LLC vs insurance alone: taxation

[Loic Assobmo]

Hey yall can any one explain to me the taxation for LLCs. First, do folks use their home owners insurance as an alternative to LLCs? Which type of LLC entity is best for investors owning several rental properties. I know the benefits are in terms of asset protection, however, I am a bit confused how you pay yourself, as well as how you tax your income. Also, how do you apply your business deductions - pre or post taxation?

[Scott Smith]

This answer is in regards to your question about a scaling system that protects your assets. I usually break things down into the "four pillars" of asset protection - there are more strategies than what I mention, but this is how you build a good foundation. The first pillar is a good insurance policy [policies] as that cover the majority of your exposure. However, it only protects you from one type of liability: accidents.

After that you want to compartmentalize your assets, which is often accomplished through the use of LLCs or corporations. I personally find the Series LLC to be a great tool for the individual investor who is planning to expand their operation, as it allows for you to scale infinitely - check out this article to learn more. The third pillar is somewhat similar - you want to separate your operations from your assets. That means you establish a Traditional LLC to carry out the operations of your investments, in order to separate the liability from your assets, including: paying property management, paying contractors, collecting rent, marketing, etc. Finally, with the use of Trusts while establishing these structures you can add a level of anonymity by removing your name from public record.

This isn't legal advice, simply my opinion as a real estate  investor.