Asset Protection - local, large company, or self created LLCs?

Question

Hello everyone!

I've been looking into asset protection for real estate and I was wondering what everyone prefers to use?  I've spoken with Royal Legal Solutions and similar nation wide companies specializing in real estate asset protection and they seem to provide a good service.  However, it is quite expensive in initial setup ($5-10K depending on what services you're looking for), plus an extra few hundred for each new property added.  Long term, this doesn't sound bad, but I'm just starting out and don't have oodles of cash.  On the other hand, I really really want to do asset protection correctly and have no legal experience myself.

Another option is to look into local asset protection attorneys and see what they offer.  I haven't done this yet but plan to.

And finally, I can set up a series LLC myself and hope I do it correctly, never piercing the corporate veil.

What do you all do, and what did you do when starting out?  I'm looking for recommendations as to whether I should start now with one of the big companies and account for the loan I would need to set up the legal protection in my next property, or if another approach will be better.  Right now I have just the one property, currently held in my name.

Any advice you can give would be appreciated!  I know that most of the people who respond are not attorneys, so the disclaimer "you should definitely talk to a lawyer to be sure of the law" is understood.

Doug Spence · Answer

@James Ross This is definitely one of those questions where you can ask 100 people and get 100 different answers. Attorneys will always tell you to set up entities for everything because their job is to protect you and that's arguably the safest option, plus they make money off of it.

Personally, I just use umbrella insurance because its very affordable and I think its a good balance between a complicated, expensive asset protection setup, and just being completely exposed owning everything in my personal name without any protection.

I think it just depends on your comfort level, risk tolerance, and how much you're willing to spend! Let us know what you end up deciding and good luck!

Marcus Auerbach · Answer

You don't need to worry about "legal" asset protection, until you have significant assets to protect. How much is significant? That's debatable, but let's call it 7 figures in equity. Otherwise your juice is not worth the squeeze for an attorney.

But you do have several layers of asset protection, before you get to the whole LLC held in a Delaware Trust thing:

1.) maintain your property, make sure it's safe and well maintained

2.) pick good tenants

3.) make sure you treat your tenants professionally (don't give them a legitimate reason to hate you!)

4.) use a good lease contract (nothing homemade or "typed up" by a local attorney)

5.) maintain good property insurance (your lender will make you), comes with liability

6.) get umbrella insurance that covers the rest up to $1MM

Here is my question: If you do all that, what would have to happen, so a tenant can sue you AND win AND get awarded more than $1MM by a judge? I have not found anyone who could have given me a good answer to that question. Also, I have not seen a case in my 15 years as active investor here in Wisconsin (State law matters) - which does not mean they don't exist, but just not very common.

Doug Spence · Answer

I use USAA for my umbrella policy, and they require each individual property's policy to be covered up to a certain amount. I can't remember what the number is, but i imagine each umbrella policy has different requirements. Good luck!

James Ross · Answer

Thank you Doug!  Umbrella is looking like a good way to go for starters.  If I may asked, do you maximize your regular liability insurance as well or do you rely on the umbrella policy?  I recently noticed that it is only a few dollars extra a month to go from $300,000 in liability insurance to $1,000,000, which seemed very worthwhile.  Presumably that plus umbrella insurance as added safety.

I also found a good summary of thorough asset protection here which was a good quick read: https://www.biggerpockets.com/...

James Ross · Answer

Thanks so much Marcus!

I was also wondering about umbrella insurance, so I appreciate your including that in your list.  I've been doing my best on the rest of the items on your list already but it's good to have them listed out.

For when I do gain enough assets, would that be best handled through a large real estate investor legal firm or taking another route?

Do you (or anyone reading this) happen to have any recommendations as to companies for umbrella insurance?  I'm seeing Travelers, USAA (if military), Liberty Mutual, Allstate, and Chubbs all highly rated from some cursory research, with different strengths.

Asset Protection - local, large company, or self created LLCs?

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