All Forum Posts by: Rob K.

My current self-directed IRA custodian does not have a brokerage account option. I have a self-directed Roth IRA that owns real estate and invests in notes but am considering diversifying into a brokerage account. As I understand it, I can do a partial transfer out of my Roth to a standard brokerage and basically set up an IRA with the new brokerage firm. Has anyone done this and are there positives or negatives to this approach? Once the brokerage account is established is it basically a separate IRA outside the self-directed custodian's control?

I know that this may be easier with checkbook control, but that is not really my question. Thanks to those that respond.

A frivolous lawsuit is by definition a lawsuit that has no merit. You generally don't need asset protection for protection from frivolous lawsuits since you will win. You need to hire and pay for an attorney even if you are a target of a frivolous lawsuit if you are not going to tender it to your insurance company and you don't want a default taken against you or your entity, the same as if you were the target in a legitimate lawsuit. 

Sometimes you may want to pay nuisance value to get rid of a frivolous lawsuit. While it is possible that a fancy asset protection set up might give you some negotiation leverage with such a claimant, this ephemeral "benefit"  is probably not worth the cost in most situations.

The idea that there are unscrupulous attorneys out there that first look for equity and then manufacture reasons to sue you is a fear pitch used by asset protection salespersons, but it is not really based on any kind of reality in my experience. Attorneys who would adopt this approach would not last very long as attorneys.

Hi Mike,

My wife and I did the same thing and held on to our 2 bedroom condos in village park as rentals when we moved out 25 years ago. Still have them. Great way to get started in real estate investing.

I use the US Bank cash + card to pay utilities on my rentals, primarily water bills. This card has categories you can select each quarter which rebate back 5% up to $2,000 a quarter. I always max out the utilities category each quarter.

Once I max that out, I put utilities on my Barclaycard Rewards world master card which gives rewards of a straight 2 % on utilities.

I also have the Chase Freedom, Discover, and Citi-Dividend cards which feature rotating categories each quarter at 5% rewards. I do track these each quarter and give my wife a "cheat sheet" each quarter for which card to use for her spending. 

I also use Chase ink for 5% back on telecom/internet/cable charges, and a legacy chase ink card that gives back 3% on home improvement (home depot) charges. 

I also track the promotional bonus offers for airline miles and go for those now and then.

I have a lot of credit cards and I never cancel them, so my available credit is very high and my utilization rate is therefore always pretty low which helps keep my credit score high. As others in the thread have mentioned, ALWAYS pay your balance in full each month.

It does take some time to track, but there are benefits to being a sophisticated consumer of credit if you do a fair amount of spending. It is ironic that under our current financial system, the rewards returns you can get on credit card spending exceeds the savings rate you can get on even high interest online accounts.

The other practical aspect of this discussion that needs to be observed is that if you have a complicated asset protection set up, once there is a significant claim in which you desire the setup to protect you, their is a good chance it will be put under a microscope once litigation commences. 

Granted, such a setup can sometimes give you negotiating leverage with a creditor trying to collect. On the other hand, the attorney's fees for having to defend it in court can get very high. Their are many litigation tools competent litigation attorneys have available to them to put your structure into issue in court. Even if you win, you may lose because of the cost you have had to incur. My experience is that most real estate investors who thought they had a foolproof asset protection plan experience a high amount of stress and anger once they learn of the cost and energy it will take to defend it in court and the amount of private information that will need to be turned over to the creditor in the discovery process. The litigation process is inherently uncertain.

This is why having insurance that can cover you is the best first line of defense. If the claim is covered, the insurance company pays for the defense of the claim against you which allows you to sleep at night.

Far better for the real estate investor to educate themselves and learn to assess and understand their tolerance for risk and how and what activities create risk for them before embarking on an asset protection plan. It is not always easy or foolproof, but avoiding the claim in the first place can be the best protection.

Well you finally cited case law, and I just pointed out the effect of the case law you cited the way an attorney would normally do if they were in court.

You on the other hand, have a tendency to comment on what you state is the inherent lack of knowledge and ignorance of persons who make statements or ask questions you do not like. I do hope you hold back on that when you litigate as my experience is that such ad hominem  arguments are not well received by judges in court.

In California, the state Franchise Tax Board treats each series as a separate entity for tax and filing purposes.

https://www.ftb.ca.gov/businesses/structures/serie...

California is very aggressive in its position that California residents who have out of state entities need to register their foreign entities in state. With Series LLCs, that means minimum franchise tax fees of $800 a year for each series. Not a practical solution for most real estate investors here.  Not sure about other states.

In a stable or decreasing interest rate environment, lenders have less incentive to call loans. With interest rates on the rise, lenders may start paying more attention to due on sale clauses. Back in the late 70s when interest rates were on the increase, due on sale enforcement was a huge issue with lenders

My view is that you should first ask yourself some questions before seeking professional help for asset protection.

1.    What is your tolerance for risk? Younger folks in the process of building their portfolio are likely to accept a higher level of risk than older folks with more established estates. Some folks are fearful by nature and sleep better knowing they have done everything they can to protect themselves, even though there is a significant cost. If so, you should accept and be comfortable that you are paying in large part because of your fear.

2.    What kind of risk are you creating based on the nature of your real estate activities? Are you a mom and pop landlord whose most likely risk is a premises liability claim likely covered by insurance or a small claims suit for return of a security deposit? Or are you a slumlord creating hazardous conditions at your property and racially discriminating against your tenants? If you are a flipper are you hiring qualified licensed/knowledgeable team members who know what they are doing or are you doing shoddy work without permits and not telling your buyers. Only by understanding the risk inherent in your activities are you then able to engage in an objective cost/benefit analysis for paying for asset protection.

3. How well do you manage risk? Do you have partners, investors, employees, significant others, tenants, borrowers, lenders, etc. where resentment tends to build in your relationships or are you on top of communications and fair in your dealings? Do you read the contracts you sign or do you just click away without reading when you get sent a document via docusign? Are you good at due diligence and do you understand what you are doing as a real estate investor? Understand and assess who is most likely to make a claim against you and why. Then you can get some context for an asset protection plan that might fit you. Try not to get caught up in fear based sales pitches.

4. Do you already have in place an estate, financial or tax plan? IMHO asset protection planning is best implemented as an adjunct to a larger estate, financial or tax plan, not as a substitute.