Paid off my rentals. Now what?

Question

I have 4 rentals and one primary residence all paid off. And that’s all my income, just enough to pay my bills.

I have enough umbrella policy to cover all my rentals. But I still feel it is not enough protections.

What shall I do now to make sure no any lawsuit or lawyer can go after all my assets once they find out all my houses are paid off?

I’m equity rich but cash poor since i don’t have a w2 job. If I get equity out from private lenders then my income will drop. I just feel I can afford to lose any of my rentals. If I lose them. My life will be all screwed up.

Shall I set up an LLC for each property?  What is the best way to protect them? Any idea?

JD Martin · Answer

First of all quit worrying about lawyers coming and taking your houses. That kind of stuff is ridiculously rare.

Beyond that, if you need to live off your cash flow, then you need more cash flow. Take some equity out and buy some more houses. Or get a job.

Nina Zou · Answer

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Thank you Greg. I’ve made sure to reserve enough and also have couple of other resource that I can pull money for urgent use.

What I have is just not enough to live on and the situation is too fragile that’s why I worried so much about losing. I guess I have to increase my cash flow.

Thank you so much for your input!

Mike A. · Answer

Each property should be in their own LLC.  Since you no longer have a mortgage, then this should be very easy for you to transfer the asset to an LLC. It's best to have two owners per LLC for additional protection.  Additionally, you can setup another LLC, such as a parent and then lien each building thus showing little to no equity.  Lastly, you should have a separate policy for each LLC. All of our LLC's have a 1m liability policy with a 2m aggregate.  That's the safest one can get.

Greg M. · Answer

You've provided very little information. We have no idea of the value of the units, how much rent is coming in, how much money you actually need each month (do you like like a pauper or queen), how much reserves you have, where you are located, your age, etc.

If you have just enough income to pay your bills, I wonder what's going to happen if you get a tenant that stops paying rent and it takes 6 months or longer to get them out? Will you be homeless?

Sounds like you could use a financial/real estate professional to go over your numbers. You either need to reduce your expenses or increase your income. Maybe it makes sense to take out a loan on one of the units to the point the loan payment and the income are equal. Use the funds to buy other units that are cash-flowing better?

As for liability, you can set up a bunch of LLCs and run them through companies located in Anguilla. You can spend thousands doing this and a determined attorney may still be able to get the assets. Much easier to just buy a very large umbrella policy. Massive judgments that stand are very rare. You hear the stories about massive judgments because they are rare. What you never hear is that after the jury awarded $130 million against a person, the trial judge or appeals court reduced it to $2 million which the insurance company paid.

Paid off my rentals. Now what?

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