Asset Protection for Real Estate Investors

[Brian Bradley]

Hello BP members and investors. I am an Asset Protection Attorney specifically for Real Estate Investors. I see lots of questions on this topic about how to structure your companies and protect your investments, but not a specific forum entitled Asset Protection, which is what we are all talking about. 

Asset Protection works by taking away the economic incentive for somebody and their attorney to sue you. The reality is that investors will face a lawsuit in their lifetime: it’s not a matter of IF but WHEN am I going to get sued?

A properly established plan performs three primary functions: lawsuit deterrence, settlement negotiation leverage and/or placing your assets out of the reach of a legal opponent.

You do this by:
- Insurance
- Using LLC's
- Combining them with Trusts
- Owning NOTHING personally in your name (the Rich own nothing, but control everything).
- Use separate legal tools
- DON'T FLAUNT YOUR WEALTH

The main ways clients use their planning are:
1. Reducing Fear
2. Deter Lawsuits
3. To focus their Financial & Estate Planning
4. To re-focus their efforts on their money making activity.

I invite everybody from BP newbies trying to get started, to your richest investor to chime in and ask any questions, and offer up their own experiences and protection plans. We are all in the investment game together, and will all face the same problems as we grow our assets and legacies. Asset Protection is NOT a one size fits all strategy, but is specific for each person per their current assets, worth, goals, and what they invest in. 

[Rob K.]

My view is that you should first ask yourself some questions before seeking professional help for asset protection.

1.    What is your tolerance for risk? Younger folks in the process of building their portfolio are likely to accept a higher level of risk than older folks with more established estates. Some folks are fearful by nature and sleep better knowing they have done everything they can to protect themselves, even though there is a significant cost. If so, you should accept and be comfortable that you are paying in large part because of your fear.

2.    What kind of risk are you creating based on the nature of your real estate activities? Are you a mom and pop landlord whose most likely risk is a premises liability claim likely covered by insurance or a small claims suit for return of a security deposit? Or are you a slumlord creating hazardous conditions at your property and racially discriminating against your tenants? If you are a flipper are you hiring qualified licensed/knowledgeable team members who know what they are doing or are you doing shoddy work without permits and not telling your buyers. Only by understanding the risk inherent in your activities are you then able to engage in an objective cost/benefit analysis for paying for asset protection.

3. How well do you manage risk? Do you have partners, investors, employees, significant others, tenants, borrowers, lenders, etc. where resentment tends to build in your relationships or are you on top of communications and fair in your dealings? Do you read the contracts you sign or do you just click away without reading when you get sent a document via docusign? Are you good at due diligence and do you understand what you are doing as a real estate investor? Understand and assess who is most likely to make a claim against you and why. Then you can get some context for an asset protection plan that might fit you. Try not to get caught up in fear based sales pitches.

4. Do you already have in place an estate, financial or tax plan? IMHO asset protection planning is best implemented as an adjunct to a larger estate, financial or tax plan, not as a substitute.