All Forum Posts by: Mike S.

This questions has been beaten to death on this forum already. A quick search will give you pages and pages of answers.

Short answer: it's up to you. It depends on the risk you are willing to assume. Some are not using LLC, other like me are using one LLC per property, and you have plenty in between using the same LLC for multiple properties.

A very good primer on asset protection for real estate investor is the Clint Coons Youtube channel where you will find hours of relevant content.

Quote from @Da Shiek Woodard:

Wow Mike, thank you for such a detailed and education response. Everything you said made sense except let's say that I find a property in Macon, I don't have an LLC set up in Macon so wouldn't I have to buy the house in my name first and then set up a local LLC and transfer it ultimately losing my anonymity before placing it under the Wyoming LLC?

Yes you would want to create a new LLC first.
If you need something in a hurry, look at the land trusts; You can create one in a second. Great for tax deed auctions. You can also use some variation when doing wholesale with wholesale property trust that add language regarding purchase option.
The land trust won't provide any asset protection (except in Florida), but it will be anonymous and you can assign the beneficiary to the LLC when it is created.

Quote from @Jason Maguire:

@Mike S. just curious as to why you would use a warranty deed instead of a quitclaim?

Watch the video in my previous link.

When you warranty deed to your LLC, if there is title issue down the road, your LLC can make a claim against you, and you can turn back to your title insurance.

If your title insurance does not allow a transfer to an LLC, if something happens, your LLC will have no recourse as your LLC does not have any new title insurance and your previous title insurance will not work as you transfer without any warranty to your LLC.

The warranty deed doesn't cost more than a quit claim deed, so why not use it if it give you better chain of title.

Quote from @Jason Maguire:

Hi Josh,

You would need to "quit claim" the deed-

Do not use a Quit Claim deed. Use a Warranty Deed instead.

Quote from @Andy Vasquez:

I live in DC and want to rent out the house that I am living in today. It is my understanding that I cannot transfer the deed into a LLC without paying a huge transfer fee. Is there anything I can do to protect myself from potential legal issues? Ideally, I would have liked to set up a LLC, but that doesn't seem reasonable when considering the fee associated with it.

I am not sure about your state, but there are often exemption for title change when it is a free transaction (gift) or if the final beneficial owner doesn't change. In some state the exemption is only when you transfer to a trust. So you may want to deed it to a land trust where you are still the initial beneficiary, then in a second stage, assign the beneficial interest of the land trust to the LLC. This last approach should be free (excluding some minor recording fee) in most state.

Quote from @Adah N.:

@Andy Vasquez

Why can't he simply do a Quit Claim deed to the LLC? What is the advantage of an Umbrella policy over a regular landlord policy?

Don't quit claim deed to your LLC. Use a Warranty Deed instead. The use of the Quit Claim may void your title policy and will make the chain of title murkier.

It all depend what you are looking for.

If you want asset protection, the situs of your LLC is important as all states are not created equal regarding outside liability protection.

WY is one of the few states that offers charging order protection as sole remedy for its LLC. In addition, they offer anonymity, have no state taxes, and have a reasonable renewal fee. It is why many are using WY for their holding LLC.

Now, each property need also to have a situs in the state where they are located. So you will need to have them owned by a local entity. Usually a local LLC. This local LLC will be owned by the WY holding to get the charging order protection and anonymity as a bonus.

So option 1 is the reasonable choice here. You can start with Option 3, but when you decide to upgrade to option 1, you have lost the anonymity in the process when you transfer the member to your holding.

Option 2 is a no go, as if you need to go to court, lets say for an eviction, the court will not recognize your out of state LLC and you will have to foreign register it in that state, making you pay the fee in two states instead of only one.

Option 4 is a personal decision regarding your risk appetite. Some people would even say you don't need insurance... Again, look at what you can afford to lose. Personally, I have insurance and LLC as the thirty pages of small print exclusions in my insurance contracts have always worried me.

Anonymity will not help you in a lawsuit as you will have to disclose your ownership. But it is a good preventative measure to avoid attracting nuisance lawsuit from ambulance chaser lawyers.

LLC is a defensive measure that will often put you in a position of strength to negotiate a settlement within the insurance limit without risking all you other assets.

Quote from @V.G Jason:

You make probably 1.5% of the money sitting in your whole life.

No, all fee included, the Internal Rate of Return (IRR) in a properly maximum overfunded whole life insurance is between 3-5% on the long term and 5-8% on an IUL. But it is true that if you look only at year 1 you will get an IRR of probably -15 to -25%. At year 4 or 5, your IRR will be around 0%, after year 15 you will be close to the max IRR.

The IRR is based on the total amount of what you paid, including all the fee, state taxes, commission, etc... It does also account for the time value of money so you can compare it to an outside investment IRR.

Quote from @Patricia Drew:

What would the benefit of an overfunded whole life policy be compared to putting the same amount of money into an index fund like the Vanguard S&P 500?  You can also borrow against a stock portfolio.  If you withdraw funds from your life insurance policy, isn't that similar to selling off some of your stock portfolio?

With an overfunded policy, would it still have a cash value if you could no longer afford the premium and your payments lapsed?

An overfunded policy is very difficult to have it lapse. If you don't want to pay anything anymore, you probably at that time want to lower the death benefit so your cost will be approximately 0.25% a year (much less than a lot of mutual fund and financial advisor fee).

Yes you can borrow on margin on a brokerage account, however you can not borrow up to 90% of it, and you can get a margin call with catastrophic consequences. Also when you put your money in an index stock, you can get high volatility (like -30% some years). On the long term you can expect a 9% return before taxes.

If you use a WL you can expect 3-5% long term, every year. Almost no volatility. With an IUL you can expect 5-8% long term, with some years at 0% and some years at 12%-15%. So way more volatility but no negative years. (Dont forget that if your stock portfolio go down 50%, you need to gain 100% to get back to where you start. A market crash is a drag for many many years.) On top of it you have a life insurance and you can borrow 90% of it whenever you want. And it is tax free. During retirement, while in a IRA or 401k you don't want to withdraw more than 4% per year to make it last 30 years, with an IUL you can take 7 to 8% every year and it will last until you are 120 years old and there will be still a lot of money left for your heirs. It grows slower than a brokerage account, but during disbursement phase you get much more out of it.

I am not advocating putting all your eggs in the same basket, but using a permanent maximum overfunded life insurance in your portfolio mix is an excellent diversification.

[double post removed]