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Updated almost 11 years ago on . Most recent reply

Account Closed
  • Homeowner
1
Votes |
9
Posts

Asset Protection with an LLC

Account Closed
  • Homeowner
Posted

Hello all,

I am interested in the topic of asset protection via an LLC. I am also interested in all of the tax benefits/advantages associated with claiming business expenses, so…. forming an LLC for a rental property seems like the perfect solution. The actual process of setting up an LLC is pretty straight forward and I have already completed this step, what I am having trouble understanding is the proper entity structure for multiple properties and/or LLCs.

If you had two or more rental properties what type of entity structure would you use if they were in different states? Two/three/four LLCs, one LLC for all, Series LLC, etc?

Also, does anyone know of any free or relatively inexpensive resources that can inform me on similar/related issues? I spoke with a CPA on the phone but his hourly rate was $200. I don't think my basic questions warrant a specialized CPA at $200/hr, not yet at least.

Thanks for listening,

-John

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Bill Gulley#3 Guru, Book, & Course Reviews Contributor
  • Investor, Entrepreneur, Educator
  • Springfield, MO
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Bill Gulley#3 Guru, Book, & Course Reviews Contributor
  • Investor, Entrepreneur, Educator
  • Springfield, MO
Replied

I get a kick out some of these "protect my assets" threads when clearly there are few assets to protect, as if folks are hedging against the unknown of their future expectations rather than the reality of the day.

Adrian, an attorney for those who may not have noticed, just gave you the best advice as to how you look at business entities.

Also, as Duncan mention, get insurance!

I would have no issue at all in having 100 rentals in one LLC that was properly insured. Separate LLCs for each property is a waste of time, money, energy and nothing but a hoax by gurus and attorneys selling LLCs. Reread what Adrian said.

Once the corporate veil is pierced, and as a single member or related members in ownership, it most likely will be, you become personally liable. That means all of your assets are then at risk.

Now, can anyone tell me what a wholly owned business is? That's right kidos, it's an asset! The value of your company, it's income and every pencil in the drawer held by that entity are assets that can be attacked to pay any judgment. You didn't accomplish anything!

You also just increased the chances of mismanaging your LLCs, the more entities you have the more your managerial functions multiply, you don't have just one escrow account to manage and balance, you have multiple accounts to tend to. That means more time, more chances for errors and mistakes, more paid to your attorney, more paid to your accountant and your record keeping becomes a nightmare.

Marc mentioned a separate entity for multi-family, that can make sense. You have different entities for different business purposes, but he could hold 50 multi-family projects in one LLC, 100 single family homes in another LLC. Management and accounting, marketing and maintenance of the operations are all related.

You form business entities for business purposes not as a liability avoidance strategy. Limited liability is a side aspect of an entity it is not it's main function, don't let the name of the entity throw you, a Limited Liability Company simply allows a small business operation limited liability aspects compared to other corporate structures that may offer even greater liability protection from personal acts or administration. It doesn't mean limiting your personal liability from what you do.

While you do have the chance of limited personal liability if your operation is structured properly, well managed, sufficiently capitalized and insured, it doesn't protect your company or its assets. Insurance protects you and your company from claims and judgments arising from your negligence.

People need to be more concerned about how not to get sued than about being sued and losing. That comes from your management and how you get involved in operations. You have to be negligent to be responsible for others suffering from some peril to get nailed.

If it's raining and someone walks across my property with their nose pointed to the sky and they drown, I'm not negligent! I'm not liable for their demise.

Victoria, the governing law for the real estate you may hold will be that in the state where the property is located, not the state you live in. Having an out of state entity then means registration as a foreign corporation in the state where your property is located, which can be expensive and even more of an administrative issue. :)

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