting Your Assets From Lawsuits
The truth is the super rich don’t own assets. They only control them. They do this through a network of LLCs and trusts. These networks protect their assets and allow them to hide them from anybody looking to come after them. You can learn more about how LLCs and trusts protect you from my previous article on the subject.
Imagine the disappointment of anybody looking to sue you when they find out you don’t own anything. Well, at least it will look that way on paper. In reality, you could be worth millions and only look like you’re lower middle class. But the person suing you won't know that.
Who would sue somebody who appears to own nothing? That’d be a waste of time. Remember, the average person doesn’t have the money to pay legal fees upfront. What most people do is split the settlement, assuming they win.
Make Your Assets Judgment-Proof Now Before It’s Too Late
No attorney is going to come after you in a lawsuit if they think they have nothing to gain, pure and simple. But you better believe they’ll see dollar signs when your name starts showing up in paperwork.
My name is Scott Smith. I’m a real estate investor & an asset protection attorney. I know both sides of the game because I’ve played on both. Give me a call today, and together, we’ll make your assets judgment-proof!
Why Real Estate Investors Can't Afford To Rely On Insurance For Asset Protection
If you're a real estate investor, it's time to ask yourself an important question: are you protected?
Before I began specializing in asset protection I would play for the other side. Meaning, I would sue people. Take it from me, it's easy for an attorney to sue you if you don't have a proper asset protection strategy in place. There are many ways to protect yourself, such as with a Series LLC, or a self directed IRA LLC.
Insurance Won't Always Protect You From Claims on Your Property
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 from any intentional acts that might occur.
What's considered an intentional act? Well, that's depends what you consider to be intentional.
And that's where the law comes in!
How Insurance Failed One of My Clients.
A client of mine flipped a house and renovated it by replacing some of the plumbing underneath the house. However, my client told the buyer that all of the plumbing had been replaced underneath the house. But unfortunately she told the buyer in one email that all of the plumbing had been replaced.
As a result, 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.
At Royal Legal Solutions , we help real estate investors maximize their asset protection.
My name is Scott Smith. In addition to being an attorney, I'm a real estate investor myself. I created this company to help investors like you protect your assets. Don't wait until you get sued. Be proactive. Call Royal Legal Solutions now at [GLOBAL VAR=phone-number] to schedule your asset protection consultation today.
