All Forum Posts by: Eric Fernwood

Hello @Matthew Fiebig ,

I am a Realtor in Las Vegas and I do not know about Washington state contracts. However, the contracts should be similar so I will explain the process here.

The Las Vegas purchase contract has a period of time called the due-diligence period. I typically set the period to be 10 days with single family homes and 20 days with most multi-unit properties. During the due-diligence period the buyer can terminate the contract for any reason and get their earnest money back. You need to have similar verbiage in your purchase contract. If not, then you have the wrong contract. Below is the actual verbiage from the Las Vegas contract.

"Due Diligence Period: Buyer shall have ____ calendar days from Acceptance to complete Buyer's Due Diligence. Buyer shall ensure that all inspections and certifications are initiated in a timely manner as to complete the Due Diligence in the time outlined herein. (If utilities are not supplied by the deadline referenced herein or if the disclosures not delivered to Buyer by the deadline referenced herein, then Buyer's Due Diligence Period will be extended by the same number of calendar days that Seller delayed supplying the utilities or delivering the disclosures, whichever is longer.) During this period Buyer shall have the exclusive right at Buyer's discretion to cancel this Agreement. In the event of such cancellation, unless otherwise agreed herein, the EMD will be refunded to Buyer. If Buyer provides Seller with notice of objections, the Due Diligence Period will be extended by the same number of calendar days that it takes Seller to respond in writing to Buyer's objections. If Buyer fails to cancel this Agreement within the Due Diligence Period (as it may be extended), Buyer will be deemed to have waived the right to cancel under this section."

A few thoughts on due-diligence of multi-unit properties:

• Add verbiage to the contract that the due-diligence period starts upon I have access, utilities are on, I have copies of all lease agreements and access to their record of rent deposits.
• Never believe anyone’s books. Not infrequently they have generated some just for the sale.
• Make a point to talk to all tenants. What you want to ask are things like: are there any maintenance issues of which you are aware. Are you planning to renew you lease? If not, why? How much are you paying per month? Are there any changes you would like to see to the building?
• Have an qualified inspector go over each unit and the building in detail. Pay special attention to the roof and drainage. Check the water pressure. I find a lot of (expensive) deferred maintenance issues on the multi-unit properties here so be careful.

Keep in mind that multi-family properties have different characteristics than single family properties. For example, multi-family properties are generally only purchased by investors. Investors determine the value of a property based almost exclusively on its rate of return (or cap rate). If rents don't rise then the property value does not rise. So, unlike single family properties, multi-family property appreciation is largely based on rising rents. This means that if you are in a market where rents have been (and are likely to remain) flat, you need to consider a multi-family property only for cash flow; not for appreciation.

Multi-family advantages:

• Lower rental risk. A single-family property is either 100% occupied or 100% vacant. With a multi-family property if one unit is vacant you still receive a portion of the rent. With multi-family properties, vacancy risk is distributed across multiple units.
• Per unit cost is much lower with multi-family than single-family homes.
• Multi-family properties with four units or less (currently) qualify for standard 20% down investor loans. This is very attractive. My understanding is that more than 4 units may require commercial financing which is a more complex and expensive financing option.

Single-family home advantages:

• In Las Vegas, tenants in single family homes tend to move less frequently than the single people who are the dominate renters of multi-family properties. I believe this is because people who rent single family homes tend to be families with children. Parents want to provide stability for their children and thus do not want to move them to another school district.
• When it comes the time to sell, you have two potential buying groups with single family homes: investors and home owners. You could be in a market where rents are not increasing (so CAP rate valued properties do not increase in value) but the prices of single family homes are increasing. Or, you could be in a market where rents are increasing but property values are static.
• Financing is usually easier with a single family home investment loan.

Other multi-family vs. single-family considerations:

• In Las Vegas, multi-family seems to appeal to a different market segment than single-family. Because of the different market segments, the vacancy rate can be very different between the two. For example, currently the vacancy rate for multi-family properties is about 15%. For single family homes it is closer to 5%.

Matthew, I hope the above helps. Do not hesitate to post questions or drop me an email if I can help.

Best Wishes,

Hello @Eric T. ,

Congratulations on making the mental leap to buy where you can make money. Too often people choose to buy in their own area just because it is physically close despite the (lack of) return. So you know my bias, I am a Realtor in Las Vegas and my practice is almost exclusively remote investors (other states or countries) so I obviously see no problem with remote investing provided you trust the team.

If financial independence is your goal then I recommend that you vet every property by the following criteria:

• Sustained profitability - With real estate your minimum horizon is at least 7 to 10 years so a buying based only on the current market situation is likely to leave you in a very bad situation in a few years.
• Located in an area likely to appreciate over time.
• Landlord friendly laws and taxes.

Combined, these three requirements are not easy to fulfill. Below is a high level view of the process:

Below are the steps I would follow:

• Choose a city that has experienced sustained growth and is likely to continue to grow. Here is a map showing growth trends of major cities.  
• I would limit the locations to major cities with airports so you can easily get there. Also, I would choose a place where you would like to visit because (check with your accountant) trips to check on your properties are probably tax deductible and you might want to check your properties as part of a vacation.
• State/city/county income taxes. Most states have a personal income tax which can significantly impact your return. Nevada, Texas, Washington and Wyoming are among the few states with no personal income taxes.
• A location where annual maintenance costs are reasonable. Higher costs are sometimes due to climate or construction issues. For example, in heavy snow country you will have to include snow removal costs and more physical damage to driveways and the structure. Also, older properties tend to have more maintenance.

Once you have your top 5 cities, the next thing you need to know for each of your candidate cities is the type, configuration, location and rent range of the best rental properties. How can you find this information? Talk to local property managers. Property managers deal every day with tenants, maintenance issues, renting vacant units, local laws, evictions, etc. In short, every thing you need to know. Talk to 4 or 5 mid-sized local property managers in each city you are considering. Before you start making calls, develop a list of questions and ask the same questions of each property manager. (I have a set of property manager interview questions, drop me an email if you or any one else would like a copy.) Tell them that you are new to investing and are looking for a property manager to work with. After only a couple of interviews you will begin to have a very good understanding of the local market and what type of properties rent best and how long they typically take to rent. Remember that the property managers only make money when they collect rent so they want rentable properties too. The specific information you need includes:

• Type: Condo, high rise, single family, duplex, single story, two story, etc.
• Configuration: Two bedroom, three car garage, mud room, etc.
• Location: Usually a very specific area. For example, west of 23rd St and south of the river, etc.
• Rent Range: If the majority of the population to which you want to rent are willing and able to pay $1,000/Mo to $1,300/Mo. you should only be looking at properties that you can purchase, rehab and profitably rent in the same rent range.
• Property laws, taxes and regulations: This is a catch-all category of local/state issues that affect landlords: eviction process and costs, rent controls, state/local income taxes, etc.

You should now have a very good idea of what properties rent best and how much they rent for. The next step is to determine what such properties cost. The property manager may be able to help you here but if not you can use Zillow. Find recently sold properties that match the type, configuration and location you learned from your property manager interviews. Once you know typical costs, it is time to determine whether you can make a profit.

In my practice I am almost constantly making what I call an investigate/forget decision. I do this so often that I created an online tool which enables me to instantly estimate a break-even price (where rent equals recurring expenses). Below is a screen shot of the tool. If you (or anyone else) are interested in using this tool, drop me an email and I will send you the link. There is no charge or obligation for using the tool.

In the example above I entered the estimated rent and other factors and tapped Estimate. The result is that if the property were purchased for $185,000, the rent ($1,200/Mo.) would equal the recurring costs (debt service + taxes + insurance + property management fees + monthly fees). This means that if I thought I could get the property for $165,000 I would investigate further. If I thought I would have to pay $185,000 or more for the property I would forget this one and look for another. Remember that this tool is only for making a quick investigate/forget decision, not a purchase decision.

At this point you will know whether you can make an acceptable profit in a certain market. If yes it is time to dig deeper and start looking for a local Realtor that you can trust. If not move onto the next city.

Eric, I hope the above will get you started. Feel free to contact me if you have questions. 

Best Wishes,

Hello @William Roberts ,

I worked for Hewlett-Packard and IBM for over twenty years and one thing they continuously emphasized was to set a clear goal and then measure everything you do by whether it gets you closer or further from your goal. I think the same is true in real estate investing. The goal of the investors I work with is a life long revenue stream sufficient to meet their basic needs plus enough additional monies to enable them to do the things they want to do (travel, education for their children, etc.). If financial independence is your goal then you should measure every property by the following criteria:

• Sustained long term profitability - With real estate your minimum horizon is at least 7 to 10 years so a buying based only on the current market situation is likely to leave you in a very bad situation in a few years.
• Located in an area likely to appreciate over time.

If a property does not meet these criteria then you cannot afford to buy it no matter how inexpensive it is. If the property meets the criteria then the price does not matter. Some of the key indicators for sustained profitability and likely appreciation are:

• Population migration - Are people moving into the area or moving out? If people are generally moving out of the state/county/area then the rent and market value of your investment is going to decrease over time. Here is a page that provides population shifts by city.
• Jobs - The value of a property is no better than the jobs around it. This does not mean just the availability of jobs. The average income from these jobs needs to be stable or increasing. For example, if the state/county/area trend is from manufacturing jobs to lower-paying service jobs, your rent is going to go down as will the value of your property. Consider looking at ten year net income trends adjusted for inflation. 
• Property price trends - If property prices are trending down in an area, that is because there is less demand. If there is less demand to purchase, then there will likely be less demand for renting in that area too. Check the historical price trends (adjusted for inflation) for the area you are considering.
• Crime - Long term profitability and appreciation will not be found in high crime areas. There are websites that can provide this data.

Another important point is that before you decide where and what to buy (I call this property profile), talk to 4-5 mid-sized property managers in your area to find out what are the best rental properties (in your area). Property managers are a gold mine for local information on what rents and what doesn't plus they know the market trends and other issues affecting profitability. See this tread: http://www.biggerpockets.com/forums/12/topics/1527...

In summary, I think if you evaluate each property based on whether it gets you closer or further from your goal, your decision will be more straight forward.

Best Wishes,

Eric Fernwood

Hello @Cassandra Boyett ,

Buying turnkey can be an excellent purchase method but remember that this is only a purchase method, it does not assure you that you are buying in a “long term good” location, getting a good property or that you are going to get good tenants.

You have heard the old adage that the three most important things to consider in real estate are location, location and location. This is still true. When you are considering a property in any “location” you need to think long term. Do your homework and make an informed guess whether the state/city/area is still likely to be a good place to own a property in 15 or 20 years? What is happening today or this year is almost irrelevant because real estate is a long term (multiyear) proposition. Some of the key indicators you should consider are:

• Population migration - are people moving in or out? If they are generally moving out of the state/county/area then the value of your investment in 5 or 10 years is going to be much less than today. Here is a page that provide population shifts by city.
• The value of a property is no better than the jobs around it. This does not mean just that there are jobs, the earning power of jobs needs to be stable or increasing. For example, if the state/county/area trend is from manufacturing jobs to lower paying service jobs, your rent is going to go down and the value of your property will fall.
• Property price trends - If property prices are trending down in an area, that is because there is less demand. If there is less demand to purchase, then there will likely be less demand for renting in that area too. And, if property prices are going down, rents will also go down and even if you decide to cut your losses and sell you probably can’t even sell the property at break even.

The following two points are not criteria but something to keep in mind. 1) As long as you buy in a good area (see all the above), all but the worst mistakes will be corrected over time through appreciation, inflation and rent increases. However, if you buy in a bad (or trending down) area, there is little or nothing you can do to make money over the long term. 2) To quote a former president, "Trust, but verify"; never take others claims at face value. With the internet, you can validate any claims made by others. The data is there and all you have to do is to spend sometime and the claims will be either validated or you will know that you need to find someone else to deal with.

Below is the process model I recommend. The property profile and profitability are explained in details in this thread - http://www.biggerpockets.com/forums/12/topics/1527...

Best Wishes,

Eric Fernwood

Hello @Cassandra Boyett ,

Based on how you asked your question I can tell that you have made the mental leap that you have to buy where you can make money. Too often people choose to buy in their own area just because it is physically close despite the return. So you know my bias, I am a Realtor in Las Vegas and my practice is almost exclusively remote investors (other states or countries). So I see no problem with remote investing if you have a team that you can trust.

There is no easy answer but I will tell you how I would look for the right properties. I think it is important to establish clear criteria so that you can quickly vet potential properties. Once you have a clear criteria (what I call a property profile) the search becomes easier because you know exactly what you are looking for. You may have additional characteristics but I would recommend three at a minimum.

1) The property must generate a sustained positive cash flow.
2) The property must be located in an area likely to appreciate.
3) Landlord friendly laws and taxes

Combined, these three requirements are not easy to fulfill. I will provide a little detail on each of the three criteria:

• Sustained positive cash flow - The rent is high enough compared to the purchase price so it generates a profit and the time to rent is low. There is a lot more I could say but for the sake of brevity I will stop here.
• Likely to appreciate - In order for a property to appreciate you need a stable or growing job market and stable or increasing population.
• Landlord friendly laws and taxes. Clients have told me that in California, if the tenant knows what they are doing, it can take up to 1 year to evict a tenant and cost thousands. In Las Vegas, the time to evict is typically less than 30 days and usually costs less than $500.

Next: where and what to buy and can you make a profit? The process is illustrated below:

The steps I would take are as follows:

• I would choose a city that has experienced sustained growth and is likely to continue to grow. Here is a map showing growth trends of major cities.
• I would limit the locations to major cities with airports so you can easily get there. Also, I would choose a place where you would like to visit because (check with your accountant) trips to check on your properties are probably tax deductible.
• State/city/county income taxes. Most states have a personal income tax. This can significantly impact your return. Nevada, Texas, Washington and Wyoming are among the states with no personal income taxes.
• A location where annual maintenance costs are reasonable. Higher costs are sometimes due to climate or construction issues. For example, in heavy snow country you will have to include snow removal costs and more physical damage to driveways and the structure. 

Once you have your top 5 cities, the next thing you need to know for each of your candidate cities is the type, configuration, location and rent range of the best rental properties. How can you find this out easily? Talk to local property managers. Property managers deal every day with tenants, maintenance issues, renting vacant units, local laws, evictions, etc. In short, every thing you need to know. Talk to 4 or 5 mid-sized local property managers in each city you are considering. Tell them that you are new to investing and are looking for a property manager to work with. Develop a list of questions and ask the same questions of each property manager. (I have a set of property manager interview questions, drop me an email if you or any one else would like a copy.) After only a couple of interviews you will begin to have a very good understanding of the local market and what type of properties rent best and how long they typically take to rent if the properties are market ready. Remember that the property managers only make money when they collect rent so they want rentable properties too. The specific information you need includes:

• Type: Condo, high rise, single family, duplex, single story, two story, etc.
• Configuration: Two bedroom, three car garage, mud room, etc.
• Location: Usually a very specific area. For example, west of 23rd St and south of the river, etc.
• Rent Range: If the majority of the population to which you want to rent are willing and able to pay $1,000/Mo to $1,300/Mo. you should only be looking at properties that you can purchase, rehab and profitably rent in the same rent range.
• Property laws, taxes and regulations: This is a catch-all category of local/state issues that affect landlords: eviction process and costs, rent controls, state/local income taxes, etc.

You should now have a very good idea of what properties rent best and how much they rent for. The next step is to determine what such properties cost. The property manager may be able to help you here but if not you can use Zillow. Find recently sold properties that match the type, configuration and location you learned from your property manager interviews. Once you know typical costs, it is time to determine whether you can make a profit.

In my practice I am almost constantly making what I call an investigate/forget decision. I do this so often that I created an online tool which enables me to instantly estimate a break-even price (where rent equals recurring expenses). Below is a screen shot of the tool.

In the example above I entered the estimated rent and the other factors and tapped Estimate. The result is that if the property were purchased for $185,000, the rent ($1,200/Mo.) would equal the recurring costs (debt service + taxes + insurance + property management fees + monthly fees). This means that if I thought I could get the property for $165,000 I would investigate further. If I thought I would have to pay $185,000 or more for the property I would forget this one and look for another. Remember that this tool is only for making a quick investigate/forget decision, not a purchase decision. If you (or anyone else) are interested in using this tool, drop me an email and I will send you the link. There is no charge or obligation for using the tool.

At this point you will know whether you can make an acceptable profit in a certain market. If yes it is time to dig deeper and start looking for a local Realtor that you can trust. If not move onto the next city.

Casey, I hope the above will get you started. Feel free to contact me if you have questions.

Best Wishes,

Eric Fernwood

Hello @Tony Leighty ,

I got the same response when I first started. At first I was dismayed by their negative comments but I continued because I found that nothing came close to real estate in terms of achieving financial independence. Most people do not understand that when you buy rental real estate you are buying long term revenue streams. With other types of investments the purpose is to accumulate funds. Streams continue while funds eventually run out over the long term.

Below is what I share with prospective clients who are also wondering if real estate is the right investment for them, and I hope it will encourage you to continue to pursue real estate.

=========

Why Real Estate

Most people do not understand the fundamental difference between real estate and other investments. When you buy investment real estate you are buying a long term revenue stream. With other investments the purpose is to accumulate funds. Let me explain the difference between the two as it applies to achieving financial freedom.

How much money would you need to achieve financial freedom? My answer would be a monthly revenue that would cover all my bills plus additional monies to enable me to live where I want and never need to work a normal job again. The specific amount would vary depending on your cost of living and such but I will choose $5,000/Mo. as a working number.

There are basically two ways to generate a monthly revenue stream. One way is to accumulate enough funds and live off of those funds. How much you need to accumulate depends on how long you need the revenue stream to last. If you only need the stream for 1 year then $5,000 x 12 = $60,000 is all you need to accumulate. One year would not work for me and probably not for you either. Suppose you need the stream to last for 20 years? The math is $5,000 x 12 x 20 = $1,200,000. Not only is that a lot of money (post tax) to accumulate but I am not certain any fixed number of years will work because you do not know how long you are going to need the monthly income (live).

Another factor to consider is inflation. Official inflation during 2014 is at 1.7%. However, remember that the “official” inflation numbers do not include energy or food. Personally, I use energy and eat so the inflation I experience at the gas station and the grocery store is much higher than the “official” number. Depending on whose numbers you use, actual inflation is between 6% and 10% per year. For simplicity, let's assume that from now on inflation will be 5%. What this means is that we will need 5% more each year just to have the same buying power as the previous year. (I am ignoring interest income since CDs and such are only paying 1% which is lost in the inflation numbers.) How much do you need to accumulate assuming 5% inflation, 20 years of revenue at $5,000/Mo? By my calculation: $2,055,000! This does not make sense. There are fundamental problems with the lump sum approach:

• Since future inflation rates are unknown you do not know how much you need to start with. Remember that in the 1980’s the “official” inflation exceeded 14%. If I recalculate the amount needed based on 14% the lump sum needed to generate $5,000/Mo. is $6,505,830!
• How are you going to accumulate the $1,200,000 (after tax) starting capital let alone $6,505,830?

Now let's look at investment real estate. How much money do you need to build a $5000/Mo. revenue stream? Suppose you purchase a property for $100,000 and rent it for $900/Mo. The monthly PITI would be about $550/Mo (20% down, 30 year note). (Warning, over simplification coming!) If I assume the property is always rented the numbers work out to be: $900/Mo rent - $550/Mo. PITI results in a revenue stream of $350 per month! If I obtained 15 such properties I have a lifelong revenue stream of $5,000/Mo. And it's going to improve over time as mortgages are being paid off. Let's compare the amount of money necessary to establish a $5,000/Mo. revenue stream with real estate vs. a lump sum (with zero inflation).

Comparing the amounts needed to meet our $5,000/Mo revenue stream:

• Lump sum: $1,200,000 provides 20 years at $5,000/Mo. assuming no inflation.
• Real estate: $300,000 provides today's buying power of $5,000 perpetually regardless of inflation.

There are huge differences between the lump sum and a real estate revenue stream:

• Inflation: If you are drawing from a lump sum, inflation is your enemy. With a real estate based revenue stream inflation is your friend. This is true because rents tend to track inflation but debt service is constant. Further, when inflation occurs interest rates increase limiting people’s ability to purchase homes thus increasing demand for rental properties.
• Tax savings: With the lump sum approach the IRS will love you (not good) because everything is visible and easy to tax. With real estate there are lots of expense deductions (like coming to Las Vegas to check on your properties!) plus the IRS mandates that you depreciate the property over 27.5 years. Depreciation will be about $2,900/year/property (in the above example) that will be deducted from the rental income and may shield other income.
• Little money needed to start: With the ready availability of 20% down investor financing you can begin your revenue streams with $20,000. And, accumulate more properties over time using the profits of the existing revenue streams to buy more revenue streams.
• Forgiving: As long as you buy in a good area, all but the worst mistakes will be corrected over time through inflation and rent increases.
• Convertible: Suppose single family homes are the best investment today and 5 years later the best investment are condo medical offices. IRS 1031 enables you to sell (swap) the single family homes in exchange for condo medical offices and, if handled correctly, is not a taxable event. I know of no other type of investment vehicle that would allow exchanges of like kind with no tax consequence.

In summary, real estate investing is the easiest, safest and least time consuming (common man's) path to financial independence.

===================

Best Wishes,

Eric Fernwood

@Troy Fisher @Michael M. @Tom S.

Tom, thank you for bringing up a very important point on safeguarding assets (or anything else): The cost of protection needs to be consistent with the risk of loss. I thought about this but failed to write it in my prior posts. So, let me correct my omission.

My clients that have one (or two) properties rarely have them in a LLC but I believe that at least one has an umbrella policy. One of them used a book from Nolo Press (good source of readable legal information) to create his Nevada LLC. I think this is the book he used. Also, while I was searching for the Nolo Press book I ran across a WikiHow article on forming an LLC in Nevada which looks interesting and walks you through the State of Nevada’s site for creating your LLC. I think creating a Nevada LLC costs $125. 

Some of my mid-sized clients (3 to 5 properties?) use a Series LLC (one property per LLC). A few of my largest clients have Nevada Asset Protection Trusts which encompass a Series LLC which contains their business, real estate assets and various other holdings.

There is not a single "right" answer for all situations. As you acquire more properties and personal wealth you should periodically reevaluate your level of protection. As Troy correctly pointed out, for one or two properties the cost and effort of creating the full Nevada Asset Protection Trust and Series LLC is an over kill.

One additional item you mentioned is the challenge of LLCs and financing. I will tell you the process most of my clients follow but remember that you need to seek competent authority before you do anything.

Many of my clients buy the property (and obtain financing) in their own name. Once the deed is recorded, they transfer the title into their LLC. So, the loan is in their name but the property is owned by the LLC. Some things for you to consider:

• I do not believe that lenders like this approach but I have never heard of a lender calling a loan because of this. You would also have the same issue if you transferred the title into a living trust which people do all the time.
• In Nevada (and I assume other states as well), you protect your ownership of property against title defects or recorded liens and such through title insurance. However, some title insurance policies become invalid if you change the ownership (add a person to the title) or change the form of ownership. There is usually an "extended" or "premium" policy option (it was $145 at the closing I did last week) which allows transferring ownership into a LLC or trust as long as the actual owners remain the same. Perhaps someone with more knowledge could comment on title insurance forms?

Once again, thank you Tom S. for bringing up something I should have stated previously. This sort of feedback is one of the great aspects about Biggerpockets!

Hello Caleb,

Before I attempt to answer your question, you need to know two things:

• I am not an attorney and am in no way qualified to give legal advice. You will need to talk to competent authorities before you do anything.
• I am a Realtor in Las Vegas and my practice is almost exclusively remote investors and most of my clients use either LLCs or LLCs in combination with what is called a Nevada Asset Protection Trust to protect their assets. 

The structure that the attorneys I have listened to advocate the following legal structure:

Some people I know who do not even own real estate (or any assets in Nevada) use the Nevada Asset Protection Trust to protect non-real estate assets due to the security it provides. Currently, 15 other states offer similar trusts. (I will provide links to further reading later.) Once you establish the trust you create what is called a Series LLC inside the Nevada Asset Protection Trust. A series LLC is no more difficult or expensive to set up than a standard LLC but with the Series LLC you can create more LLCs (one asset per LLC) at will at no additional cost or effort. Whether the assets are located in Nevada or other states does not matter. The only catch is that you need an agent that is a resident of Nevada. I am the agent for several of my clients. Once you read about the trust, you will see that the trust agent does nothing other than receive any legal notices sent to the trust.

Another approach I occasionally hear recommended is to just get a large umbrella policy and forget LLCs or an asset trust all together. However, I have heard more than a few attorneys state that umbrella policies have the opposite effect of what is intended. One even called umbrella policies a "lawsuit magnet". As she explained it, if you go to an attorney wanting to file a lawsuit against someone, the first thing your attorney will do is contact the defendant's attorney and find out if the defendant has sufficient assets to make it worthwhile and how hard it will be to get at those assets. If your attorney sees unprotected assets (like real estate) and a large umbrella insurance policy, the attorney knows that he is going to make a lot of money in fees. However, if your attorney sees a multilayered defense like a Nevada Asset Protection Trust enclosing a Series LLC (one asset per LLC) they will know that the assets will be so hard to get at that it will not be worth the effort thus ending the lawsuit before it starts.

Below are some links for further investigation. 

• Forbes article on Nevada Asset Protection Trust
• Another good source of information on the Nevada Asset Protection Trust
• Series LLC Article
• Nevada Series LLC Article

I hope the above helps.

Hello Michael,

As I have mentioned, I am not an attorney.... 

My understanding is that the attorney representing the plaintiff would start by calling the other defendant's attorney and discussing the case and the defendant's assets. At that time it would come out that you have an umbrella policy. Alternatively, if the plaintiff's attorney receives in response a link to a Nevada Asset Protection Trust article and a note saying "good luck" it would be over.

Is this how it actually works? I do not know. The attorney I mentioned indicated that discovering this would not be an issue. Nevada Asset Protection Trusts and umbrella policies only come into play when significant lawsuits backed by attorneys come into play. Not casual research by an individual.

@Michael M. @Tom S.

Hello Tom,

You brought up a good point - umbrella insurance policies. There is a nationally known attorney in Nevada who only deals with protecting assets. He is absolutely not a proponent of umbrella insurance policies and in fact called them a lawsuit magnet. Note that I am not an attorney and am not qualified to give any legal advice so consider what I am about to say only as food for thought.

As I understand it, if you go to an attorney wanting to file a lawsuit against someone, the first thing that your attorney will do is find out if the party to be sued has sufficient assets to make it worth while and how hard it will be to get at those assets. If the attorney sees unprotected assets like real estate and a large umbrella insurance policy, the attorney knows that he is going to make a lot of money in fees. This is why this attorney considers umbrella insurance policies lawsuit magnets.

The concept behind the Nevada Asset Protection Trust (or similar types of trusts) is that the assets will be so hard to get that it will not be worth the effort thus ending the lawsuit before it starts.

That is my 2¢'s 8-)