Asset Protection

General Real Estate Investing
1

Check out this link:

http://johntreed.com/entity.html

After reading this article, it basically confirmed what I felt about LLC and “asset protection” the more I read about it.

It just doesn’t feel right. All the legalese that I, as a working-joe, just don’t take to, seems over the top and “fuzzy”.

I understand, in order to run a business, you have to be professional and operate accordingly, but now that I think about it…

I have my LLC and it has cost me quite a bit. My operating agreement is 12 pages long (New York State’s “boiler plate” Op Agreement is 15 pages long). I read that over and over again, I think in total about 10 times.

After all the hubub about LIMITED LIABILITY - guess what…my LLC still needs Liability Insurance…I could have filed a DBA for 50 bucks and taken my “chances” with asset protection…

Also, my LLC can’t get any loans without a personal guarantee and even after the miraculous 2 years of business credit history - I’ll still probably have to guarantee loans personally.

So, the LLC provides asset protection visa vi -
Members contributions (equity) = $500 each
and lenders to the company (liability) by initiating promissary notes for $19,500.

So if I get sued - according to “asset protection” - the plantiff’s attorney’s have difficult time accessing funds from LLC…

okay, so I have to pay an attorney to represent me - even if I have an attorney as a member - he is a member and therefore cannot represent LLC.

Either way, the attorney has to get paid, liability or no liability - the money will go to the attorney.

I know the one thing that Reed left out was how LLC’s do protect your PERSONAL assets…while anything owned by the LLC may be up for grabs in court, if LLC is sued, my personal assets ARE protected…

although he writes:

"Manager of LLC
Another LLC owner got sued as an individual. He said you can’t sue me as an individual. I am protected from that by my LLC. The court said, “No. You’re not.” The court said he could be sued as an individual not as the owner of the LLC, but as its manager.

An owner of, say, Ford Motor stock, cannot be sued as an individual because Pinto gas tanks explode. But a duplex you rent out ain’t Ford motor. In the typical case of a landlord or other small businessperson, you are not only the owner of the stock in your closely-held corporation, you are also the guy making the day-today decisions that caused the person to sue you. With Ford, you are a passive investor. But when you own and operate buildings or a small business, you are active, not passive. Using a corporation or LLC and hiring a property manager would not change that.

Alter ego
It’s not enough to just set up a corporation or LLC, you have to act like a corporation or LLC every day. If you just set it up then ignore it, your litigation opponent will say it’s your alter ego (Latin for other self) and the court will agree and ignore the structure and treat you as if you had never incorporated or formed an LLC.

All the little crap you have to do to behave like a corporation or LLC is costly and time-consuming. For example, you would typically have to pass a corporate resolution to buy another building. All bank accounts must be kept separate and corporate and LLC accounts must never be used for personal or other non-corporate matters. Etc. etc."

This seems VERY TRUE. I know LLC is supposed to protect my personal assets, but I have to go through ALOT of hurdles to assure that it’s legite in the eyes of a suspect court that is generally, looking to F anyone who is successful.

Again, I’m at a loss…thoughts…

2

You are correct, an LLC is a waste of time if you don’t have (or plan or having) a lot of assets. If you become successful, it is very important that you organize your assets into different entities so that a catastrophic loss in one verture doesn’t take away all your assets.

If your goal is to have 5 rental houses and make $500 per month cash flow, and you don’t have a lot of other assets, then I’d just get insurance and operate as a sole proprietor. On the other hand, if you had 100 rentals, and a lot of other assets, I’d set up several LLCs and divide the rentals and other businesses into these LLCs.

There are many other reasons to use entities. For example, let’s say that you need to buy a new car. You could buy it yourself, pay for it yourself, maintain it yourself, and put fuel in it yourself - all with after tax dollars OR your company could buy it, depreciate it, maintain it and fuel it with pretax dollars (expenses). BTW, the interest on a company owned vehicle is also deducted. One way helps keep you broke while the other way helps build weath.

The tax implications of having entities can be HUGH!

Mike

3

Anyone who believes what John T. Reed says deserves what they get. The man is a bottom feeder. He’s a great writer but sells his own products by saying every other guru is “not recommended”. He’ll select a few real scam artists that everyone knows about and say how terrible they are. He figures that makes him credible so he then attacks everyone else.

Go through the threads on this forum about LLC’s and read what mcwagner posts. Mark is a dynamic CPA and his posts regarding this subject are brilliant.

As to John T. Reed, let’s put an end to his so-called credibility once and for all. He attacked Bill Gatten although admittedly not understanding land trusts. Here is a point-by-point rebuttal from Bill which should put an end to anyone believing anything Reed writes about others. Enjoy as Bill goes over Reed’s article line-by-line and demonstrates what a joke this man is:

http://site.landtrust.net/sites/339/main/en/PDFArticles/JohnTReed.pdf

Bill says Reed “has appointed himself to be the guardian of morality and decency” and, “He who sees a burglar behind every bush has larceny in his heart”.

Da Wiz

4

Gary,

what reed says about followers of Gatten is spot on - he says most guru followers, especially Gatten followers like yourself, focus entirely on talking down the other guy rather than focusing on the issues that Reed raises.

i’m not really interested in who’s right/wrong or a “bottom feeder”.

his points on land trusts are TO ME common sense from an onlooker’s point of view. to me, if you were selling my home, and you approached me with this idea of Land Trusts to buy my home…quite frankly, i would just scratch my head and stare blankly at you.

it just seems like it’s over-the-top. you’re doing it and it works for you because you are very well spoken and sound very educated. our conversations have been nothing but pleasant and you are very knowledgeable about your niche. but what Reed talks about seems REAL.

all that aside, i don’t care about Gatten’s opinion about Reed or vise versa - what makes sense to me is that VERY FEW people in New York use Land Trusts and therefore it would be HIGHLY difficult for me to use them.

additionally, i am just interested in making money from real estate. i know for me personally - my business will not
rent to section 8
will not violate DOSC
will not go over the top to “educate” sellers
will not focus on speculations on appreciation
will not be overextended on debt to income ratio’s

Business will
NOT MAKE ANY MONEY!!

lol

but seriously,
Business will:
KEEP IT SIMPLE.

that’s all i know for now. i am trying very hard right now to just use the KISS method to real estate investing.

I have this LLC and the more I look at it, I just shake my head and it SWELLS.

My brother says, let’s just buy a f’n house, get Liability Insurance, use a good RE lawyer and our CPA.

I agree. As long as we BUY RIGHT - then everything else will fall into place.

My only concern is my personal assets. that is why i still feel that having title in an LLC on investment properties is the way to go. but that does not mold well for the KISS method.

[loooooonnnnggg sigh]

5

I understand your point of view, however there is one thing that has really been overlooked and that is financial momentum. Every top real estate investor and I don’t mean people who sell books and tapes. I mean real top grade investors use Series LLC’s or standard LLC’s or corporations not just for the asset protection of separating the personal from the business, but also the credit that corporate entity can establish. For an example if an investor continues to purchase real estate under his own personal credit eventually that investor is going to have an income to debt ratio problem that can destroy his personal credit as well as financial momentum of acquiring more property. A corporation or limited liability company has what is called a Paydex score it runs from 0 to 100. It is alot different than our personal credit our Fico. There is an organization that I have worked with that deals with real estate investors on all levels from the newbie’s wanting to get set up right to the eight figure high rise developments projects. They set up the asset protection structures properly and then build the credit in the corporate entity and help establish corporate credit lines that do not report to personal credit only the corporation or LLC Paydex score. The company is called Real Estate Asset Protection Group. They have offices all over the country. I think there web address is www.protectmyrealestate.com Listen I have been investing for twenty two years and as my friend mentioned some of these guys have an angle and products they want you to buy. I don’t follow the pitch men I follow those who lead by example. Go to mixers get into the investment clubs or organization who are in the business of investing. Learn what is really going on out there. Following book peddlers or seminar speakers may help a little but remember they will always try to bend your thinking to what they want you to think that they are all you need. I hope you guys don’t take what I said the wrong way, but I really feel we all can be successful when we have an open mind to all the options that really exist for us as investors.

6

the LLC is confusing and takes alot of brain energy. but that’s what it takes to run a business. BRAINS and GUTS.

7

TMCG,

You obviously didn’t read the response. Gatten wasn’t talking about the other guy at all. He went line by line on the issues Reed raised and showed Reed how little he knew. I have never been a guru follower, in fact, I don’t like most of them. My entire focus is on my investment method and how it will serve my needs.

I, too, like to follow the KISS method of investing. That’s exactly why I use land trusts. Real estate mortgage law is a jumbled mass of contradicting laws and rules that vary from state to state. Look at foreclosure laws, or the restrictions some states are putting on lease options and subject to.

What makes the land trust so simple is the fact that it is governed by the UCC, NOT mortgage law. With exemption from the DOSC, no fear of equitable interest or liens and encumbrances, the versatility to achieve the goals of any investment method without the inherent risks (lease option, contract for deed, wrap, equity share, etc.), and with the ultimate in privacy and asset protection, for me it’s a no-brainer.

Da Wiz