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Author Topic: Cash-out with LLC question. Please help!  (Read 9641 times)

Offline christopher w

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Re: Cash-out with LLC question. Please help!
« Reply #15 on: November 10, 2007, 10:21:27 am »
BLL,

I would like to think that he was looking for help with protecting his assets from frivolous lawsuits. It has become evident that we live in a sue happy society and for a small time investor starting out one lawsuit could put someone in the poor house. If he was looking to avoid paying debt I imagine his post would have started out like this "I am about to file a BK; how can I hide my assets?". All I am saying is don't always assume the worst about people and try to be positive with your comments until you know someone is a scumbag and then you nail them!! LOL!
Christopher W
C-214.923.5781

Offline mcwagner

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Re: Cash-out with LLC question. Please help!
« Reply #16 on: November 10, 2007, 06:43:49 pm »
Quote
Since LLC and LP are not options for him


why not?

even if you are managing the properties yourself today, and thus not achieving many of the benefits of the entity, it is still a sound business decision.  it allows you more flexibility in minimizing taxes, more benefits you can receive and much more.

next year you may have so many properties that you must hire a property management company.  if the properties are already held in the entity, so much the better.  otherwise you have much extra work to do. 

I always recommend that anyone seriously pursuing real estate should never hold property in their name.  It only costs a few hundred bucks to set up and only a few hundred a year to maintain.  If you cannot afford that, you should reconsider your real estate career...

the benefits far outweigh the costs.
Mark Wagner, CPA, LLC
Certified Public Accountant
http://www.facebook.com/MarkCWagnerCPA

Offline BLL

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Re: Cash-out with LLC question. Please help!
« Reply #17 on: November 10, 2007, 06:49:23 pm »
Christopher,

What do you mean by "protect assets" and "asset protection"? The vast majority of material available talks about making it harder for judgment creditors to collect. You may think that is acceptable. The law does not agree with you. Any transfer made with the actual intent to hinder, delay, or defraud creditors is fraudulent, and that is what people mean when they use those terms. They use asset protection to throw up roadblocks so that plaintiffs attorneys decide not to sue or settle for a smaller amount or never collect at all. People who don't understand the law use asset protection as the reason for setting up LLCs, etc. Those are the people who lose in court. People who do understand the law use the same set up but use legitimate, not asset protection reasons, to justify it. The only difference is their stated intent.

A good attorney will get the frivolous lawsuits dismissed. Yes, there is a cost to that and there is limited disincentive to plaintiffs for filing suits with little or no merit. The place to address tort reform is Congress and the state legislatures. Using the junk that passes for asset protection won't do you any good.

For the record, "not paying your bills" and "asset protection" as most people mean it is the same thing. When the judgment is entered, it becomes a valid debt and courts do not accept anything that prevents that payment.

Offline BLL

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Re: Cash-out with LLC question. Please help!
« Reply #18 on: November 10, 2007, 06:51:24 pm »
Quote
Since LLC and LP are not options for him


why not?

even if you are managing the properties yourself today, and thus not achieving many of the benefits of the entity, it is still a sound business decision.  it allows you more flexibility in minimizing taxes, more benefits you can receive and much more.

next year you may have so many properties that you must hire a property management company.  if the properties are already held in the entity, so much the better.  otherwise you have much extra work to do. 

I always recommend that anyone seriously pursuing real estate should never hold property in their name.  It only costs a few hundred bucks to set up and only a few hundred a year to maintain.  If you cannot afford that, you should reconsider your real estate career...

the benefits far outweigh the costs.


Mark has provided an excellent example of using entities with a legitimate reason. The protection from creditors is just a side benefit.

Offline BLL

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Re: Cash-out with LLC question. Please help!
« Reply #19 on: November 10, 2007, 07:09:45 pm »
I'm obviously still learning and the only reason I'm asking about the LLC is because I keep reading and hearing that I should do this for rentals.
Continue reading, but stay away from material that recommends whole systems. I recommend books that discuss various entities generally so that you can decide for yourself when they are appropriate and when they are not. When it comes to these situations, less is more. The more confusing and convoluted your plan looks, the more judges and juries will think you are trying to hide something. Also, avoid anything that uses deception or secrecy. Assume everything will come out during discovery. Once you are caught in a lie, no one will believe you.


My current situation is as follows:
I will be purchasing properties with home equity lines.
I will be purchasing rentals with my wife whose income we'll have to use to qualify for the cashout refis.
I will also be partnering with investors who will provide their funds and I do everything else with a 60/40 split in their favor.
My wife and I aren't wealthy but some of the investors I'll be working with will be.
An LLC or LP would work for this situation. Personally, I would use the operating agreement or partnership agreement to limit the investors' involvement to financing only. They get no management say. I strongly urge you to review your plan with a partnership attorney. He will draft an agreement that protects you and your wife. I would also suggest you work with an entity specialist to determine the best structure to contain the liability to the entity.


I'm not trying to do anything shady, just asking about the LLC because I keep reading that you should do it with rentals.
I know you are ethical and just want to protect yourself. Just keep in mind that you never do anything to prevent the payment of valid debts. There is always a business reason to justify your actions. Asset protection is subtle. Creditors have a hard time collecting, but it doesn't look like that's why you did what you did. That is the difference between gurus and true professionals. Gurus are in your face with convoluted systems. Professionals use subtly to achieve the same thing.

Good luck to you.

Offline christopher w

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Re: Cash-out with LLC question. Please help!
« Reply #20 on: November 11, 2007, 02:57:54 pm »
That is more like it. Thank you BLL.
Christopher W
C-214.923.5781

 




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