Personal Asset Protection
Hello-
I just wanted to get some insight on what the best option is to protect personal assets from real estate investing. I am thinking of partnering up with a few people and doing flips/rehab and maybe buy and hold. We have discussed doing an LLC and the cost would be around $350 to set it up.
My question is will this be sufficient protection from all personal assets? Also, does the LLC need to be in the state that the investments will be in?
Thanks,
Armand
Consult an appropriate attorney (I'm not one).
That said, understand: an LLC alone only offers a single level of protection. If it's "corporate veil" can be pierced, your exposure is total.
You want to build a business entity structure such that there are multiple level of protection.
Here's a typical scenario as my investing group has learned it form our tax and legal expert:
You set up a personal or family trust. This will be part owner of an LLC you use for long-term holdings and an S-Corp or C-Corp you set up for short term holdings and cash flow. The other LLC owner is your S-Corp or C-Corp. The LLC is also part owner of your S-/C-Corp. This way, you "control everything and own nothing". All of your income-producing assets are held by a business entity and the entire structure can be willed to your heirs via the personal trust.
This triad becomes the foundation of your business entity structure and provides effective protection against liability from either the LLC or S-/C-Corp. The S-Corp also allows you to pay yourself from your business income using the "salary / dividend split" technique. This limits your income tax liability and reduces your FICA ("self employment" tax) expense.
There is a two-day (two 8-hour days, recorded) tax and legal class in the education to which I am connected. It's in the beginner's curriculum. Most people say this one class pays for their entire education in tax savings alone the first year.
David J Dachtera
"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict
Hi David-
I am in the process of completing a Family Revocable Trust. So could this along with a S-corp or C-corp be the best protection overall? What if I only did Family Trust and went into partnership with other investors no protection eventhough I have a trust right?
