What structure to create to protect real estate assets

Question

I am struggling with a thought as what is a simplified and right structure should I create for investment properties? Any affordable resources that someone can suggest?

Also keeping taxes in mind as I don’t think it’s efficient to create separate LLCs for each property and file separate business returns. Thanks

Michael Plaks · Answer

You mentioned three concerns: legal protection, anonymity and taxes. For taxes, most of the time entities will not change anything, especially when you start. You usually have the exact same tax deductions and tax rates, with or without entities. So scratch taxes from your list for now. When you're making significant money from real estate, then you can revisit your structure with your accountant.

For anonymity and asset protection, it depends on who you're listening to. And it also depends on your overall exposure. A plastic surgeon with sizeable assets needs far stronger protection than a truck driver without much in his name. But the stronger legal protection you want, the more complicated and expensive it gets. To make it worse, even attorneys (I'm not one of them) disagree on how it should be done.

BiggerPockets features multiple podcast episodes and articles on this topic, and I suggest you start there. One common theme you will find is that it is case by case. What is best for you may not be the best for me. Just like with diets, careers, relationships and everything else.

A lot of new investors start without any entities and rely on insurance for protection. It is the simplest you can do, but it is also the riskiest.

Subhash Kapur · Answer

Thanks for your reply. Reason I am creating this structure so, in case of any happening, my assets are protected.

Also keeping anonymity so my name doesn't shows on legal entity and use these entities for taxes.

Carl Miller · Answer

To answer this question, you should probably provide additional information such as how many owners there are, where the properties are located, your resident state, and the amount of equity in your properties. This question is too generic for a specific answer. There are also a lot of different opinions about the value of using business entities some people will tell you that every property should have it's own entity and others will say that entity creation is money-making scheme for lawyers.

Brad Hammond · Answer

Hey Subs,

Why are you looking for a structure?  If it is for financial protection I would recommend not keeping more than 30% equity in the property (if you don't have much equity, there isn't much for lawyers to go after.  They prefer easy, low hanging fruit), get a good insurance policy, and cap it off with an umbrella policy.