Protection your assets

[Jonathan Trimboli]

As a rental property investor, how many rentals or how much equity would you max out at before beginning to to put properties into another LLC?

[Scott Smith]

It really depends on your risk tolerance and your strategy for investing. Ideally, you want each asset to be held in it's own liability limiting structures. If each property has their liability limited from your other assets, then a lawsuit will be limited to that single property. If you have 5 properties in an LLC and there is a lawsuit that exceeds your insurance (or is excluded entirely) then all of your assets are exposed to the settlement/judgment. The downside of doing this is additional costs and administrative demands.

I often explain asset protection for people asking this question by using the analogy of the "5 pillars of asset protection." There are entities that can are created to allow you to scale without such a high administrative and monetary demand - entities such as the Series LLC. Some investors are comfortable with taking a higher risk, while other  proceed very cautiously in order to protect the assets they acquire.

As real estate investors scale it is important to also build your real estate investing team - finding professionals who are also personally real estate investors to work can help you really leverage your strategy. That would include lenders, contractors, property managers, attorneys, CPAs, etc. When you start asking questions like this one in any aspect of your investments it is a good idea to try and connect with a professional in that area for some advice. Regarding this question, it would be really easy to meet with an experienced attorney and have them talk you through the exposure you face and give you some strategies and pricing. From there it can be a pretty easy decision, but it is best to look into this before there is an issue. Once there is a lawsuit you can no longer legally change these structures until the legal proceedings are finished.

If you have more questions feel free to ask.