Author Topic: Asset protection  (Read 2023 times)

flowerofsun

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Asset protection
« on: May 13, 2017, 12:56:11 AM »
Hi guys,
I am a new be on this forum.
I have been a landlord for about 10 years and have 2 rentals.
I have opened an LLC for each rental and both leases are in the name if LLC respectively.
1) Do you guys have business bank account for your rentals? Or how do you collect the rent?
2) Do you deed your property to that LLC? Does it complicate things if you have a mortgage on the property? Can a mortgage company throw a fit about it?
Thank you for your help

Thedudeabides

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Re: Asset protection
« Reply #1 on: May 13, 2017, 01:13:47 AM »
#1: yes.
#2: yes. Warranty deed to preserve the title insurance (quit claim may not preserve title chain). If you deed it to the LLC and you have a due on sale clause, then theoretically the note can be called. However, I've heard this is very rare and I haven't had a problem with it. I think most lenders will be happy if their note is performing. The approach I've taken is to deed to the LLC. If a bank calls me up and has a problem with it, I'll either deed it back or create a trust and make the LLC a beneficiary.


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SnackDog

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Re: Asset protection
« Reply #2 on: May 13, 2017, 03:16:39 AM »
Conventional wisdom is that LLCs are a waste of time and money unless you have a significant full time business in real estate. Even small issues in properly administering the LLC for each property can allow a plaintiff's attorney to pierce the veil. Most of us are better off with umbrella insurance.

Thedudeabides

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Re: Asset protection
« Reply #3 on: May 13, 2017, 07:18:27 AM »
Conventional wisdom is that LLCs are a waste of time and money unless you have a significant full time business in real estate. Even small issues in properly administering the LLC for each property can allow a plaintiff's attorney to pierce the veil. Most of us are better off with umbrella insurance.

LLC formation is one of the most highly debated topics in real estate. The perennial argument is whether to form or not form and just use insurance.

Here's my point of view on what Snackdog says:

1) He's absolutely right that if the LLC is not maintained property or treated like an LLC then the corporate veil can be pierced. Search online for many articles that will state what can lead to piercing the corporate veil. Here's a short list: 1) Commingling funds, 2) Treating the corporate assets as your own, 3) Not following corporate formalities such as taking meeting minutes, annual report, etc.
2) In my opinion, the tasks in #1 are very simple. Keep a separate checking account, and keep great records making sure that it's treated as a completely separate entity. Do an annual meeting and report.
3) An LLC *is* a pretty cheap form of asset protection as far as I'm concerned. Unless you live in California. It's not a substitute for insurance, but when done properly, can be part of a greater plan to shield your personal liability.

While corporate veils can be pierced in certain situations, if the corporations are properly maintained, the veil won't be pierced.

And by all means, talk to a lawyer about the subject if you have any questions. A good lawyer's help in planning can also be incredibly cheap.

Thedudeabides

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Re: Asset protection
« Reply #4 on: May 13, 2017, 10:34:29 AM »
To add a quick analogy to the above, an LLC, if properly maintained, is just an additional line of defense. It's kind of like having a home alarm system in addition to locking your doors.

A lot of people might think that an alarm system is overkill, and it may be for some people. However, for some, it's an added bit of security that is worth it.

Given the low cost of LLCs, I've personally thought the added security is worth it.


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flowerofsun

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Re: Asset protection
« Reply #5 on: May 15, 2017, 02:03:34 AM »
#1: yes.
#2: yes. Warranty deed to preserve the title insurance (quit claim may not preserve title chain). If you deed it to the LLC and you have a due on sale clause, then theoretically the note can be called. However, I've heard this is very rare and I haven't had a problem with it. I think most lenders will be happy if their note is performing. The approach I've taken is to deed to the LLC. If a bank calls me up and has a problem with it, I'll either deed it back or create a trust and make the LLC a beneficiary.


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Sorry about my ignorance,
1) how does the trust help? There was one type of trust, I cant remember which, that does not disclose what is in the trust. Is that why trust is recommended?
2) What if you deed the property in a different state? Lets say, your property is in Oregon, you can deed it and record in Washington. Will it help?

Thedudeabides

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Re: Asset protection
« Reply #6 on: May 15, 2017, 05:38:33 AM »
#1: yes.
#2: yes. Warranty deed to preserve the title insurance (quit claim may not preserve title chain). If you deed it to the LLC and you have a due on sale clause, then theoretically the note can be called. However, I've heard this is very rare and I haven't had a problem with it. I think most lenders will be happy if their note is performing. The approach I've taken is to deed to the LLC. If a bank calls me up and has a problem with it, I'll either deed it back or create a trust and make the LLC a beneficiary.


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Sorry about my ignorance,
1) how does the trust help? There was one type of trust, I cant remember which, that does not disclose what is in the trust. Is that why trust is recommended?
2) What if you deed the property in a different state? Lets say, your property is in Oregon, you can deed it and record in Washington. Will it help?

1) As far as I understand, it's a way to avoid the due on sale clause. Here is an article on it: https://andersonadvisors.com/land_trusts/
2) As far as I know, the deed will always reside in the state where the property is located.

Disclaimer: I'm not an attorney. This is not legal advice. Always consult an attorney experienced in these matters before making any decisions.

flowerofsun

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Re: Asset protection
« Reply #7 on: December 12, 2018, 12:03:29 AM »
#1: yes.
#2: yes. Warranty deed to preserve the title insurance (quit claim may not preserve title chain). If you deed it to the LLC and you have a due on sale clause, then theoretically the note can be called. However, I've heard this is very rare and I haven't had a problem with it. I think most lenders will be happy if their note is performing. The approach I've taken is to deed to the LLC. If a bank calls me up and has a problem with it, I'll either deed it back or create a trust and make the LLC a beneficiary.


Sent from my iPhone using Tapatalk

Sorry about my ignorance,
1) how does the trust help? There was one type of trust, I cant remember which, that does not disclose what is in the trust. Is that why trust is recommended?
2) What if you deed the property in a different state? Lets say, your property is in Oregon, you can deed it and record in Washington. Will it help?

1) As far as I understand, it's a way to avoid the due on sale clause. Here is an article on it: https://andersonadvisors.com/land_trusts/
2) As far as I know, the deed will always reside in the state where the property is located.

Disclaimer: I'm not an attorney. This is not legal advice. Always consult an attorney experienced in these matters before making any decisions.

Wow, that is great advice!

FRT15

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Re: Asset protection
« Reply #8 on: December 29, 2018, 08:33:17 PM »
Does the protection change whether a single member or multiple member llc's?

flowerofsun

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Re: Asset protection
« Reply #9 on: January 02, 2019, 12:37:59 AM »
Does the protection change whether a single member or multiple member llc's?
It is my understanding, and I may be wrong, that single member LLC does not provide much of a protection.  If I am not mistaken, there were cases where courts would look on single member LLC like not an LLC at all