Do You Need Asset Protection if You Don't Have Assets?

Yes, I got all caught up in promises at the free sales event. I was going to invest in real estate, I was going to be rich, and I would need asset protection and it had to be setup correctly, not some legal shield template. Some $10,000 later I found myself with trusts I didn’t need, entities I didn’t use, in States I didn’t live in, and an education on how to transfer all this wealth I was to accumulate.

The answer comes easily now, some 5 years later in my real estate investing career. I’ve made money, I’ve lost money and I can’t say I’m rich yet like they told me I would be. Jaded? A little, because I could have used that money for real estate investing!

Two Examples where an LLC is Advised Even with No Assets

First, one lady I know got a property under contract in her personal name and she intended to wholesale to another person. This isn’t normally a problem as she didn’t have any assets, but she WAS in the middle of a bankruptcy and it caught the attention of the bankruptcy court. Their question: “how can an individual buy property when they are bankrupt?” This caused reopening of her bankruptcy procedures and a lot of maneuvering on her very savvy real estate agent to get the property to the end investor. Had she made the offer in her LLC or S-Corp, the transaction would have gone un-detected.

Another very scary situation was with a man I know got a property under contract in his own name with the intention of rehabbing and reselling utilizing a joint venture money partner. The money partner funded the transaction and later found out this man owed a LOT of money to the IRS. His name was on the deed as an asset, and it was her money that funded the transaction. Even a Deed of Trust can’t protect the money partner from the IRS if you funded the project. Can you imagine being that money partner facing a total loss of the investment? Had the transaction been in an entity, this too would have gone un-detected.

Does This Mean You NEED Asset Protection?

Do you have a squeaky clean background, decent credit, pay your bills, no history of deceit, paid all your child support, never convicted of a crime, nor have any outstanding judgments? If so, you are probably are OK for your first deal to be in your own name and not worry too much about protecting your assets. Get insurance and make sure you are protected from any issue related to your first deal.

If you decide you like real estate investing and really want to make it a business, then go ahead and talk to your CPA or attorney on how to best protect your assets. This advice is the same whether you choose sell apples on the street corner, open a retail store or online store, broker financial transactions, create inventions or any other adventure that you could make a business out of. Try it out first and see if it’s right for you. If it is, then setup your business correctly.

However, if you have some skeletons in your closet, owe people money, have some scorned relationships either personal or with the IRS, then you may want to setup an entity to so you don’t attract unwanted attention (a term my son the Marine learned in basic training).

Here's Excellent Example of Asset Protection in Action

Robert Kiyoski, famous for his book “Rich Dad Poor Dad” has several different business that he runs through several different entities. Mr. Kiyoski, from what I can see, enjoys a very wealthy lifestyle. But a law suit resulted in a judgement that was beyond what one of his companies could honor, that entity, and only that entity filed for bankruptcy (http://abcnews.go.com/Business/rich-dad-poor-dad-author-files-bankruptcy/story?id=17463158). I don’t know any of the particulars, but this is an example of excellent asset protection, where the acts of one company didn’t affect his other companies.

How has Asset Protection helped you? How has NOT having asset protection hurt you?