All Forum Posts by: Costin I.

@Brian M. - If you are new to REI you should be primarily concerned with finding good deals and growing your business first. I would not suggest to look into establishing LLCs and asset protection strategies till you have at least $100-300K in equity(!) and only after you covered properly the "other" aspects of risk management (insurance, umbrella insurance, proper property management, etc.).

Unless you are doing flipping (or AirBnb), in which case I suggest you look into Series-LLC and you operate each flip in its own child-series (if not clear why, ask for more details).

Here are some diagrams to help you in this quest:

Asset Protection Decision Diagram - to help assess the need for asset protection, and what to implement : https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-decision-diagram

Asset Protection Onion Diagram - what, when and at what cost one should implement in terms of asset protection - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-onion-diagram-v2

What is needed for a complete asset protection OR the domains that need to be intersected to find asset protection nirvana - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-spectrum-diagram

How a fully implemented asset protection layout might look. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-structures

Let me know if have questions or want to chat further - I can give you my investor perspective.

PS. Read this book first - https://www.amazon.com/Every-Landlords-Property-Protection-Guide/dp/1413307000 - before getting into more complicated and expensive measures of protection.

In this meetup we explore strategies related to investing in real estate while still working a full time "W2" Job. How do you balance the demands of a career and also invest in real estate? We take the long-term view of building wealth for retirement with real estate as a vehicle.

We are not a 'get-rich-quick' group. We look at strategies and techniques for building generational wealth with tried and true methods that require the minimum effort and day to day work. Some of our members have built million dollar real estate portfolios with these methods, and happily share their knowledge with others.

Each month we have one or two presentations with actionable, original content. We are informal and invite you to ask questions and participate!

We'll meet at the Quest Trust Company office at 100 Anderson Lane at 6:00 PM on Thursday March 17th.

@Jami Vincent - not a lawyer, not legal advice, so take it with a big spoon of salt, and all due diligence required, but here is my 2¢: 

Do you have a lot of equity and/or cashflow in these 2 investment properties? Or do you operate in a litigious profession (e.g. doctor)? Are these properties free and clear of mortgage (a note in itself is a form of asset protection if there is little equity)? Do you really need the complications and costs that come with LLCs?

If you are new to REI you should be primarily concerned with finding good deals and growing your business first. I would not suggest to look into establishing LLCs and complicated asset protection strategies till you have at least $100-300K in equity(!) and only after you covered properly the "other" aspects of risk management (insurance, umbrella insurance, proper property management, etc.). Read this book first - https://www.amazon.com/Every-Landlords-Property-Protection-Guide/dp/1413307000 - before getting into more complicated and expensive measures of protection.

On the anonymity aspect, the key word is "easily" -land trusts and Wyoming structures will hide you from public searches (someone doing a basic search online). But you likely already left a paper trail behind you (in your already acquired properties, through recorded deeds and mortgage notes) and continue to leave a trail with your operations (payment of taxes, insurance, leases, etc.) - so unless you have a lawyer acting as a proxy and signing all the documents for you from the beginning and throughout, your anonymity is relative. Plus, if you get in a lawsuit and it reaches the discovery phase (as in not outright dismissed), all that comes to surface.

Remember, it works by minimizing the target on your back (through the anonymity part, making it difficult to find out what else you own, how much of a juicy target you are) and by making it difficult to, and limiting what to collect in the case of a loss (the LLC part), but otherwise, asset protection is not foolproof, nor is one time deal, you don't put it in place and don't have to worry about anything else.

AFAIK, AC payment structure is an "introductory one" - have you looked into what they require on an annual basis to maintain your relationship with them? Also, they are not promoting the Series-LLC, since that cuts them off after initial setup, and they can't milk you with an LLC for each property. And since you are in CA, I hear Delaware Statutory Trust (DST) are the recommended way to go.

Here is my Asset Protection Decision Diagram - to help assess the need for asset protection, and what to implement : https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-decision-diagram

Here is my Asset Protection Onion Diagram - what, when and at what cost one should implement in terms of asset protection - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-onion-diagram-v2

Again, just my 2¢. For specialized advice, my recommendation: @Scott Smith.

@Fahren F. 

If you are new to REI you should be primarily concerned with finding good deals and growing your business first. I would not suggest to look into establishing LLCs and asset protection strategies till you have at least $100-300K in equity (!) and only after you covered properly the "other" aspects of risk management (insurance, umbrella insurance, proper property management, etc.).

Unless you are doing flipping (or AirBnb), in which case I suggest you look into Series-LLC and you operate each flip in its own child-series (if not clear why, ask for more details).

I spent numerous hours researching from multiple sources the whole LLC question and asset protection matter and all the rabbit holes it opens. I gathered all my notes in a 50+ pages document touching on formation and maintenance of LLC and business structures, transferring assets, protection strategies, trusts, anonymity, insurance, levels of protection, etc. including when you should do it, how many properties per LLC, due on sale clause, selecting an attorney, fees, checklists and resource materials.

Doc: https://www.biggerpockets.com/files/user/CosIorg/file/tritoriam-file

Asset Protection Decision Diagram - to help assess the need for asset protection, and what to implement : https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-decision-diagram

Asset Protection Onion Diagram - what, when and at what cost one should implement in terms of asset protection - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-onion-diagram-v2

What is needed for a complete asset protection OR the domains that need to be intersected to find asset protection. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-spectrum-diagram

How a fully implemented asset protection layout might look. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-structures

Let me know if have questions or want to chat further - I can give you my investor perspective.

PS. Read this book first - https://www.amazon.com/Every-Landlords-Property-Protection-Guide/dp/1413307000 - before getting into more complicated and expensive measures of protection.

PPS. If you reach the conclusion you need ASSPRO right now, since you are from CA, you should look into DSTs - Delaware statutory trust.

@Ryan Reid

There are multiple pros and no cons (that I’m aware of) to a Cost Segregation Study (CSS) (other than the time and cost involved). It’s worth learning about it and employing it as a tool in your real estate investing toolbox, especially if you plan on adding to your investment portfolio.

While I’m not a professional in this domain, I looked a lot into the subject and I done CSS for several of my properties - I can tell you about some the gotchas and misconceptions vehiculated on the subject:

- It’s not a way to increase depreciation on a property. It is an ACCELERATION of depreciation (you will capture more at the beginning, in the first years and less at the end, in the later years).

- It has the potential to save you money from taxes – but that depends on the rest of your tax picture, what other sources of income and deductions you have, your goals and short term vs long term plans and tax strategies. Again, it gives you a big depreciation in the first years (which could make a big dent in your taxes) and less in later year (which assuming increased cash flow, could mean less deductions, more taxes later…but that depends on your other properties, etc.). Generally speaking, it’s a good thing from tax perspective, and likely to help with taxes.

- While you can do it later (or for properties acquired in previous years), it’s more complicated and costly. Therefore, it’s better to do a CSS in the tax year of acquisition.

- Engineer based CSS is usually expensive for SFR's and properties under 1Mil, and IMO, not cost effective – but there are DIY solutions that provide solid alternative for a fraction of the cost (look into KBKG.com – they have a good tool for a very decent price + tutorials, once you get hang of the principle and how to use their calculators, it takes 20min to complete a CSS report) – and that's the path I recommend.

- If you’ll be able to take advantage of the big initial depreciation to shift taxes (to count it against your W2 income) depends on several factors – if your AGI less than 100K, and prorated up to 150K; your profession or if you or your wife can qualify as real estate professional, your documentation – if you maintain contemporaneous logs, etc.). More often than not, you’ll not be able to shift deductions from passive side (rental income) to active side of income (W2). But don’t worry, you’ll not lose them, they accumulate and still will be able to use them to the max in following years. The main idea is to find the right balance so that your depreciation offsets the net rental income so you don’t pay taxes on them.

- CSS itself has no impact on your ability to finance properties. The higher depreciation deductions that a CSS will give you and applying that to your taxes might have an impact on your financing (or more precise with whom you are doing your financing) as it might show on your tax report as not making any money or, worse from the perspective on financing qualifications, as losing money with your rentals. That's why you need a lender who knows how to properly read the tax report, how the depreciation is applied and what is the real rental income (or how to consider the rental income in the calculation of DTI).

If you need more details on this stuff, you can PM and we can chat.

@Garrett M. - so you are looking for highly specialized advice (state specific and legal specific) from a public forum, full of "Holiday Inn experts"? In hope of not having to pay the consultation fee with a local PA asset protection lawyer or thinking that you already have liability protection just because of how the ownership title is held?

Ok, sarcasm/joking aside, here is my 2¢ to be taken with a big grain of salt:

I read the "property held in this way is generally not available to the creditors of only one of the two spouses" as a maybe protection if your wife maxes out her credit cards and they come for collection, the creditor will not be able to touch the rentals, and only her bank accounts and assets individually owned. Assuming you'll be able to make a good case that she used it only to buy purses for herself, with no benefits to you. Basically, attacks from outside (to rentals) liability issues (another example could be if she crashes her car and she or you both get sued).

If "courts have determined that in order for a creditor to have access to property that is held by the entireties, there must be some action performed by both spouses" - I think, with both of you owners of a rental, you'll have no separation and no way to claim "She/I did it, I/she didn't know, I/she had nothing to do with it" in matters of liability issues arisen from the rentals - the inside rentals liability issues (like tenants falling on the stairs because you/wife/both neglected to install/repair a banister) - and be able to remove one of you from the lawsuit (because you both will be sued in such case as owners) and thus claiming "oh, can't collect on the lawsuit award, cause is jointly owned, and only me/she lost".

But before you get caught into the rabbit holes of legal asset protection...do you really need it? Do you have significant equity and/or cash flow? Did you cover all the other aspects of asset protection that are in your reach? 

Read this book first - https://www.amazon.com/Every-Landlords-Property-Protection-Guide/dp/1413307000 - before getting into more complicated and expensive measures of protection.

Asset protection is a form of insurance – insurance against litigation. My recommendation would be to apply the "2% rule" - the cost of setting up and maintaining your asset protection should be less than 2% of equity you are trying to protect. Let's say, it costs you 1.5K to get your structures in place (holding LLC or Series-LLC, with or without land trusts, with or without separate operations LLC) and 0.5K per year (for maintaining the LLC properly, bookkeeping, lawyer and CPA, etc.) for a total of 2K. You should have 100K or more in equity to protect before it makes sense to spend that money - compare that with how much you spend in annual insurance for the same property/equity under the same FEAR principle (False Evidence Appearing Real... or what if's).

Since I visited Holiday Inn often, here is an Asset Protection Decision Diagram - to help assess the need for asset protection, and what to implement : https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-decision-diagram 

And an Asset Protection Onion Diagram - what, when and at what cost one should implement in terms of asset protection:  https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-onion-diagram-v2

And how a fully implemented asset protection layout might look. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-structures

Bonus: What is needed for a complete asset protection OR the domains that need to be intersected to find asset protection. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-spectrum-diagram

And if all that didn't get you utterly confused, let me add to it - since AssPro is not cheap, I spent numerous hours researching from multiple sources the whole LLC question and asset protection matter and all the rabbit holes it opens. I gathered all my notes in a 50+ pages document touching on formation and maintenance of LLC and business structures, transferring assets, protection strategies, trusts, anonymity, insurance, levels of protection, etc. including when you should do it, how many properties per LLC, due on sale clause, selecting an attorney, fees, checklists and resource materials + some diagrams to help you in decisional flow: https://www.biggerpockets.com/files/user/CosIorg/file/tritoriam-file.

You still need to consult a specialist.

@Carlos C. - not a lawyer, so none of this should be construed as legal advice, just ramblings to be taken with a big grain of salt:

1. There is no absolute answer and unique tool/strategy in anything real estate. You need to learn how and when to use all the tools available to you (financing, insurance, management, etc.) and to understand how they fit together in your toolbox, as none will give you everything (e.g, insurance is required and it will cover you for many situations, but not always; asset protection (LLC) is litigation insurance and complements regular insurance, by minimizing the target and making it unappealing).

2. Asset protection is a form of insurance – insurance against litigation. My recommendation would be to apply the "2% rule" - the cost of setting up and maintaining your asset protection should be less than 2% of equity you are trying to protect. Let's say, it costs you 1.5K to get your structures in place (holding LLC or Series-LLC, with or without land trusts, with or without separate operations LLC) and 0.5K per year (for maintaining the LLC properly, bookkeeping, lawyer and CPA, etc.) for a total of 2K. You should have 100K or more in equity to protect before it makes sense to spend that money - compare that with how much you spend in annual insurance for the same property/equity under the same FEAR principle (False Evidence Appearing Real... or what if's).

3. ABA is more of a subscription service, set up for a maximum gravitational pull - meaning once they capture you in their "orbit" you will be required to pay regularly and more and more for continuation of services. It's far from a one time deal - think timeshare, easy and exciting to get in, hard to get out.

4. If you are new to REI you should be primarily concerned with finding good deals and growing your business first. I would not suggest to look into establishing LLCs and asset protection strategies till you have at least $100-300K in equity (!) and only after you covered properly the "other" aspects of risk management (insurance, umbrella insurance, proper property management, etc.).

Unless you are doing flipping (or AirBnb), in which case I suggest you look into Series-LLC and you operate each flip in its own child-series (if not clear why, ask for more details).

Personally, since AssPro is not cheap, I spent numerous hours researching from multiple sources the whole LLC question and asset protection matter and all the rabbit holes it opens. I gathered all my notes in a 50+ pages document touching on formation and maintenance of LLC and business structures, transferring assets, protection strategies, trusts, anonymity, insurance, levels of protection, etc. including when you should do it, how many properties per LLC, due on sale clause, selecting an attorney, fees, checklists and resource materials + some diagrams to help you in decisional flow.

Doc: https://www.biggerpockets.com/files/user/CosIorg/file/tritoriam-file

Asset Protection Decision Diagram - to help assess the need for asset protection, and what to implement : https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-decision-diagram

Asset Protection Onion Diagram - what, when and at what cost one should implement in terms of asset protection - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-onion-diagram-v2

What is needed for a complete asset protection OR the domains that need to be intersected to find asset protection. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-spectrum-diagram

How a fully implemented asset protection layout might look. - https://www.biggerpockets.com/files/user/CosIorg/file/asset-protection-structures

Let me know if have questions or want to chat further - I can give you my investor perspective.

Thanks

Costin

PS. Read this book first - https://www.amazon.com/Every-Landlords-Property-Protection-Guide/dp/1413307000 - before getting into more complicated and expensive measures of protection.

@Hemal Patel - the best area "between Leander and Pflugerville" is exactly between Leander and Pflugerville - Round Rock. You will get the best of both.

It looks to me you need to solidify your search criteria (what else you have in it?) and also need to calculate your investment using an apple to apple approach - you might be surprised to find out that, for example, a property with higher rent and lower price is a worse investment than one with lower rent and higher price, just because of the tax rate and HOA differential. PM me if you need assistance in these two areas.

Both the rents and tax rate are localized and can differ substantial (1.9%-3.31%) just because you cross a major street or are in a different neighborhood - it's misleading to give you an answer on such large qualifier (Leander vs Pflugerville), maybe if you were to discuss a neighborhood vs another. Make sure you are looking at the property tax without any exemptions (as you'll not get any as investor).

Foundation issues are common in TX, and it's more of a question of when, not if. There are maintenance measures that you can take to control it (watering the foundation). East of Austin has more clay in soil and is perhaps more prone to settlement issues, but that doesn't mean you'll not have that problem in Leander.

How much you are looking for DP? You will not cash flow without 30-40%+ DP, not with 3.25% tax rate and HOA and PM - so you are not going to get rich on cash flow for 5 years. So, what are your goals? Speculation in hope of continuous crazy appreciation? Safe harbor from inflation? FOMO?

@Mike Trzaska - too many inquiries for financing ding your score, especially if you didn't "group" them in the 2 weeks (or 4 weeks) period they are bundled together and considered as one. More than 2 hard inquiries ding you, but they usually "disappear" after 2 years.

Most likely the HELOC is the one causing the biggest drop - in the past HELOC was counted in the same categories with mortgages, but nowadays it's reported as credit and counted in your credit utilization rate together with your all other credit cards. It happened to us too - we got a HELOC and used it to make a large acquisition, and it got reported as an increase to 50% credit utilization rate (from our normal 1-2% monthly) and caused a drop of 30 points in score.

If you used the HELOC to the max, your credit utilization is probably 80%+... and the credit agencies consider you are maxed out on all your credit cards and about to belly up.

Most of credit cards and bank accounts now offer free credit score insights and history - you should be able to trace the score drop to the HELOC balance increase, or to what events caused what change. Keep in mind what you see in these "free credit score" is usually about 30 points higher from what the lenders use - if your "free score" shows 750, it's likely your lender will use a lower score, ~720, for mortgage purposes, so don't be surprised as one "score" is not the same as other "scores".

@Amit Gupta - if you are looking for a Home Equity Line of Credit on a rental/investment property, there is no such thing in Texas, stop looking for it - or more precise, stop asking for it residential lenders and "regular" mortgage providers.

Why? Because they don't realize you are actually looking for an Asset Based Line of Credit or Portfolio Line of Credit, which is a commercial product (and you need to talk with a commercial lending officer), and they don't even know/want to redirect you to their commercial lending colleagues. They will simply tell you "no can do". You just need to ask the right person for the right product at a bank.

Other points:

1. Do not confuse HELOC (home equity line of credit) with HEL (home equity loan) - one is a "reusable" product, the other is a one time deal. One you get charged interest on the balance when used, the other you get charged interest on the whole balance from the moment you get it. One you can pay it down and reuse, the other you pay it down and gets closed.

2. There is no HELOC for an investment property. But you can get same thing, a line of credit (LOC) or portfolio LOC or asset based LOC - you just need to find the right bank and the right person in the bank who knows about this type of product (usually a commercial banker). Don't bother to ask a residential loan officer about HELOC on a rental, they will tell you "impossible" and not even know of alternatives.

Again: You can get an LOC on your rentals by asking a commercial lender about asset based LOC or portfolio LOC. A residential loan officer doesn't know about this product. We do have one LOC secured by two rentals that we use to make cash offers on properties we rehab, lease, refinance in fixed long term loan and repeat the process.

3. Shop around - the differences in LTV/LTC, fees, renewal fees, periods, terms, rates, closing, documentation required, etc. are substantial from bank to bank. You can see below a comparative sheet I used to bring them to an apple-to-apple comparison when I was looking for something like this 3 years ago.

4. You can get a portfolio LOC from several sources - I recommend Amplify CU (and to stay away from Wells Fargo). Most likely they offer portfolio loans too, that is an easier option to get usually. Watch out for steering you into a refinance loan or equity loan - those are not reusable products.