Working Asset Protection

Posted on June 10, 2013 by

Recently, I heard a talk show host say that all properties should have their own LLC and that a corporation should own all of the LLCs so that it will be the umbrella under which the LLC’s are safe.

Let me offer another point of view that, after years of experience, I can say has worked for me and for people whom I coach on a daily basis. 

The reality is that an LLC for each property is impractical. The main reason is that each LLC would have it own tax return. This gets costly and tedious.

Compromise is the solution: Why not have a 3-in-one LLC that covers the good, the bad, and the ugly? Hear me out–an LLC is good because if someone tries to sue, by law the person has to take all or nothing; he cannot cherry pick. If you have a property that you just bought and it turns out to be a liability, it will balance out the GOOD property. And, the UGLY is a property whose cash flow is barely at fair market value.

If I am doing the buy, fix, and sell, this is an easy system. If the LLC is for long term holds and all the properties are “great”, then I have a chance to lose everything in that LLC. In this case, I create another LLC.

But, you say, an accountant will not allow the LLC to flow through your income tax statement. Not true: there are accountants who do. Hire an accountant that does! (See below for referrals.)

Personally, I love real estate because of the tax benefits and the exciting things you can do to make money. Why would I pay extra taxes? The question is, why would you or anyone else pay extra when you can do better?

Let’s look at asset protection. When I find a property worth buying, I often have another corporation/ friend/ parent/ relative write a mortgage on it for twice as much as the property is worth then file it at the court house as a lien. Money must exchange hands for this to be feasible. This way, a lawyer looking to make a quick buck will pass over your property because he will see that the properties are over leveraged. In part, this works because the entity cannot be one that you own more than 50% of.

But what if a lawyer does take notice? The key is to keep two LLCs that you are not using. First benefit banks will not loan to an LLC that is younger than 2 years old, so having an LLC already set up, allows you to move things around when one LLC looks like it might become a target. Plus you can then start taking out loans. Being proactive never hurts. Beware if the attorney does file the suit and you have freshly transferred the property then the court nullify the transfer then you still are on the hook.

Another strategy is to place the property first into a Fiduciary Land Trust. This gets your name off of the record. It is best to make the attorney your trustee, but it can also be your entity if you own less than 50%.

I coach people in real estate every day. I see them become successful every day. Here is what I offer them for consideration when they begin thinking about LLCs: 

  1. Utilize a Fiduciary Land Trust.
  2. Make a trustee an LLC/ corporation.
  3. Have the trustee take out a loan on behalf of the trust in an amount more than the value of the property.
  4. Make the beneficiary of the trust is an LLC.
  5. Make the LLC owned by a corporation.

The above information is important to have. I have experience and know how it can work best for YOU. You can go it alone and work harder than you need to, or you can utilize my expertise.

Interested in working smarter and not harder? If so, contact me using the information below.

Russ HinerRuss Hiner is an active real estate investor, coach and mentor. Russ is currently the leader of the Atlanta REIA Creative Deal Structuring Group and Atlanta REIA Mastermind Group. Russ also teaches several workshops throughout the year on a variety of real estate investing topics such as Negotiations, Wholesaling 101, Wholesaling 401, Real Estate 101, Property Management and more.

Contact Russ Hiner

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