Asset Protection Advice
Member since 2022 路 12 posts 路 6 votes
Asset Protection Advice
Most Popular Reply
Joe VilleneuvePro Member
Plymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votesBest asset protection? Leverage.
36 Replies
- 4yJoe VilleneuvePro MemberPlymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
Best asset protection? Leverage.
- 4yGreg ScottPro MemberRental Property Investor 路 SE Michigan 路 Member since 2014 路 4k+ posts 路 6k+ votes
Very few people here use S-Corps for a variety of reasons. Most use LLCs. There are many that create LLCs that don't need them. Trusts are usually for estate planning as they do not provide asset protection. Be sure you are using a trust for the right reasons.
You should seek counsel from an attorney that knows your specific situation.
I also agree with @Joe Villeneuve
- Investor 路 VA 路 Member since 2015 路 21k+ posts 路 19k+ votes4y
@Jeremy Suffel
Technically a c corp would be best but who wants that headache.
This truly depends on what are your concerns and what is the solution to mitigate that risk
Too many people run out and spend thousands of dollars on asset protection but are not even sure what they are protecting against.
Best asset protection is competent property management with proper indemnification language, a great attorney and a good insurance policy.
7e investments53 Reviews - Member since 2022 路 12 posts 路 6 votes4y
I should probably be more specific in my title. By asset protection, I am more concerned about separating business from personal. I just want to ensure I also set myself up for the best tax solution. I don't intend on quitting my W2 for a while. My first priority is to offset my wife's salary so she can quit first. I believe Scott was more on the track of where I was heading as well. Thanks all.
- 4yJoe VilleneuvePro MemberPlymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votesSame answer. Leverage.
Quote from @Jeremy Suffel:
I should probably be more specific in my title. By asset protection, I am more concerned about separating business from personal. I just want to ensure I also set myself up for the best tax solution. I don't intend on quitting my W2 for a while. My first priority is to offset my wife's salary so she can quit first. I believe Scott was more on the track of where I was heading as well. Thanks all.
- Real Estate Agent 路 Dallas - Fort Worth Metroplex 路 Member since 2020 路 66 posts 路 57 votes4y
I would suggest you find a CPA that has experience working with clients that invest in real estate. They can best advise you on how to structure your business.
- Member since 2022 路 12 posts 路 6 votes4yFor a new investor, explain how leverage protects the assets. Not trying to be difficult, just trying to better understand what you're stating.
Quote from @Joe Villeneuve:
Same answer. Leverage. - 4yJoe VilleneuvePro MemberPlymouth, MI 路 Member since 2013 路 13k+ posts 路 19k+ votes
First element of risk is to identify what is at risk...which is always the cash, which in the case of REI includes the equity in a house. The more equity you have, the more you have at risk. So, the more debt you have on a property, the less you have at risk.
- Member since 2022 路 12 posts 路 6 votes4yI see what you're saying now. Thank you for explaining.
Quote from @Joe Villeneuve:
First element of risk is to identify what is at risk...which is always the cash, which in the case of REI includes the equity in a house. The more equity you have, the more you have at risk. So, the more debt you have on a property, the less you have at risk.
- TX 路 Member since 2018 路 154 posts 路 92 votes4y
@Jeremy Suffel I think this depends how large you want to get. You can have insurance plus umbrella policy only, get some LLCs, get a series LLC, etc. you should talk to an attorney and CPA and figure that out. Please PM me if you want suggestions.
- 4yJennifer BalsigerPro MemberMember since 2022 路 1 post 路 1 vote
@Jeremy Suffel
I'm new to making investing my full time gig, but I do currently have properties and I was thinking if I add to my portfolio than I too might need an LLC. I have requested advice for my personal situation from my lawyer with no answers just yet. However, this video might give more advice. It was informative.
https://youtu.be/40HZhvcCPo4
- 4yNicholas L.Pro MemberFlipper/Rehabber 路 Pittsburgh 路 Member since 2018 路 6k+ posts 路 5k+ votes
@Jeremy Suffel welcome to BP. I'm outside of Pittsburgh - not too far from you in the grand scheme of things. I saw your other post as well, and decided to do a joint reply here to both posts. Some very miscellaneous thoughts and responses:
-I think getting started in flipping is very tough. The best flippers are the professional flippers who have big operations. One-offs are difficult. And at the end you don't own anything.
-I saw in your other post that you can't house hack / live in flip. That's fine. Lots of other ways to invest.
-As others have said in this thread, setting up an LLC or corporation generally isn't all that important when you're getting started. But, if it's important to you, that's great. Talk to some professionals in your area and see what they think.
-You can use passive losses from real estate to offset W2 income even without any kind of sophisticated setup / having a corporation. You just report the loss when you file your taxes. There is a cap and it starts to phase out at $100K. You can look up the IRS rules online or ask a CPA.
-Are you looking to buy and hold? Do you have funds for a down payment for something + reserves?
-Are you working on a Core 4? Are you attending meetups?
Hope this is helpful
- Rental Property Investor 路 Rockford, IL 路 Member since 2014 路 4k+ posts 路 2k+ votes4y
You're on the right track.
You want to build your entity structure starting from a trust. You can be the beneficiary, but delegate someone you trust - an attorney, maybe - as the trustee. The trustee's identity is pubic knowledge. The beneficiary's is not. So, that's where your anonymity and protection begins.
The trust should then form an S-Corp. This is where you'll channel all your rental income. As you build an income stream, you can take a W2 draw from the S-corp known as a "salary / dividend split". Roughly 30% salary (minimizes your tax liability) and 70% dividend. Be advised, however, that reducing your Social Security deductions this way can have an impact when you reach retirement age. SUTA, FUTA and FICA all come out of the 30%. Taking this draw allows you to still have personal credit since you have documentable income.
The S-Corp and trust then form multi-member LLCs (for better protection).
Properties are acquired in the LLCs."Control everything, own nothing."
No human owns any of the entities when you build it this way. This begins good protection for your personal possessions from the risks associated with your RE business.
That's only a thumb-nail sketch, of course. there's a lot of details along the way.
Note that this is not legal advice, nor am I a legal professional. I can steer you onto a source for complete information, if you need it.
- 4yGreg O'BrienBusiness MemberAccountant 路 Boston, MA 路 Member since 2019 路 386 posts 路 336 votes
@Jeremy Suffel do not place any long term assets in an S Corp鈥ver! SMLLC is your path of least resistance and you can add in other mechanisms later
- Investor 路 Miami, FL 路 Member since 2014 路 50 posts 路 36 votes4y
Great post! For what it's worth here's some info but don't quote me as this depends greatly as many said above on your specific situation AND state laws...also I am not an attorney just knowledge from what I may or may not have done for wealth protection this might also be an over kill starting out but one can never learn enough maybe for the future馃槉
I would go with Land trust. They are tricky but one of the most beneficial devices used for ownership of real estate. If done right they can keep ownership private, avoid probate, keep sales price private, easy management by multiple owners and have a couple more benefits. The best way to set up a land trust is to do so when you are purchasing a piece of property and have the seller deed the property directly to the trust. This way your name never appears in the public records. The second way to structure it is to buy it in your name and then deed it into trust. The only real time you would go with the second method is if your lender required the property to be in your name in order to do the financing (AVOID lenders with this requirement if possible). While a land trust provides privacy, events like a death occurring on a land trust property a victim can find out who the beneficiary is and they can be liable.
Now for my favorite part DOUBLE ASSSET PROTECTION.. To counter that situation many have their trusts owned by entities that protect from liability such as LLCs or corporations. While an LLC can protect an owner from liability on a property the liability can be against everything an LLC owns.. so when you have several properties.. Have a separate LLC own each one. In a husband and wife scenario the draw back to two member LLCs is that they would need to file separate tax returns and this could get costly once you have several properties. The Solution..set up a single-member LLC for each land trust property, but then have them all owned by one multi-member LLC. Singe-member LLC income passes through to the multi-member LLC which files one tax return for all properties. The owners of the multi-member LLC receive schedule K-1 from the multi-member LLC which they file with their tax returns.
In conclusion there are tons of ways to structure this it really depends on your own personal situation. Hope this was helpful!
Best of Luck !
Regards,
Andres C.
- Member since 2022 路 12 posts 路 6 votes4y
Quote from @David Dachtera:
You're on the right track.
You want to build your entity structure starting from a trust. You can be the beneficiary, but delegate someone you trust - an attorney, maybe - as the trustee. The trustee's identity is pubic knowledge. The beneficiary's is not. So, that's where your anonymity and protection begins.
The trust should then form an S-Corp. This is where you'll channel all your rental income. As you build an income stream, you can take a W2 draw from the S-corp known as a "salary / dividend split". Roughly 30% salary (minimizes your tax liability) and 70% dividend. Be advised, however, that reducing your Social Security deductions this way can have an impact when you reach retirement age. SUTA, FUTA and FICA all come out of the 30%. Taking this draw allows you to still have personal credit since you have documentable income.
The S-Corp and trust then form multi-member LLCs (for better protection).
Properties are acquired in the LLCs."Control everything, own nothing."
No human owns any of the entities when you build it this way. This begins good protection for your personal possessions from the risks associated with your RE business.
That's only a thumb-nail sketch, of course. there's a lot of details along the way.
Note that this is not legal advice, nor am I a legal professional. I can steer you onto a source for complete information, if you need it.
David, this is exactly what I was looking for. As far as Social Security is concerned, I'm a government employee and have only ever paid SS for 4 years so that's not a concern. I'll retire with a great pension in 15 years at age 55. My goal with RE is more to build additional income and wealth. I would love for my wife to leave her full-time W2 job. I will reach out to discuss further soon. Thanks again!
- Member since 2022 路 12 posts 路 6 votes4y
Quote from @Nicholas L.:
@Jeremy Suffel welcome to BP. I'm outside of Pittsburgh - not too far from you in the grand scheme of things. I saw your other post as well, and decided to do a joint reply here to both posts. Some very miscellaneous thoughts and responses:
-I think getting started in flipping is very tough. The best flippers are the professional flippers who have big operations. One-offs are difficult. And at the end you don't own anything.
-I saw in your other post that you can't house hack / live in flip. That's fine. Lots of other ways to invest.
-As others have said in this thread, setting up an LLC or corporation generally isn't all that important when you're getting started. But, if it's important to you, that's great. Talk to some professionals in your area and see what they think.
-You can use passive losses from real estate to offset W2 income even without any kind of sophisticated setup / having a corporation. You just report the loss when you file your taxes. There is a cap and it starts to phase out at $100K. You can look up the IRS rules online or ask a CPA.
-Are you looking to buy and hold? Do you have funds for a down payment for something + reserves?
-Are you working on a Core 4? Are you attending meetups?
Hope this is helpful
Nicholas, I appreciate the feedback. I'm right between Fort Wayne, IN and Toledo, OH. It's a smaller rural area. I do have a lot of construction skills and my wife has a great taste for design. I have a lot of contractor contacts and many contacts in the RE community around here. I don't have much in terms of savings or cash on hand. My long term goal is in the rental space. I've got the BRRR book queued up to start tomorrow, just finishing Rich Dad Poor Dad.
I almost have my Core 4. I've got a little more negotiating to do. One of the reasons I'm considering flips to start is because I have a short term cash financer out of the gate. I have equity in my home but, we are looking at a mov soon and with the market, we're not sure it's a good time to mess with that. The other side of that is our interest rate is 2.87% which is why I'm considering proposing we rent our current home out and go from there.
i actually just heard the term meetup this past week on the podcast. I need to reach out to a local real estate agent and see if he's aware of any in the area. Thanks again for the reply.
- Morris County, NJ 路 Member since 2020 路 5k+ posts 路 2k+ votes4y
You said you were trying to separate your personal and business. Legal entities such as LLC's don't provide any tax advantages unless you are investing with a non-spousal partners. Electing to be taxed as a S-corp only helps to avoid SOME self-employment taxes. However, rental income is passive and not subject to SE tax, so that is just silly. Also, there are more costs involved in maintaining a S-Corp.
So, you are one of the last CSRS pension plans? Or perhaps a different segment? Anyway, for tax issues, you'll be fine with using your personal name, maintain your properties, have insurance including an umbrella policy. The deductions are all the same and you'll save on legal, registration, and accounting/cpa fees. I guess sort of NOT like the Gov't: do NOT fix it until its broken. So, don't over complicate things, and don't "buy" what you don't need.
I hope this helps. If you ever want to chat let me know. I'd be happy.
- Morris County, NJ 路 Member since 2020 路 5k+ posts 路 2k+ votes4y
Oh, I forgot to add that usually taking your passive income, ie. rentals, and making it active via the S-Corp distribution is usually considered a tax inefficient method. Passive income is generally better than active from a tax standpoint, that's why long term rentals is considered so good... There are reasons and advantages to it, for income purposes, but you need to be "playing around" with a sufficient amount of funds for particular reasons. With gov't pension and benefits, I shouldn't think you'd need it. Good luck.
- Investor 路 TX 路 Member since 2020 路 57 posts 路 60 votes4y
For Single Family, leverage, then get a large umbrella policy that will cover all your net worth and equity. Then get a RE attorney to set up LLCs for protections on your large properties and partnerships.
- Member since 2022 路 12 posts 路 6 votes4y
Quote from @David M.:
You said you were trying to separate your personal and business. Legal entities such as LLC's don't provide any tax advantages unless you are investing with a non-spousal partners. Electing to be taxed as a S-corp only helps to avoid SOME self-employment taxes. However, rental income is passive and not subject to SE tax, so that is just silly. Also, there are more costs involved in maintaining a S-Corp.
So, you are one of the last CSRS pension plans? Or perhaps a different segment? Anyway, for tax issues, you'll be fine with using your personal name, maintain your properties, have insurance including an umbrella policy. The deductions are all the same and you'll save on legal, registration, and accounting/cpa fees. I guess sort of NOT like the Gov't: do NOT fix it until its broken. So, don't over complicate things, and don't "buy" what you don't need.
I hope this helps. If you ever want to chat let me know. I'd be happy.
My pension is state not federal. I'll look deeper into this with a CPA and attorney. Thank you for your input. I now have a much better understanding.
- New England 路 Member since 2021 路 2 posts 路 0 votes4y
Quote from @Greg O'Brien:
@Jeremy Suffel do not place any long term assets in an S Corp鈥ver! SMLLC is your path of least resistance and you can add in other mechanisms later
For what reasons do you say this? Just trying to learn...
- Member since 2022 路 29 posts 路 19 votes4y
Quote from @Nicholas L.:
@Jeremy Suffel welcome to BP. I'm outside of Pittsburgh - not too far from you in the grand scheme of things. I saw your other post as well, and decided to do a joint reply here to both posts. Some very miscellaneous thoughts and responses:
-I think getting started in flipping is very tough. The best flippers are the professional flippers who have big operations. One-offs are difficult. And at the end you don't own anything.
-I saw in your other post that you can't house hack / live in flip. That's fine. Lots of other ways to invest.
-As others have said in this thread, setting up an LLC or corporation generally isn't all that important when you're getting started. But, if it's important to you, that's great. Talk to some professionals in your area and see what they think.
-You can use passive losses from real estate to offset W2 income even without any kind of sophisticated setup / having a corporation. You just report the loss when you file your taxes. There is a cap and it starts to phase out at $100K. You can look up the IRS rules online or ask a CPA.
-Are you looking to buy and hold? Do you have funds for a down payment for something + reserves?
-Are you working on a Core 4? Are you attending meetups?
Hope this is helpful
If you are not a real estate professional and are doing REI as a side gig and thus viewed as "passive" by the IRS, Is it true that you can use passive losses from REI to offset W2 income from your primary job (which is Not in real estate)? I was under the impression that in this scenario, the passive losses from REI only offset any passive gains you get from the real estate investment, but does not affect the tax you pay on your W2 earnings.
- Rental Property Investor 路 Rockford, IL 路 Member since 2014 路 4k+ posts 路 2k+ votes4y
Have to admit that I'm not familiar with "Core 4". Care to share on what that is?
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