Managing liability (via LLCs) while using residential loans

[Robert Schwenkler]

Hi gang,

I'm just starting to look into/learn about commercial lending, and of course the terms on residential loans are typically better, sometimes by a large margin.

David Greene and other BP hosts talk about how people can get up to 10 residential loans to finance their investments.

My questions is around how one would manage liability/asset protection in this case? If I bought 10 properties with these loan types and kept them all under my name I'd be putting myself at an extremely high level of exposure to lawsuits.

Is there some kind of workaround to place the properties in holding companies while still retaining the residential loans? Or is it necessary to go the commercial route to really create solid asset protection?

[Stuart Udis]

LLC's certainly offer personal protection if used correctly but most real estate investors form LLC's but fail to operate their business properly thereafter which can make it easy to pierce the corporate veil. Speak with a local attorney who is familiar with how courts in your jurisdiction rule on this subject and don't operate like you are invincible because the deedholder is an LLC. More importantly sign contracts each and every time you engage a vendor/independent contractor, make sure you have appropriate levels of insurance, and make sure any vendors/independent contractors you engage is properly insured and list you as additional insured. Perform these steps consistently and you will avoid far more liability than merely owning real estate through an LLC.