All Forum Posts by: Stetson Oates

Quote from @Steve K.:

Quote from @Stetson Oates:

Quote from @Steve K.:

Quote from @Calvin Thomas:

Quote from @John Underwood:

I stumbled across this lawsuit while looking for something else.

As I have mentioned before in this forum an LLC that is not 100% property ran can easily be pierced and the owner sued personally.

Here is an example of where an attorney went after someone that thought their LLC would protect them:

18. Upon information and belief, the member(s) of the Defendant have failed to observe any corporate formalities in that: a. b. c. d. e. f. g.

19. The members did not observe corporate formality; The Defendant did not pay dividends; The Defendant was insolvent at the time of its actions; The Defendant’s members siphoned funds from the Defendant for their own personal use; The Defendant’s members comingled funds; There are no corporate records; The corporation(s) were a facade and alter ego of the member(s) of the Defendant. In addition to the eight (8) factors laid out above, failing to pierce the corporate veil in this matter would create an elementary injustice and fundamental unfairness. The member(s) of the Defendant have used the corporate shell as a way to avoid any liability for the serious injuries that were caused to the Plaintiff and others by the reckless action of the Defendant’s member(s) and agents. With this in mind, Plaintiff should have compensation directly from the member(s) if the same cannot be had from the corporate Defendant. To deny this compensation would create an injustice and fundamental unfairness.

20. For the reasons and for other reasons to be proven, the Plaintiff is entitled to pierce the corporate veil and assert individual liability against the member(s) of the Defendant.

It's always best to have multi-member LLC. You have a stronger ability to not allow a court action to pierce the corporate veil. You can have a parent LLC owned by two trusts, 50/50 and you'd have double the protection. Since it's trust ownership, there are some additional benefits. As always, speak to a lawyer. This shouldn't be taken as legal advice. However, this is how I've done it. The Kushner's do it this way, as well as President Trump. So, some food for thought.

Trusts seem to be the preferred method of liability and asset protection among the wealthy. 

Trusts offer no liability protection. LLCs can protect you from outside attacks that have nothing to do with your real estate operation.  For example, a car wreck. You will be sued personally and everything in your personal name is unprotected. The rental insurance doesn’t protect you in this example, driving a car is the most risky thing we all do.

Asset Protection Trusts, Offshore Asset Protection Trusts (Cook Islands, Belize) and Irrevocable Trusts with a spendthrift clause are examples of how trusts can provide asset protection from lawsuits. Google “OJ Simpson asset protection strategy”.

No trust will provide you asset protection. You can do crazy stuff with trusts but hey are really bad at protecting assets. OJs main asset shield was his primary residence in Florida, which has unlimited homestead protection. Thats why he moved to Florida.  If you want to move assets off shore those assets may or may not be subject to collection depending on the country.

Quote from @Steve K.:

Quote from @Calvin Thomas:

Quote from @John Underwood:

I stumbled across this lawsuit while looking for something else.

As I have mentioned before in this forum an LLC that is not 100% property ran can easily be pierced and the owner sued personally.

Here is an example of where an attorney went after someone that thought their LLC would protect them:

18. Upon information and belief, the member(s) of the Defendant have failed to observe any corporate formalities in that: a. b. c. d. e. f. g.

19. The members did not observe corporate formality; The Defendant did not pay dividends; The Defendant was insolvent at the time of its actions; The Defendant’s members siphoned funds from the Defendant for their own personal use; The Defendant’s members comingled funds; There are no corporate records; The corporation(s) were a facade and alter ego of the member(s) of the Defendant. In addition to the eight (8) factors laid out above, failing to pierce the corporate veil in this matter would create an elementary injustice and fundamental unfairness. The member(s) of the Defendant have used the corporate shell as a way to avoid any liability for the serious injuries that were caused to the Plaintiff and others by the reckless action of the Defendant’s member(s) and agents. With this in mind, Plaintiff should have compensation directly from the member(s) if the same cannot be had from the corporate Defendant. To deny this compensation would create an injustice and fundamental unfairness.

20. For the reasons and for other reasons to be proven, the Plaintiff is entitled to pierce the corporate veil and assert individual liability against the member(s) of the Defendant.

It's always best to have multi-member LLC. You have a stronger ability to not allow a court action to pierce the corporate veil. You can have a parent LLC owned by two trusts, 50/50 and you'd have double the protection. Since it's trust ownership, there are some additional benefits. As always, speak to a lawyer. This shouldn't be taken as legal advice. However, this is how I've done it. The Kushner's do it this way, as well as President Trump. So, some food for thought.

Trusts seem to be the preferred method of liability and asset protection among the wealthy. 

Trusts offer no liability protection. LLCs can protect you from outside attacks that have nothing to do with your real estate operation.  For example, a car wreck. You will be sued personally and everything in your personal name is unprotected. The rental insurance doesn’t protect you in this example, driving a car is the most risky thing we all do.

I have had a credit history for 20 years, paid as agreed, paid off many lines, have plenty of available credit on CCs and I sit at 730-750.  My wife has 1 Bank of America CC that has never had a balance on it.  Thats all she ever had reported in her name, her score is 800+ every time we check it.  We went awhile back to look at financing an auto and she blew me outta the water with a 1/4 page credit report and an 830 score LOL.  They never even blinked an eye, they only look at the score and care less about anything else.  

Nathan,  I get you are frustrated with this topic. If you are comfortable with your structure that’s great! To answer your question, “it depends on how much money/net worth you have.”  Insurance will cover you to your limits. If someone is hurt and needs ongoing care, you better bet they will file over limits.  If your comfortable with that risk than I wouldn’t worry about it. I definitely wouldn’t get worked up.

Quote from @Nathan Gesner:

The vast majority of disputes are over security deposits and the most a landlord could lose is 3x the deposit amount.

Slip-and-fall or other major lawsuits almost never happen. When they do, they are typically covered by insurance and settled outside of court.

The odds of a landlord being sued for a large enough amount that it eats up their insurance, the equity in the investment, and their personal assets is almost non-existent. The only time you see that is when the landlord is truly negligent.

Yeah you’re fairly safe as a landlord.  I don’t think you’re safe if you hold the assets in your personal name. The assets are venerable if you do something out side of real estate or land lording.  For example, your 16 year old rear ends a family of 4.  Your investment properties are in jeopardy. Your investment properties insurance policies will not protect you in that example. Will an LLC protect you? Yes it can.  If anything else, it acts as a deterrent, it’s just another hoop for an attorney to jump through.

There is a lot of speculation in this thread. What's lower cost? Why do they automatically get thrown into section 8? Why are the buyers automatically a FHA buyer seeking 5-6% seller assist? IMO there is a wide spectrum on lower cost SFH.

Quote from @Bruce Woodruff:

Quote from @Stetson Oates:

I'm not an attorney so this is not legal advice!!!! IMO You should never own a rental property in your name. They need to be owned by a different entity, such as an LLC. Most of you will have equity in your real estate holdings. I see these threads come up from time to time and no one mentions the lawsuit we are all most likely to have filed against us if our cars are titled in our personal name, the auto accident. It's the most dangerous thing we do everyday, we carry liability insurance through our personal auto policy. When that's not enough they go after personal assets, if your rental is in your personal name it's targeted. If it's in an LLCs name it s protected if maintained correctly. In most states there is protection in your primary home through the homestead exemption, your investment properties must be in a separate entity. Also please look at your personal auto insurance and determine if you have enough liability protection, then get a personal umbrella as well. If doing an LLC for your rentals, get insurance to cover the rentals and a GL policy. Then get a business umbrella policy. Again I'm not an attorney, this is just what makes the most sense for me.

 

IMHO, you are also over-thinking this whole thing. I've had several LLC's and S-Corps in the past and they are relatively easy to pierce. Everyone just relax and make sure you have adequate insurance, it'll be ok.....

I wish I could take that advice.  Real Estate isn’t litigious most of the time. A lot of other industries, including one  I’m in, are VERY litigious.  It’s just like anything else, either prepare or don’t. Nothing is 100%, including insurance, who will do everything possible to deny your claim.

I'm not an attorney so this is not legal advice!!!! IMO You should never own a rental property in your name. They need to be owned by a different entity, such as an LLC. Most of you will have equity in your real estate holdings. I see these threads come up from time to time and no one mentions the lawsuit we are all most likely to have filed against us if our cars are titled in our personal name, the auto accident. It's the most dangerous thing we do everyday, we carry liability insurance through our personal auto policy. When that's not enough they go after personal assets, if your rental is in your personal name it's targeted. If it's in an LLCs name it s protected if maintained correctly. In most states there is protection in your primary home through the homestead exemption, your investment properties must be in a separate entity. Also please look at your personal auto insurance and determine if you have enough liability protection, then get a personal umbrella as well. If doing an LLC for your rentals, get insurance to cover the rentals and a GL policy. Then get a business umbrella policy. Again I'm not an attorney, this is just what makes the most sense for me.

 

I'm a very new investor focusing on long term SFRs.  I do have a background in finance both consumer and commercial.  Since getting in the RE investment earlier this year, I've been surprised by the amount of investors leveraged to their eyeballs.  This list is really good information for guys like me, I'd add using debt responsibly to the list. Debt is a tool, but too much can lead to big problems.

Quote from @Russell Brazil:

You'll need a portfolio that's $100,000,000 with no leverage.

There is less than 10,000 Americans with a net worth that high.

 That cant be right, there's at least 40,000 RE investors on YouTube worth that much!! LOL