Asset Protection vs. 30-year terms!! Can't do both??

[Brian Bistolfo]

Hi Everybody,

Looking to hear from you seasoned investors on this one. I've picked up a number of properties on 30-year notes in my personal name, but as I scale up this starts to become a major liability issue. It sounds like your protection from getting sued if someone gets hurt on your property is basically nil if that property is under your personal name...and no, an umbrella policy will not save you from a motivated lawyer. And yet it's almost gospel around here that you should get "10 under your name and 10 under your spouse's name" before acquiescing to the crappier terms of private/portfolio loans!

The alternative seems to be to structure things "properly" in an LLC (or set of LLCs) from the beginning, and the LLC owns the properties. Oops, no more wealth-building fixed-rate mortgages for you! It sounds like the absolute best you can do these days on a SFH that's owned by an LLC or corporation is 6.5% interest / 25-year terms / ARM, which are much riskier in the long run for buy-and-hold investors.

So...is that it? Is it basically a stark choice between favorable Fannie/Freddie -type terms and actual asset protection? If you own 20 properties, presumably you're trying very hard to get your net worth up and keep it there, which isn't going to happen if you're getting sued every 10 years because you have so much exposure (20 properties = 20x the probability that something will go wrong).

If you can drum up owner financing that's great...maybe there are also some large commercial loans out there where you can refi your whole portfolio into something reasonable. Your thoughts much appreciated!

[Karen Rittenhouse]

@Brian Bistolfo Once you (and your wife) purchase, you can then put the properties into individual property trusts. That "individualizes" the properties so that any lawsuits can go against only the single property that is in that one trust. It prevents anyone from coming against everything you own in one swing.

And, it keeps your name off of public record which is important so that no one sees how much you own.

Asset protection is vital if you plan to own much and/or to create wealth. There is much to it and LLCs are only the beginning. With simply an LLC, attorneys quickly "pierce the veil" to come after you personally.

You need a good CPA and entity attorney to set you up properly. Proper structure also gives you amazing tax benefits.

Great question and worth every dime you spend and every minute of time it takes to make sure you and your companies are structured properly.