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.

Tax Scams To Be Wary Of: The Dirty Dozen List, (7-12)

Thanks for joining us again as we finish our little explainer on the 2019 “Dirty Dozen” tax scams you need to continue to watch out for this year. Every year, the IRS releases a “watchdog” style document that lawyers,  investors, and even the Taxmen themselves call the Dirty Dozen. In Part One, we covered six IRS and tax scams to be on the lookout for. Let’s explore the rest of the list, and learn how to dodge the other six scams the IRS warned us about.

#7: Identity Theft Scams

Identity theft affects millions of Americans, and REIS can be at particular risk. Criminals get heated around tax season, trying to get their hands on your info for nefarious purposes like:

And many more no-good-nick activities. Stay safe and protect your loved ones by guarding all personal info closely, preserving your anonymity online and in your investing, and keeping your guard up during Tax Season.

#8: Nonsensical or BS Lawsuits

As shameless as it sounds, people assemble all sorts of insane cases against the IRS. Sometimes these enterprising (read: frivolous) legal minds devise cases that sound compelling to those of you who, say, don’t deal with tax law for a living. But if someone tries to recruit you for a class-action suit that sounds even a little harebrained, that’s because it totally is. Liability suits against the IRS do happen, but if you’ve got a good case, you need an attorney, not some jerk who’s calling you to hop on a grimey business-side-of-lawsuits-bandwagon.

#9: Phone Scams

Seniors, you’re at particular risk of phone scams. They go something like this: you get a call from a stranger with impressive-sounding credentials and a totally unique secret way to beat the Taxman. Just ignore this nonsense, because there’s also a more common and serious problem of people making calls claiming to be IRS personnel. Don’t fall for it.

Avoiding this scam is easy: The IRS doesn’t make phone calls. Period. Just hang up stat--and if you have a real concern about your taxes, you can locate the real office you need on irs.gov

But we all get weird calls, and here’s how to handle them: never give out personal information to strange callers. If you suspect your caller’s a robot, ask them directly (“Hey, are you a cyborg?) to see if you’re talking to a person or recording. Often these scammers are lazy, and your vigilance about avoiding strange callers’ demands and documenting without complying will keep you safe.

#10: Lying About Your Income

This can be a form of preparer fraud, but most of the time, the taxpayer is responsible. Falsifying income in any way is a horrible idea, so just don’t do it. There’s no benefit worth the trouble you can get into.

#11: Bogus Business Credit Claims

Brought to you by the geniuses who invented return padding, the practice of improperly filing business credit claims is widespread. Usually, the taxpayer just plain doesn’t qualify but takes the credit, or asserts a right to it anyway. It’s a spin on a false deduction, basically.

#12: Illegal Tax Sheltering

You can minimize taxes using many legitimate and legal strategies, as well as entities and other legal tools. But to do this, you’ve got to play by the rules. Often these problems come in the form of shady businesses promising high or even improbably huge savings. Any business directed at hiding from Uncle Sam is basically begging to get into a nasty tax dispute, and they WILL drag you into it  With so many legal options for decreasing tax liability, there’s no excuse for illegal tax shelters. Or getting busted.

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Finders' Fee Arrangements for Real Estate Investors: What You Need to Know

Finders’ fees can have a few meanings in real estate, but generally the term refers to the chunk of change a “middleman” in your deal can take. Sometimes they’re gifts, other times it’s a commission or percentage. Usually, real estate agents pay finders’ fees, not investors directly. But it’s also true that commercial REI transactions will almost always involve paying at least one finders’ fee. So what’s an investor mixed up about this concept to do?

Read on, that’s what. Today we’re breaking down everything you need to know about real estate finders fees, what’s normal, what’s not, and even what’s illegal. By the time you’re done, you’ll understand how finders’ fees work and protect yourself from unethical people in the real estate game.

What is a Real Estate Finders’ Fee?

A finders’ fee may is also often called a referral fee (or even “referral income”). It’s a type of commission paid to a middleman of some kind for brokering your real estate transaction. Such fees are indeed commonplace, but they’re also regulated by law. For instance, some states have laws prohibiting paying finders’ fees to “unlicensed persons.” Usually, these types of laws are designed to prevent real estate agents from paying such individuals--not the original customer.

That said, most states have laws that allow intermediaries to request anywhere from 3-35% of the deal’s value. Does that mean you have to pay it? Of course not, but some folks will pay on the high end to get the pad of their dreams, so you can’t really blame these middlemen and women for trying. Hustlers have to hustle, after all.

Real estate agents are the big gatekeepers to the world of finders’ fees. Realtors and agents across the country use finders’ fees to encourage business contacts to remember them if they hear of someone property-hunting.

There are, of course, licensed brokers whom it is absolutely ethical to pay for tips on clients, property types or asset classes, neighborhoods or names of individuals preparing to sell, and of course, individual deals. While the type of conduct one may engage in to secure a lead may vary by state, because again, that’s the level at which this concept is most regulated, finders’ fees are indeed fairly universal to real estate investing. Federal and state law generally permits licensed individuals to collect fees within reason. They may be the reward a licensed broker gets for:

What’s the Point of a Finders’ Fee?

Now that we’re clear about what finders’ fees are, let’s talk about why they still exist in real estate. First and foremost, it’s important to recognize that finders fees are a form of incentive that keeps the entire buying-and-selling economy of real estate humming along for us investors to come in and capitalize on. The finders’ fee is the incentive, essentially, for making a deal happen: after all, that’s what this REI game’s all about--making the best deals possible.

The whole idea is that but for the intervention of your intermediary, the deal wouldn’t have happened. Or at least, this assumption has fueled the continued existence of finders’ fees. Whether this underlying assumption is true in your case is a completely different discussion, but it’s accepted enough in the REI world that the practice continues.

What Should Real Estate Investors Know About Finders’ Fees?

We’re all likely to encounter the finder’s fee, so the best thing to do is be prepared. At the very least, we can come armed with the knowledge of what’s normal and what’s not, even if this is our first ever real estate transaction

Remember that even if you are new to the game, you can act as if you’re not. Act with the confidence of the knowledge you gain here and anywhere else you study investing strategy. If you don’t yet believe in yourself, it’s a good investing psychology practice to learn to believe in your abilities and brain first. Let’s talk about some of those sticky situations where you’re going to be hit up for money. It’s best to at least not look surprised (unless you’re handed an absurd number), so these tips should help. 

What’s Normal With Finders’ Fees

Since finders’ fees help make the real estate world go ‘round, you can absolutely expect to encounter them during the deal-hunting or deal-making process. It’s just part of the game.  

Your real estate broker informing you they plan to pay a finders’ fee isn’t unusual. It’s even better if they ask and get your opinion or thoughts.

Ordinarily, these fees are paid between brokers, and real estate agents draw up “Cooperating Agreements” to streamline the referral and payment process. Basically, the agent can pay a broker out according to a pre-existing contract.

Keep in mind there’s more than one “normal” way to pay finders fees. Agents usually make payments, but sometimes if there is no contract, they will simply write a check as a “gift” to your friendly intermediary. This is a perfectly ordinary practice and shouldn’t alarm you. As you can see, most of the time you as the investor don’t make a payment at all.

What’s Not Normal With Finders’ Fees

First of all, you’re never legally required to pay a finders’ fee. It’s a practice in the industry, and nobody is legally entitled to such payments. Not agents, brokers, or anyone else. They can ask, but under no circumstances do you have to pay.

Anyone who says otherwise is generally just trying to hustle you in some form or fashion. So move on and feel free to place such people on your personal blacklist.

Unlicensed middlemen also fall in the “not normal” category. If a person can’t explain their job, how they became involved in the transaction, or who they specifically know involved with your deal, this is a major red flag. Fees paid between brokers and licensed agents are common--after all, it’s good for everyone to pair up customers and properties, and frankly, some people will always have more of one than the other. But you don’t want to pay just anyone: make sure they’re really facilitating your deal in a meaningful way. 

What’s Straight-up Illegal

An investor directly paying finders’ fees is bizarre. Sometimes it’s illegal.

You never have to personally pay a fee just because a person says they helped your deal happen. A friend’s referral can actually become illegal if say, you’ve paid that friend for other business referrals and they claim to have facilitated your real estate transaction.

When someone requests a finders’ fee you think is off, don’t pay it. Odds are good it would be illegal in the “friend” situation (unless you’re certain your soon-to-be-ex-friend is an appropriately licensed facilitator under state and federal law). Never pay anything if you’re not sure it’s legal, or if your gut’s just screaming not to. 

Finders’ Fees: The Informed Investor’s Way

Understanding both the law around finders’ fees and what you’re personally willing to pay is important if you’d like to define personal boundaries around this matter. You can always choose other real estate agents if your agent’s policies are wrong, unlawful, or just not your style. Knowing when to pay and when to walk away can make you the smartest investor in the room.

Land Trust: Basics for Real Estate Investors to Know

Land trusts are often the unsung heroes of the real estate investing world. You can use them to control assets rather than own them yourself.

You’re almost always better off controlling an asset than owning it in your name outright.

And that’s where the land trust really gets to strut its stuff. After all, the land trust is also called a “title holding trust” because that’s it’s main job: hold title to the property in your place. But you still get to stay in control of any property associated with your trust, and of course, any earnings the real estate investment generates. Let’s take a closer look at land trust basics you should know.

What is a Land Trust and How Does it Work? 

The land trust is an asset protection tool that doesn’t get a lot of respect. There is surprisingly little buzz around this real estate tool, though it can save your assets from unnecessary legal risk. 

Land trusts can form a critical part of your asset protection strategy well outside the limelight, and in fact, we prefer creating them anonymously for additional benefits. This type of revocable trust takes the critical first step in asset protection: stripping the title out of your name.

When you establish a land trust, you’re using its trustee-beneficiary structure. Your trustee may then provide for you as a beneficiary of the trust. Lawyers make great trustees because of attorney-client privilege, but you get to choose. This is how you maintain control and enjoy the benefits of property ownership while sidestepping its liabilities. It’s a pretty cool thing, in our opinion.

Why are Land Trusts Helpful for Real Estate Investors?

There are many ways land trusts can help out real estate investors. Let’s just consider some of these common uses of the land trust:

How Land Trusts Best Protect Real Estate Assets

As previously mentioned, a land trust is a great tool but can be limited if used alone. It’s not intended to be your entire asset protection strategy, but rather a piece of it. Recall that properties in LLCs are generally ‘pooled’ legally, unless you use a Series LLC of course. 

We’ve found that asset protection works best in layers. A land trust is a great first layer of anonymity. If your land-trust-owned property is also owned by an LLC or a Series within a Series LLC, that’s another layer. From there, attorneys and CPAs can pile on even more layers such as enhanced anonymity, the addition of a shell corporation, and plenty of other legal and tax tricks.

What Do I Do to Form a Land Trust?

Land trust eligibility isn't the same in all states. The only universal pieces of the land trust formation process are these:

Your lawyer will be able to give personalized advice upon agreeing to help you. Thanks for learning about the benefits of land trusts with us today, and please leave any questions you still have in the comments if they aren’t addressed in our Land Trust FAQ.

Land Trust: The FAQs

If you’ve started learning about the land trust recently, questions are common. We’ve gone ahead and made some primers on what a land trust is and the benefits of the structure, but today, we’re going to answer your most Frequently Asked Questions about the land trust. The inboxes here at Royal Legal HQ are regularly flooded with the same questions--so we plan to start with those. If you have more, just let us know, because we’re always happy to answer your questions--in email or blog format. Let’s dive in.

Land Trust FAQ #1: I Heard Land Trusts Can “Get Around” the Due-on-Sale Clause for Easy LLC Transfers. Is it True?

Yes. Really. We have clients use land trusts for this purpose regularly: to obtain better financing  for an investment property. We’ve outlined the basic method before, but here are the broad strokes:

  1. Let your lawyer know what you’re up to.
  2. Buy in your own name for optimal loan terms.
  3. Transfer your property into a land trust.
  4. If desired, move the property from your anonymous land trust to the LLC of your choosing
  5. Enjoy the sweet relief of never worrying about the DoS again.

It really is that simple. We’ve never known someone who got in “trouble” because the worst thing that can happen with this method is receiving a love note from the bank. If this happens, your property can revert back to your name. You know, where it was in the first place. 

If you still want to protect the asset, it’s likely you made a misstep the first time. When executed with professional help, few investors ever get a letter from their bank because the bank is none the wiser. Breathe. Due-on-sale violations aren’t punishable by hard labor It’s not a crime to get better deals, and each piece of this plan is perfectly legal.

Land Trust FAQ #2: Do I Need Separate Land Trusts For Each Property?

Ideally, yes. While one land trust is better than none, the optimal strategy is to use one per property. That way, you can really enjoy each land trust benefit for each and every property, whether the benefit you want is:

Land Trust FAQ #3: Some Blogger Said Land Trusts Aren’t the Same Thing As Asset Protection? WTF? 

Regular readers now wondering if we’ve been lying about everything all along like scorned spouses, slow your roll. Actually, anyone with this question can slow their roll. First of all, was Some Blogger a credentialed asset protection attorney? If not, exactly what makes them an expert on the topic? You can look up our credentials, read our reviews, etc. Do the same and check your source. 

Considering the Source of Legal Opinions

You’re looking to see if their opinion on asset protection is any more valuable than say, our opinion on the best color for your living room we’ve never seen (Coral. Totally go with coral). 

See the problem there? We don’t know what we’re matching to, what you like, or anything about you. Also, we’re lawyers, not interior decorators. Our lead attorney Scott Smith freely admits lacking interior decorating expertise--perhaps it was this lack of talent that forced him to turn to law, which he’s pretty darn good at. Remember, he used a land trust to offset law school costs. Did Some Blogger?

Scott’s opinion is the same as everyone else’s at RLS’s. Land trusts are a valuable component of an asset protection plan. That’s it.

By the way, even if Some Blogger is or claims to be a lawyer, remember this: no blog should create some kind of surprise attorney-client relationship. So, they aren’t your lawyer even if they are a lawyer. And just for the record, that same concept applies to this blog, even if you think our pearls of wisdom are awesome. That doesn’t make you a client; it makes you a passionate reader. We love both at RLS.

Bottom line: land trusts alone won’t always protect assets, but an asset is better protected in an land trust than in your own name. Land trusts aren’t an entire asset protection plan, but rather part of one.

Land Trust FAQ #4: Same Thing As Asset Protection? WTF? 

This ties back into #3. Land trusts aren’t a complete asset protection plan, but they have their place. What role the land trust will play in your plan is a professional’s place to help you decide. Regardless, this lesser-known tool can help most investors achieve their goals.

Land Trust: The Benefits Of The Structure

As we continue our series on the land trust, it’s time to turn our attention toward the major benefits of this structure. Whether you are old friends with this time-tested real estate tool or have never heard of it in your life, the land trust or title-holding trust can truly be the real estate investor’s best friend. Let’s get right into the three most essential benefits of the land trust, an under appreciated yet powerful legal tool.

Benefit #1: Land Trusts Protect Your Anonymity

If most intelligent people are given the choice between anonymity and oversharing, they tend to like the former. Anonymity makes lawsuits a serious pain, and can actually prevent them if the other party isn’t particularly motivated. Learn more about the inherent benefits of anonymity for asset protection. Or, learn how to get even better protection from the next tip.

Benefit #2: Land Trusts Make Lawsuits Against You Harder

The land trust’s anonymity powers help it prevent lawsuits. Anonymity alone is rarely a good asset protection plan. But by the same logic, it’s impossible to have a highly effective, what we like to call “judgment-proof” package.

Trusts are more difficult to sue than individuals. Trusts paired with entities are even more difficult, and we’re about to explain why in detail. Pay attention if you’re looking for an ironclad asset protection strategy that stops suits before they start at all.

Benefit #3: Land Trusts Kick Ass at Preventing Lawsuits When Paired With Entities.

Of course the asset protection folks save the asset protection benefits for last. But think about it: anonymity is something you need, and the land trust removes property from your own name. It doesn’t have to stay there, though. You can reduce your chances of a lawsuit against you to almost “none” by simply pairing the land trust with an appropriate entity. We’ll give you the play-by-play of both why you need to do this and how.

To build  a high quality asset protection system, pair the humble land trust with a liability-limiting entity. This is a highly intelligent, easy-to-manage, cost-effective way to approach a basic asset protection strategy. Here are the very broad strokes of real estate investors effectively pairing entities and land trusts actually looks like.

Protecting Assets With One-Property-Per-LLC Strategy

First, think of one of your investments. If you don’t have one, imagine your dream spot--maybe in a place you’d like to vacation to. Now, we don’t want anyone coming after that badass property in court. So you might stick it in a Traditional LLC. An ideal strategy is compartmentalized as well as anonymous. 

Compartmentalization is the second key of your plan, and it’s your entity’s main job. One Traditional LLC can protect one asset completely as a holding company, or you may choose to use it as a shell company to assume operations for a Series LLC.

Series LLCs are ideal for the investor or multi-property owner because you can have as many “compartments” (Series, miniature liability-protected companies) as you like. Learn more from our educational Series LLC content on this structure’s benefits, uses, and FAQs. But for now, just understand that the Series LLC achieves perfect compartmentalization, with each of your assets snugly secured inside its own Series.

Compartmentalization compliments anonymity brilliantly, and is indeed what we call one of the pillars of asset protection. If your assets aren’t connected to you, and nobody can figure out who the hell you are, you because a righteous pain to sue.

Bottom Line: Land Trusts Have Many Benefits for Real Estate Investors

The list above is far from exhaustive. There are many more nuances and benefits to land trusts, some of which may apply only in certain situations. For instance, some married couples love them because they allow for a legal ownership method known as tenancy-by-the-entireties. Land trusts can be used like savings accounts backed by appreciating assets, as estate planning tools, for executing transfers around the due-on-sale clause, and many more cool legal tricks.

Just know that using this tool can get you all sorts of perks, and don’t overlook land trusts when constructing your asset protection strategy. You’d just be cheating yourself.

Becoming Judgment-Proof Against Litigation


Becoming Judgment-Proof Against Litigation

Becoming Judgement-proof may sound strange, but as a real estate investor you are in one of the most litigated industries in the United States of America. The United states is one of the most litigious countries in the world. You are exposed, especially if you hold assets in your personal name.

Hi, my name is Scott Smith, and I'm an asset protection attorney in the real estate industry, and I'm a real estate investor myself. What I do for my clients is make them judgement proof. That means if anybody were to sue you, they'd get nothing. This is the peace of mind that you can't get any other way when you're ever threatened with a lawsuit.

You might not know this, but a lawsuit is ranked one of the top three things that people find the most distressing events in their life, up there with divorce and bankruptcy. I can help you prevent from ever having that worry, and I do this in the same way that the really rich do it.

Using LLCs to Become Judgement-Proof

The truth is that the rich don't own assets, they only control them. They do this through a network of LLCs and trusts, which protect their assets and allow them to hide them from anybody looking to come after them.

Now imagine the disappointment of anybody looking to sue you when they find out that it looks like on paper you don't own anything. In fact, it would look like you would even qualify for food stamps. Who'd sue somebody that looks like they own nothing?

I can help you set this up, my name is Scott Smith, I'm with Royal Legal Solutions, contact us today and let's get going.

Protect Yourself from Swimming Pool Liabilities

For those that don't remember, we're going to start with a real case that was all over the news. You may have even heard about it at the time.

We're doing this to make some general points about the risks all pool owners face. Being rich and famous won't save you from an improperly maintained or managed pool. It sure didn't help Demi Moore.

Swimming Pool Lawsuit Case Study: What Happened to Demi Moore

Demi Moore’s assistant had a pool party in 2015 at Demi Moore’s California home where alcohol was served. Somebody drowned. It was an unfortunate accident and Demi Moore, who wasn’t even at the party, was quickly swimming in litigation. 

It sounds so ridiculous it could be the plot of one of Demi’s erotica thrillers.

There are carefully outlined state safety regulations that you have to comply with if you don’t want to end up on the witness stand with Tom Cruise screaming at you. In most states you are responsible for keeping your pool reasonably safe.

It doesn’t matter that it was Demi’s assistant who held the party. Demi owns the pool. Demi is responsible.

Understanding How Swimming Pool Lawsuits Happen 

There are two ways you can be considered too lazy, cheap or careless to own a pool under the law:

#1 You violate a local pool safety law

In this case, you’re strictly liable, like Demi Moore.

The solution here is simple. Bring your death trap up to code. Find out what the law is and comply. Build a fence and put on a pool cover. These are the basics.

# 2. Your pool is deemed “unsafe”

This is trickier, from a liability standpoint. Broken fences, rusty nails, lack of depth markings, and more can make a pool unsafe. Once again, this varies, but I’m sure through the use of the computer you are using to watch this video, you can figure out your local regulations. Better yet, contact an asset protection attorney to help you understand them.

Here’s another issue, and this one is key. If you party by your pool and your friends enjoy drinking cocktails, you may want to consider hiring a lifeguard for the afternoon. Preferably a sober lifeguard.

It’s a small expense that may keep somebody alive. If the conditions at the party are deemed unsafe (SEE: Rooftop cannonball championships) you might be on the hook.

Remember, like Demi, you might be liable even if you are not at the party so be sure that there are safety measures in play. It’s the summer time, so party hard. Just don’t end up paying for it.

In short, if you own the pool, you are responsible for its compliance with safety regulations. Landlords must keep this in mind when considering tenants. But you also have to make sure that everything you own is up to those same safety standards. Sorry fellas, but it’s not all collecting rent checks. Even trespassers can hold you liable if they get hurt in your unsafe pool.

How to Prevent Swimming Pool Lawsuits

Here’s a short summary of what you need to do if you want to avoid fishing dead bodies out of your pool and the costly lawsuits that come with it.

1. Comply with all safety requirements for your city and state. If you can’t afford them, you can’t afford a pool. But you’re a good little saver. Maybe next year.
2. Include a clause or separate pool disclosure and waiver. This is a tip for landlords or investors with rental property. Taking a few minutes to do this could save your ass in court. That way if some fool wants to work on his swan dive after his tenth martini, he’s already assumed the liability at least in part.

Your waiver should include the following:

Asset Protection with Royal Legal Solutions Can Keep You Above Water

Losing your investment, as noted above, is terrible. Losing your house is much worse. When it comes to owning a pool, be PROACTIVE with your liability before you have to be REACTIVE to a lawsuit.

Yes, there is work, responsibility and expense here, but you need to own a pair of big boy trunks before you go swimming in liability. Royal Legal Solutions can help you address legal matters relating to  your pool and construct an asset protection plan that keeps you out of court. If you would like advice on how to navigate this issue or begin protecting your assets like the pros, send us a message take our quick investor quiz for landlords and investors.

Lawsuits Are A Money Driven Business: What Real Estate Investors Should Know

 The title of this post says it all. As a real estate investor, you have to understand: lawsuits are a business. When someone wants to sue you, they are only looking for money. To be specific, your money.

How Do I Protect My Real Estate Investments?

You get a proper asset protection strategy.

A proper asset protection strategy keeps people from finding out what you own, and if they ever were to sue you, it limits what they can take. But more importantly, a proper asset protection strategy exhausts their will and their resources to fight you.

This keeps people from continuing with the lawsuit. It usually gets them to settle early and for less. It even gets them, in most cases, to stop the lawsuit before it starts.

What you have to understand is that, because lawsuits are a business, the main question people who want to sue you are wondering is: how do we get money out of somebody when we use them?

This question is answered with a proper asset protection strategy. And you better believe it's the correct one!

How a Proper Asset Protection Strategy Defends Your Assets

A proper asset protection strategy protects your assets from being seized by somebody via a judgement. It makes people (attorneys) believe they’re not going to get anything out of their investment in a lawsuit. This is extremely important.

Because, you see, lawsuits are only paid for in two ways: someone either has to pay an attorney to sue you or an attorney can take a case on contingency. (Attorneys usually take cases like these on contingency.)

Let’s say I’m an attorney who wants to sue you. While researching you, I find out that you have no assets. My research tells me you’ve qualified for food stamps for the past five years.

How much money do you think I’m willing to risk for a judgement which is merely a piece of paper? Without an asset to seize, a judgement is worthless.

Moreover, there’s no attorney worth their salt who’s ever going to take a case like that on contingency. When an attorney takes a case on contingency, that attorney is risking everything. Clients lose nothing.

Attorneys only take cases that they’re 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 do I make it look as if I don’t own anything?

Remember: Lawsuits Are a Business

Well, that’s everything. If you have any questions feel free to ask me in the comments below, I’d be happy to answer  them! Feel free to continue our discussion on this topic or share any of your thoughts on asset protection.

How My Client's Asset Protection Strategy Saved Her From Being Sued

On my blog I've gone over countless ways to protect yourself using an asset protection strategy. But what I haven't done is shown you real-life examples of how asset protection can benefit you, until now.

Get Information From Real Asset Protection Experts

There's a lot of bad information out there about how to protect your real estate investments. You may have seen YouTube videos or read forum posts from people who claim to be experts. T

he thing about the internet is, anyone can claim to be an expert. Even if they've just read a single Wikipedia article on the subject.

You may have even received bad advice from your CPA or an attorney who's a general practitioner in the field. These people will tell you real estate insurance is enough to protect you. But the fact is they don't know. Their advice isn't just wrong, it's dangerous.

Insurance covers things like negligence or a slip and fall in a house. It doesn't cover a lifetime of fraud or breaches of contract. You may think "hey I'm an honest person, I don't need to worry about lawsuits."

But that's not why lawsuits happen.

Understand Why Lawsuits Happen

The majority of lawsuits happen because of a misunderstanding. Take for example a client of mine. She recently bought a house and renovated it. During her renovations she put in some new plumbing because she thought it would add more value to the house.

asset protection case study

Then she went ahead and told the person buying the house how she re-did the plumbing. So they sent her an email asking what plumbing she replaced. She responded, "Well, I re-did all the plumbing in the house."

So they bought the house from her. Some months after the sale there was a leak that caused tens of thousands of dollars worth of damage. The people who bought the house from her threatened a lawsuit based upon her email that said she replaced all of the plumbing in the house.

Now, this seems to be a simple misunderstanding of what she meant in her email, but that was the basis of this lawsuit. I'd like to point out that this is actually a case of intentional fraud, which isn't something an insurance policy would ever cover.

My Client's Asset Protection Strategy Saved Her Thousands

Luckily, my client had the foresight to put in place a proper asset protection strategy, including a series LLC with an Anonymous Trust. Because of the superior position she was in due to her asset protection strategy, they eventually dropped the lawsuit against her.

As real estate investors, we should all be using this type of asset protection strategy. If you have any questions about asset protection, feel free to ask me in the comments below or read more of my free educational pieces.

Do I Need A Registered Agent for My Out Of State LLC?

Whether you're new to the real estate business or not, if you do business outside of your home state you're going to need an LLC registered agent. Learn more about this requirement and how to satisfy it below.

Why a Registered Agent Is Required For Every LLC

An LLC registered agent is required in every state that it does business. The only reason for the registered agent to even exist is because if someone wants to sue your LLC, and they're not able to get to a member or manager personally to be able to serve them. Then this allows them to serve the lawsuit onto the Secretary of State and be able to have a person that must receive service of process or the lawsuit. Typically, these services are able to be engaged for anywhere from between 40 and $75 per year online. And they're all fungible, meaning that they're all the same, no matter where you go. So I always recommend saying, what's the best deal that you an get, and be able to go with that. My name is Scott Smith, I'm an Asset Protection Attorney at Austin, Texas. I'm a real estate investor, and I wanna help you.

Why Is a Registered Agent Required For My LLC?

The purpose of the registered agent is to receive legal correspondence. So for example, if someone wants to sue your LLC, they'll mail the notices to your agent and not your house.

A registered agent is your LLC's point of contact for all legal matters in the state which it does business. The agent is legally responsible for all of your LLC's tax and legal documents.

So, let's say you formed an LLC in Delaware and you live in Florida. You would be required to get someone (it can honestly be anyone) who is a legal resident of the state of Delaware to be your LLC's registered agent. However, there are some exceptions to this requirement.

A few states allow your LLC to be its own agent. And in most states, you won't have to get an agent as long as you have a physical address in that particular state. (Don't try to use a PO box!)

Also worth mentioning is that you can be your own agent.

Can I Be My Own Registered Agent?

Yes you can! But fair warning: If you decide to be your own registered agent, you will be legally responsible for all of your LLC's tax and legal documents. This may cause you to miss an important piece of mail while you're on vacation or sick, etc.

The advantage in having someone else be your agent is that it removes your legal liability. And in that sense, a registered agent is a form of asset protection. Hiring an agent should cost you between $40 and $75 per year online.

And don't worry, they're all the same no matter where you go. So you won't have to compare anything except price when you shop around for an agent.

What Happens if I Don't Get a Registered Agent?

If you don't get an agent, you may be subject to fines and kept from entering into legal contracts or the state court system in the particular state that your LLC was formed in. Some states will even file criminal charges against you.

If you have any questions about registered agents and LLCs, feel free to ask me in the comments below. In the meantime, learn more about LLCs and the all new Series LLC structure.

If you still have personal questions or want to learn more about Royal Legal Solutions' Registered Agent Service, contact us now.

What Does An LLC Cost? And Is It Worth It For Investors?

People ask us all the time: "Is an LLC's cost really worth it?" This one has a simple answer. Absolutely, and this article will show you exactly why.

Let's be honest here. The cost of an LLC isn't nothing. But I promise you, not setting up an LLC is more expensive in the long run.

Setting up an LLC might cost you around $1000 depending on how much you want done with it. I know $1000 may seem like a lot to pay at first. However, an LLC will pay dividends in the long run. Check out my video:

Setting Up And Properly Structuring LLCs: The True Cost

Setting up and properly structuring LLCs isn't cheap.  However, they pay dividends in the long run.

Asset holding company is where you have a lot of your money tied up. The question becomes, do I really need an operating company? Do I really need the shell corporation for me to do all of my business?

A shell corporation (operating company) allows you to have a face to the world. It limits your personal liability from all of the business dealings that you do. This means real dollars, because a lawsuit against you, even if they can't collect against the assets, will go against your credit score. And with a low credit score, you won't be able to obtain the financing you need to operate your business and acquire property.

We're talking about less than $1,000 to protect your credit score, it's pennies on the future dollars that a bad credit score will cost.

An LLC/Shell Corporation Is Cheaper Than A Lawsuit

If you plan on being in the real estate business for the long haul, (I'm talking 10, 20, 30 years), the cost of an LLC is completely worth it.

On the other hand, no one can afford a lawsuit. The details of a lawsuit are required to be listed in public databases by law. So besides severely damaging your credit score and crippling your business, your reputation will also be jeopardized.

Who's going to want to do business with someone who's been sued before? Think about that.

I hope the above information has helped you. If you have any questions, I'd be more than happy to answer them in the comments below. In addition to being an asset protection specialist, I'm also a real estate investor. I know how it feels to be in your shoes.

If you have questions about what the LLC can do for you, schedule your consultation now.

Is Your LLC Easy to Sue or Is it Litigation-Proof?

You've likely heard online from some keyboard warrior or a CPA or perhaps even from an attorney that an suing an LLC is easy. This is absolutely not true.

LLCs are incredibly hard to sue, if not litigation proof, if they are maintained correctly. The problem is that most LLC owners don't do the things necessary to maintain their LLC's legal status. If you don't treat your LLC like an LLC, then when a lawsuit comes around the courts won't either.

Let's go over what you need to do to keep your LLC litigation-proof during a lawsuit.

How To Keep Your LLC Litigation-Proof

The first thing you need to keep in mind is that you must maintain records and accurate accounting of your company. If you don't have a company bank account, you need to get one ASAP. Here are two things you should ask yourself when it comes to your company bank account:

You need to run everything through a bank account for your company to make sure its seen as a legitimate and separate entity from yourself. Bonus: This will also make doing your taxes easier.

You cannot treat your company bank account as if it's your personal piggy bank. This means you have to be careful in the accounting for your company. If you ever take money out of your company account you must keep a record of it as a dividend from your company.

If you fail to do the above, your LLC's legal status will no longer apply. You will be easy to sue. Keep your records on point to keep your LLC protected.

Maintain Accurate Records And Suing Your LLC Will Be Harder

I recommend keeping an eye on your company bank account at all times. Even CPAs can make mistakes.

If you have any questions about what we just went over feel free to ask me in the comments section, I'd be glad to help you. If you've got this down, check out our other posts to learn more about preserving your wealth with an LLC structure.

If you're ready to form your LLC or improve your asset protection plan, we can help you. Schedule your personal consultation today. Our experts can assist with every aspect of company formation, management, and oversight. We're also happy to address your business banking and tax questions.

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.

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.

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.

Litigation Proof: Tornado

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.

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.

Spread out your company assets with a series LLC.

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.


Which One Protects You More From Lawsuits: An LLC or The Series LLC?

If you've got money, people want it. Lawsuits are one of the easiest, yet still legal, ways to get 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 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.

The series LLC allows you to "compartmentalize" assets. Which simply means you can spread your assets out so in case someone does sue you, only one of your assets will be at risk. I've already written a lot about the series LLC, you're welcome to read about them here. You can also read about what the IRS thinks about an LLC here.

Today I'd like to answer a question I've never answered before, at least on this blog. I know you might be wondering...

How Much Money Will Setting Up a Series LLC Cost Me?

Our pricing packages for setting up either an LLC or Series LLC at Royal Legal Solutions range from $850 to $4000.

So why should you bother paying for an LLC when you technically don't need to have one? I hate to answer a question with a question, but I've got no choice this time! Ask yourself this: Would you rather risk losing hundreds of thousands of dollars in a lawsuit or spend a couple thousand protecting your assets?

I don't want to see you caught up in a lawsuit with your pants down. I bet you don't either. And remember, you're not just paying for an LLC when you come to Royal Legal Solutions. You're paying for our expertise, professionalism, and unwavering commitment to making sure your assets are protected from lawsuits.

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!

3 Ways Real Estate Investors Can Hide Their Equity

Fact: Creditors Want Your Equity

Did you know lawsuits don't need to be resolved with strictly monetary settlements? Creditors can and will attempt to take away your equity as a form of compensation, essentially stealing everything you've worked so hard to build.
Once a lawsuit is in motion, the plaintiff can opt to receive equity and there's nothing you can do to prevent it. What you can do is hide your equity altogether, making it a less attractive form of compensation. What they don't know can't hurt you.

Defense #1: Take Out a True Mortgage

This strategy allows you to extract your money from the property. However, there are several drawbacks that make this less than ideal. For one thing, you have to go through the actual process which can suck up a lot of your valuable time. Then there's the closing costs. And you also need to factor in regular interest payments, which drops the return on your investment.
So why bother, right? Well, in some cases the upside can offset these costs. That said, there are other ways of protecting your equity.

Defense #2: Open a Home Equity Line of Credit

This technique should be considered as a first line of defense. While it will hide your equity from unwanted scrutiny, it won't protect you in the event of an actual lawsuit (more about lawsuits here). It's an effective deterrent, but that's about it.
The good news is getting a home equity line of credit is fairly straightforward (learn more here). This isn't a major hurdle and definitely warrants consideration as a component of your asset protection plan.

Defense #3: Establish a Mortgage Company

This may sound complex and over the top, but it's really not. The purpose isn't to have commercial clients. Instead, you simply want to issue a mortgage to yourself.
This tactic creates an additional layer of separation and allows you to establish a no-cost mortgage to yourself. The recording and attorney fees to setup the company are going to be much lower than a bank mortgage over time and you get all the benefits without incurring long-term expense.
The best part of this is in the event of a lawsuit, you won't need to pay off the mortgage before a creditor collects, allowing you to retain your equity through the mortgage itself.