How Do You Plan And Achieve Asset Protection?

There are a couple of primary ways you can lose your assets…1) is by making really poor investment decisions where you lose money instead of making it…boo, and 2) by getting sued and losing. This post is mostly about being prepared for the latter.

Here is the basic scenario you want to avoid. You own all your rental property in your personal name, along with your other assets like your house, your stocks, your cash, etc. Well, if one of your tenants sues you (and wins), they would potentially have access to ALL of the assets you have in your name…that’s no bueno!

How do we avoid this risk and attain asset protection? You set up “Entities” to hold, and more specifically “silo” your assets. What kind of entity did you ask? Well, for real estate, it usually comes in the form of an LLC (Limited Liability Company). 

When an LLC owns the real estate asset, and the tenant pays the LLC their rent, then they are in a business relationship with the LLC (not you personally) and they would sue the LLC (not you personally). 

They can still get a judgment of course, but the amount of money they could access would be limited to the value of assets the LLC holds…which would be the equity in said house.

The main issue (and potential deterrent) of putting your real estate in an LLC, is that they cost money to set up and maintain and require some annual maintenance. This comes in form of state annual filings and tax payments you have to make on the LLC.

You are probably now wondering exactly what those annual filings and costs are? Well, it all depends on what state you live in…so that is something you have to figure out when you are deciding if an LLC is worth it.

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