In a perfect world, honest real estate investors would never have to deal with frivolous lawsuits. But we live in the real world where being sued is a very real possibility.
So, how do you protect yourself so that an angry tenant cannot get to your personal assets?
What kinds of insurance do you need to protect your real estate assets from an ‘outside attack’?
And where should you set up a holding company to take advantage of the strongest possible asset protection laws?
On the latest episode of the Apartment Building Investing podcast, Garrett Sutton joins me to discuss the ins and outs of asset protection.
He explains how the LLC protects your personal assets, why it’s important to set up an LLC from Day One, and how insurance serves as your first line of defense.
He also offers insight around entity structure, speaking to the value of setting up a Wyoming holding company with charging order protection.
Listen in to understand the concept of equity stripping to further protect your real estate assets—and learn how to avoid personal liability by following the 4 corporate formalities!
Click Here To Get $100 OFF the Incorporation Startup Packet (Mention this Podcast)
Key Takeaways
Why it’s important to set up an LLC from Day One
- Too late once sued
- Plaintiff can reach all personal assets
How the LLC protects you as an individual
- Courts respect lease in name of LLC
- Attorney will work to get name off suit
The role of insurance in providing asset protection
- Serves as first line of defense
- LLC provides second line of defense
Why Garrett recommends an umbrella policy
- Extra coverage for home + auto
- Protects against outside attack (i.e.: car wreck victim)
How to set up the best possible entity structure
- LLC in state property located
- Several LLCs under Wyoming holding company
- WY = strongest asset protection laws, privacy
The value of a charging order protection
- Doesn’t allow forced sale of assets
- Victim must wait for distributions
The 4 corporate formalities
- Annual meeting w/ minutes
- Registered agent in state
- Separate tax return
- Separate bank account
The consequences of failing to follow corporate formalities
- Personally liable in any suit
- ‘Veil pierced’ 50% of time
How Corporate Direct can retroactively fix compliance issues
- Operating agreement, minutes + membership certificates
- Transfer ownership from individual to WY LLC
The concept of equity stripping
- Leverage debt as form of asset protection
- WY LLC provides credit, receives first deed of trust
How to notify your insurance company re: title transfer
- Use grant deed, inform of transfer to LLC
- Add LLC as additionally insured (avoid higher premium)
Connect with Garrett
Corporate Direct Call (800) 600-1760
Resources
Loopholes of Real Estate by Garrett Sutton Start Your Own Corporation by Garrett Sutton Books by Garrett Sutton Rich Dad Michael’s Mentoring Program Partner with Michael Invest with Michael Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job with Real Estate—Even Without Experience or Cash by Michael Blank Podcast Show Notes Review the Podcast on iTunes Michael on Facebook Apartment Investor Network Facebook Group Michael on Instagram
