Asset Protection-Moving from an individual investor to Systematic Investor

[Kumar Paj]

After listening to Asset Protection podcast and having a sizable portfolio, I started believing that now it is the time to move on with systematic approach and long term strategy. As a part of long term strategy, I am considering to put all my rental properties under LLC. Here are my specific questions and I would appreciate any feedback and inputs from experienced investors, attorneys and RE Agents.

- It is generally believed (also recommended by Scott Smith on BP Podcast 109) that it is a good idea to set up 3 LLC's; One an asset holding company for flips, another for buy-and-holds, and the third one is the operating company. I get the reasoning behind this but the key question is at what stage of your business cycle. Obviously it doesn't make sense to set up 3 LLC's if I've 2-3 rental properties and I do only 1-2 flips per year. However, is there any rule of thumb in terms of number of properties or portfolio size in $$ when an investor should seriously consider this (3 LLC's) strategy???

- How difficult it and costly it is to operate/maintain LLCs?

- How about Series LLC? Can I have a Series LLC instead of 3 LLC's per my note above? Can someone share some more info about this?

- As of now, my rental properties are on my and my wife's name (3 with mortgage and 4 cash purchase). If I set up a new LLC (assuming that is the right strategy), How do I transfer these properties to LLCs? What about mortgages?

- What about insurance? What happens to my current insurance?

- What about future purchases? How easy or difficult it is to get a commercial loan for future purchase?

I think, I already asked too many questions….Would appreciate inputs from experienced investors, Attorneys, CPAs….

[Kathy Henley]

@Kumar Paj  The best book which I read for understanding corporate structures was, "Start your own Corporation," followed by, "Run your own Corporation," by Garrett Sutton.

We found an attorney with real estate experience, in the state where we invest. She is familiar with the prevailing winds of court cases and advised the best corporate structures for the area. It was not expensive, less than $2000 for setting up a Limited Partnership for our husband and wife team, which owns the assets and gives a managing contract to our LLC which markets and manages the properties. The LLC we set up ourselves.

When we talk with the attorney for advice throughout the year, there is a charge. To untangle a mess is always costlier. We have property insurance coverage, signed for by the managing LLC. We have business insurance on top of property insurance. I have talked with commercial bankers but haven't yet closed on a deal with one. The talk was that we would sign as individuals for the loan. This will lead to one of those phone calls with the attorney, before anything is final.