Mike Butler's book Landlording on Autopilot is a great read and I really like his hands on approach and school of hard knocks education. I just glanced it over again today to brush up on how to denie a rental application without getting in trouble and came across asset protection. There is one statement that does not make sense to me:
- transferring title from personal to entity without realizing it destroys all your asset protection (page 68).
It sounds like there is a better way of transferring title of a SF into the LLC? What would that be?
Further, even if the transfer "pierces the corporate veil" or weakens it, wouldn't it take a very dedicated plaintiff lawyer to first sue you and then dismantle the LLC in the process before really getting anywhere with the case?
Your best course of action is to put the property into a trust and explain to the bank that it is an estate planning move. By putting a property into a trust you are not violating the due on sale clause therefore the bank will let you. What they can't check is who the beneficiary is whether it is you as the owner or, ta da, your llc you have recently transfered interest to.
Double check with an attorney on exactly how this need to be set up as I might be a little off here.
@Steven J. Thanks for your feedback, Trust + LLC is an interesting concept often promoted, but seems like overkill for a small fish like me. Interesting to see that many of the big guys (500+ units) don't seem to believe in either entity strategy. DOS does not concern me that much, banks generally don't care that much as long as the note performs, typically they wont even know. There are a few rules to follow with an LLC, like having a bank account in the name of the business and not co-mingle funds and if you know these things they are easy to follow. I just don't understand Mike's statement about the correct way of transferring the title..?
Not familiar with the book so I wouldn't know what his strategy is. Even as a small fish I'd be willing to put the property into a trust because if the bank calls the DOS I know I'd be screwed because I am a small fish yet. Its very unlikely, if the cost of setting up a trust and transfering interest is what gets me to sleep at night I'll do it.
I'm working in mobile homes and selling with owner financing. We've got each home in its own personal property trust (I believe you need a different trust for a SFH) and we transfer the beneficial interest to the new buyer. If they happen to default on the contract we're able to transfer back the beneficial interest and get them out of the house. Is this what Mike mentions in his book?
Depending upon your state, a LLC may NOT provide any protection. If, in Florida, you set up a single member LLC the Florida supreme court has thrown that out as protection and disregarded the entity. If you have a multiple member LLC in Florida, that is completely different. In your state, I am sure things will vary. I have seen some guys promoting setting up an LLC in states such as Nevada, etc due to their different treatment in the courts. I just bought a book on asset protection but haven't started it yet so I don't have any better info than what I just provided.
John Thedford, John Thedford | 239‑200‑5600 | http://www.capehomebuyers.com | FL Agent # BK3098153
@John Thedford I have heard about that. A lot depends on setting up and running the LLC correctly - if you don't have all your ducks in a row you may get challenged. Thanks for you input.
@Steven J. not sure if I follow your thought? If you owner fiance and sell, why do you use a trust? Wrap around mortgage? Sorry mobile homes are not my expertise..
we do a trust and that protects us incase we need to get the buyers out. If we run into trouble we still control the property and can then evict the buyers instead of a lengthy and expensive foreclosure.
There is a lot of misinformation and Mike Butler could easily be mistaken. Since this is totally out of context i do not know what he id referring to.
I doubt what he says is true. But that doesn't mean you wont have protection for other reasons. you are always responsible for your own actions.
If you manage your LLC, any mistake you make as manager you are personally liable for. I would bet this is the concept that the FL law is based on. Ex: if your employee runs over a little old lady while driving to one of your properties, your LLC and the employee are both liable. If you are the one to drive over the little old lady you and your LLC are liable.
Ned Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/
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