LLCs for Rental Properties & "Layering" Legal Protection
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- เผยแพร่เมื่อ 29 มิ.ย. 2024
- LLCs for rental properties and asset protection are two of the most common legal topics brought up over on the BiggerPockets forums. So we figured we’d bring on an expert to separate the legal wheat from the chaff!
We talk to awarded asset protection attorney, Brian T Bradley, Esq, who answers questions ranging from when to buy umbrella insurance, how to set up LLCs, and whether or not S-Corps are worth forming. If you’ve ever worried about protecting your personal assets from business-related liability, this is THE episode to watch!
The most important point discussed throughout this episode is how you need to start planning for protection early. All too often, investors start building their rental property portfolios without the correct legal setup behind them, only to have one bad lawsuit wipe out decades worth of work. Even Ashley and Tony had some questions on whether or not they needed to shift their portfolio structures!
We’ll also have Brian back this Saturday to answer Q&As from listeners, so stick around from that to minimize your risk when getting into this profitable industry of real estate investing!
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Join the Real Estate Rookie Facebook Group:
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Learn More about Asset Protection:
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6 Ways to Protect Yourself from Negligence & Liability Suits When Starting Out:
www.biggerpockets.com/blog/pr...
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Follow Ashley and Tony on Instagram:
@wealthfromrentals or / wealthfromrentals
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Episode 105
Show notes at: www.biggerpockets.com/rookie105
0:00 Intro
3:44 Welcome, Brian!
5:27 Brian's Investment Portfolio
8:16 Asset Protection
9:41 LLCs and Umbrella Insurance
13:31 Disregarded Entities, Charging Orders, and Anonymity
19:05 Advice for Tony
25:02 Advice for Ashley
26:11 Where to Set Up an LLC?
33:55 Taxes and Asset Protection
35:46 Planning for Asset Management
41:54 Finding an Asset Protection Attorney
45:45 Rookie Reply
52:19 Rookie Rockstar
I'm a CPA. Tax avoidance is legal. Tax evation is illegal.
I would think a cpa could spell 😉 ill assume its a typo.
@@teddubois6055 I became a math teacher because I like to work with figures to figure things out.
Great job taking on such a polarized topic.
I didn’t want to watch because I am so against having a LLC. (For the wrong reasons)
I know some have seen my answer a few times.
But I’m always concerned a new investor may get stopped in their tracks by thinking a LLC is needed.
When it often isn’t.
There is already enough to learn.
There are some times a LLC makes sense.
Have partners? LLC.
Need to use hard money or commercial loans? LLC. (This could he because you already have ten mortgages in your name and ten in your spouses or you are going for 5+ units on one property.)
But
There is a pretty good list of reasons why none of my properties are or ever will be in a LLC.
Higher interest rate.
Higher insurance costs.
A LLC can’t represent itself if sued so you have to pay an attorney.
Set up fees.
Annual renewal fees.
Refinancing can be harder.
Some states add an S Corp extra tax.
Municipalities can require a business license.
A judge can “pierce the veil” if they decide the LLC is just you so it may not be good asset protection.
Instead I have homeowners insurance on each property and an umbrella policy.
I love this podcast. And respect the idea of different opinions.
Commenting for the algorithm and so a new investor doesn’t get stopped by thinking they need a LLC. (As I can tell by a lot of the comments.)
Thank you for this in-depth reply. A lot to consider. I am definitely a rookie.
Love your channel as well. Our tenant asked for a $225 rent increase using your binder method... Thank you! I'd love to talk more about that also... But not today
You mentioned partners being an exception for you to utilize an LLC. I purchased a duplex that am house hacking... If you purchased with your wife, does that qualify as a partner scenario that you mentioned above needing an LLC in your opinion? (We both needed to be on the mortgage to qualify for the amount of the purchase)
This video is probably the most informative video I've seen on my REI journey! Well done & thank you! I'm in Canada though
Wow, one of the best podcasts yet!
This was very helpful. Thank you so much!
amazing and valuable content thank you!
You guys always have such great topics and guests, but I simply don't have an hour to give up every time. It would be great if you had a second channel that had all of the same content but in a cliffs notes version for time constrained individuals. I really think you're leaving a ton of potential subscribers on the table
Would love to hear/learn more about limited partnerships
Best Episode EVER!!!!
Wow! Very infomative!
I've always talked about judges for LLC cases not caring about anonymity. It may be a base layer for the individual to find you I suppose though. But this episode made me want to ger LLCs for everything because the business aspect. Hard part is whether to put them in an LLC first or after the loan.
Great question guys, Ashley @ 39mins.
Great show!
Great video
Can you explain more about the "Series LLC" where you can hold multiple properties under one LLC and each property will protected without multiple LLCs
i can tell you everything i heard about them is they seem to have little in way of case law - meaning that not had enough proof of legal protection cases. Id say dont be the person to test it allow more case law to come out. Go use a Domestic or Foreign LLC.
Good explanation, easy to u destand
Great video. One question on the part about note investing - how would you go about making a non-performing note back to performing as a junior position holder. Would you not need the senior lender’s approval? Or are you just talking about getting your junior note back to performing even if the senior note is not performing?
what about the properties that i already own in my name..can i start llc now & put those properties under the llc?
Thank you.
Thanks
Love Tony trying to sneak in some free legal advice lol. "So let's just say hypothetically, for the listeners of course, in my situation I have such and such properties and LLCs, what should I do?"
In terms of creating an OOS llc to save money, there's nothing wrong with that. It's just if you ever get sued the llc will then follow the laws/fees of where the property is located. That's what I got from that segment?
I’m still waiting to hear him apply his rules to a rookie investor. He is discouraging me completely. I want cash flow and now I need a cpa, wealth management, asset protection and I don’t even have a property yet because I don’t have an LLC. In NY you can’t establish an umbrella LLC.
His advice is more for people with a good amount of assets. Also forming an llc is pretty cheap and does not require a lawyer. He specifically says if you are a rookie you need insurance (which the bank already requires) and an llc.
Agreed. Please don’t be discouraged. Having or not having a LLC is something to consider after you have several properties.
Focus on acquiring cash flowing rentals. (Instead of advice from someone who focuses on crypto for rental portfolio growth)
Interesting, most of this advice goes against everything everyone has been saying on BP for years. Cashflow is just icing on the cake? I don't think I've ever purchased a property just for the taxes, that's usually the icing. I've always heard the opposite about setting up an LLC for your very first few properties. I guess asset protection specialists will always pitch asset protection as being mega important.
Agreed.
I am sure the attorneys end up making a load of money setting up all those LLCs
He suggests an LLC for each property?
And I'm not stating his bad guy. He does anything wrong. I don't have any discredit for him. I think he's a good guy. I think he's trying to help. I just don't like when people misspoke to me in a long time to learn how to read correctly and then when you miss speak. It makes me not understand what I'm reading and what I'm reading is correct because that's there laws. And any one simple change in any word could change the value of what you're understanding and being a low frequency rather than a high frequency color. Cuz color is frequency I need to pay attention to. Everybody says cuz I don't have a Utopia frequency around me. Thank you. I apologize if I offended anyone.
Listener question. Get due on sale insurance.
You need a trust for your LLC
It's an out of state LLC owning a the state/whichever state the property is in.... this is a great example of when you don't know what you don't know.... what I here is a out of state LLC owning property in another state as opposed to an LLC owning the in state LLC that's holding the property in the same state... he's not explaining that because he's planning on ignorance.... I actually wanna know the right answer
So we have to buy the property as a investment to use a LLC on the mortgage. That changes down payment and rates. Am i getting what he means?. If you change a personal mortgage to a LLC doesn't that trigger the bank to call the note?
It can - I don’t know if thos expect understands rookies or all states. If it’s difficult to purchase properties in LLCs and transferring the property after purchase can trigger the bank…..rookies won’t be able to start. David Green had a similar discussion where he mentions that it may not be worth it to start an LLC to get a property when you have to pay for the LLC and pay taxes for that LLC. I personally live in NY and you can have certain LLCs and CPAs can charge up to 5k for a year to prepare the taxes how does this work if you are cashing flowing $300 a month ?
Research the Garn-St. Germain act.
So should I create an LLC for each individual rental property?
There are a long list of reasons why I will never use a LLC.
And a few cases when one may be needed.
Do you have partners?
Need to use commercial lending or hard money loans?
Then a LLC may make sense.
I’m always concerned a new investor will get stopped in their tracks thinking a LLC is needed. When there is already enough to learn.
She must be miss speaking because you can go on to the IRS website. You can order their publications. It says directly on the front cover tax avoidance is legal tax. Evasion is illegal and that's what an asset protection trust is. It's tax of buoyance through a foreign entity issued in the United States under no residency but terminal at the business address of the location within the land but not in Washington DC because that is where the United States is. And Puerto Rico is South Beach, Florida where the IRS is kept on the land of Puerto Rico. That's where their headquarters are
Nobody understands... the other state LLC Is a holding.. how are we missing this?
You lost me with asking for all my personal information upfront before providing a quote for services! Says fees range $25,000 with thousands in annual maintenance fee?!
This was heavy.
The IRS states this, tax avoidance is legal. Tax evasion is illegal and if you listen to the man speak he says is illegal for tax avoidance. I it's recorded so there's no way he can deny that. So he misstated has to reclaim his issue. Defend again when a guilty plea ends all known defenses in court. That means if you put not guilty or guilty you have no defense and lawyers going to turn you over to the court under bond which is a promise. He's going to promise that you're going to perform something and he's going to step back and you're going to say something to the court. He just did that to himself. He should have pledged a fist on that one
If you all haven't seen a documentary called... It's worse than you think... By revelations of Jesus Christ ministries... I suggest you do... All praise and glory to the most high Jesus Christ
Major mistake in his advice. Estate Planning attorneys are typically trained in asset protection. He states that trusts only protect assets when you are dead.... This is false- Most irrevocable Trusts are designed for asset protection and is also one of the main ways to accomplish it while also managing estate taxes at the same time. LLCs are arguably more limited than an irrevocable trust in terms of protection.
Was excited to listen until I found out this guy did not attend an ABA accredited Law School.
Well you don't have to take his opinion or advice but either way it's all good advice.
Actually, Brian did a certificate program at an ABA accredited school above and his CA state bar accredited program you reference here. I think his experience speaks louder than his schooling anyway. Just like any other field, the work outside of education is more important than where you went.
Proceed with caution. Brian has not addressed the negative tax implications of what he is proposing.
@@jennifermigliori7997 That's because he is in asset protection and not a tax professional per say...
Ignorance smh