Quote from @Jay Hinrichs:
Quote from @Nathan Gesner:
Quote from @Don Konipol:
Consider the audience.
99% of BP visitors are small-time investors who will never face lawsuits from investors with deep pockets. Their most common threat is a security deposit dispute. Their most significant risk is an injury lawsuit that will either be dismissed or settled out of court by their insurance provider for well below the liability limits.
If a mom-and-pop investor obeys the law and treats their tenants honestly, they'll never have to worry about asset protection beyond ordinary insurance and a small reserve.
Nathan keep in mind not everyone is a landlord most litigation in RE is between partners and investors suing GPs etc etc. As for liablity for a mom and pop landlord I agree do the best you can and have proper insurance..
Insurance is the FIRST line of defense. Certainly, LIABILITY insurance and should be regarded as important as fire and casualty. But, here’s a situation in which having my properties in SEPARATE series of an LLC saved me enormous time, aggravation and money.
in 2012 I purchased 5 individual high rise condos in different buildings in Phoenix, AZ. I took title to each in a separate series of my LLC, which is the same as per entity protection as having each in a separate LLC but with the organizational and accounting costs of having a single LLC.
In the case of each I carried hazard and liability insurance for the INTERIOR of the condo while the HOA carried insurance for the “common” areas, including structural.
This particular condo was on the second floor, with retail and office space directly below. Over a weekend during which my tenant was not home, the condo became flooded and water went through the flooring and flooded the office below. The major damage was to 35 computer stations and various other electronic equipment, as well as buildouts, furnishings, etc. The damage claim was in excess of $800,000.
My insurance company determined that they were not responsible because the problem originated it form INSIDE the wall which was the responsibility of the condo association. The condo association insurance determined they weren’t responsible because either (1) my tenant was negligent or (2) the problem originated from a connection just inside my apartment. The attorney representing the owners of the office downstairs were threatening to sue me.
So, I engaged my attorney to deal with the issue. While he wasn’t successful getting the insurance companies to accept liability (initially), he pointed out to the plaintiffs attorney that (1) the owner of the condo was an LLC, not me personally, and that’ll business concerning the condo was done in the name of the LLC, and (2) the only asset of the Series of that LLC was the condo itself, so that the legal entity owned only that single asset. Further, I as a matter of course, place a “friendly” lien on all properties I buy for cash, so there was little equity in the condo. Now, probably after a long and drawn out court battle, a plaintiff can probably get the lien removed as a “sham”, but a cursory examination by the typical plaintiffs attorney would probably not produce that conclusion. So as a result of my “asset protection” procedures, the end result was that instead of being sued personally and having to spend the time, money and emotional stress of both defending my self AND suing the insurance companies and condo association, the plaintiffs accepted an ASSIGNMENT of proceeds and signed a form releasing me and my LLC from liability in exchange for the right to go after the insurance companies themselves.
A rare occurrence? Sure. But the more property you buy the higher the likelihood of being involved in a situation where asset protection above basic liability insurance can SAVE YOUR A_ _ !
All this asset protection in a Texas Series LLC for a $300 filing fee. Texas even provides a pdf fill in the blanks form.
