All Forum Posts by: Rob K.

My view is that you should first ask yourself some questions before seeking professional help for asset protection.

1.    What is your tolerance for risk? Younger folks in the process of building their portfolio are likely to accept a higher level of risk than older folks with more established estates. Some folks are fearful by nature and sleep better knowing they have done everything they can to protect themselves, even though there is a significant cost. If so, you should accept and be comfortable that you are paying in large part because of your fear.

2.    What kind of risk are you creating based on the nature of your real estate activities? Are you a mom and pop landlord whose most likely risk is a premises liability claim likely covered by insurance or a small claims suit for return of a security deposit? Or are you a slumlord creating hazardous conditions at your property and racially discriminating against your tenants? If you are a flipper are you hiring qualified licensed/knowledgeable team members who know what they are doing or are you doing shoddy work without permits and not telling your buyers. Only by understanding the risk inherent in your activities are you then able to engage in an objective cost/benefit analysis for paying for asset protection.

3. How well do you manage risk? Do you have partners, investors, employees, significant others, tenants, borrowers, lenders, etc. where resentment tends to build in your relationships or are you on top of communications and fair in your dealings? Do you read the contracts you sign or do you just click away without reading when you get sent a document via docusign? Are you good at due diligence and do you understand what you are doing as a real estate investor? Understand and assess who is most likely to make a claim against you and why. Then you can get some context for an asset protection plan that might fit you. Try not to get caught up in fear based sales pitches.

4. Do you already have in place an estate, financial or tax plan? IMHO asset protection planning is best implemented as an adjunct to a larger estate, financial or tax plan, not as a substitute.

One of the major advantages of insurance is that if you are covered on a claim, they will generally provide the attorney for you at the insurance company's expense even if they reserve their rights on coverage.

With a complicated entity setup, your legal expense will probably be higher if defending your setup becomes an issue. Once you are a target in a legal suit, there will be no real privacy as the other side can use court discovery processes to discover the details of how you set it up your entity if they allege that as a legal issue. 

Before deciding on a method for asset protection, it behooves you to first evaluate 1) what is my risk tolerance? and 2) evaluate what are your likely risks that merit protection based on your activities and relationships.  Partners? ex-spouses? employees? tenants? etc. If it is "frivolous lawsuits" you want protection from, they can be beat without resorting to the cost of complicated entity structures. For example, If you are a landlord with comprehensive insurance where your biggest uninsured risk is tenant security deposit claims, a complicated entity setup is hardly warranted.

Whether you have a complicated entity structure or not, you still need to hire and pay for a lawyer if a frivolous suit is filed, unless you are going to allow the claimant to take a default against you or your entity.

Be very careful of those who use fear of lawsuits to sell you complicated (and costly to maintain) entity setups. There is no single "best" solution for everyone. Asset protection and entity selection is best viewed as an adjunct to a larger estate and tax plan. Not as a substitute.

I have a 12 unit on S. Escondido Blvd that typically runs $650-800 per month and a Triplex also on S. Escondido that runs $200-$300 per month. A good portion of the water bills are fixed charges and as long as tenants use are tier 1-2, I am not sure if it makes sense to submeter. If the charges for use were to increase compared to fixed charges, I would reconsider.

I think Real Estate can make sense as an investment in a SDRIA if 1) it is in a Roth so that rental income will eventually be tax free as opposed to only tax deferred in a regular IRA; 2) you get the property at a screaming deal so that the tax free appreciation will more than offset the loss of depreciation write offs on your taxes; and 3) you have a long term horizon.

Yes. When an attorney in California engages in a brokerage transaction with a client in addition to providing legal services, they are  engaging in a business transaction with a client. California Rules of Professional Conduct, Rule 3-300 states:

"A member shall not enter into a business transaction with a client; or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, unless each of the following requirements has been satisfied:

(A) The transaction or acquisition and its terms are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which should reasonably have been understood by the client; and (B) The client is advised in writing that the client may seek the advice of an independent lawyer of the client’s choice and is given a reasonable opportunity to seek that advice; and (C) The client thereafter consents in writing to the terms of the transaction or the terms of the acquisition."

bump

I am looking for a referral to a good escrow company in the San Jose area for the sale of a business condominium. Anyone have some good recommendations?  Thanks.

There is a very good reason why that does not occur in California. As a lender, you have the right to foreclose non-judicially so long as you follow the procedures and recognize the protections for the borrower, right to cure, etc. Once you attempt to short circuit these procedures by taking title in advance of any default, you are running afowl of California law and will likely lose the right to foreclose non-judicially, not to mention creating huge legal problems for yourself. 

This is a very different scenario then a deed in lieu of foreclosure which is ok. But in order for a deed and lieu to work, there first has to be a default by the borrower. This is very different than trying to take title as part of a financing arrangement.

 It is kind of a sad state of affairs in our current economy where the return you get on using your credit cards is better then the interest rate you can get on savings accounts.

One of the additional problems of doing this kind of loan through a retirement plan is that your options really are more limited if there is a default on the senior liens. The only practical option you would have to protect your investment if there is a default would be to foreclose yourself (which you would need to advance funds for) and advance the funds to cure the defaults on the senior liens, deal with their ongoing debt service, property taxes, picking up the completion of the project, etc.

I don't think you would be able to advance your personal funds to do this without getting into prohibited transaction issues with your IRA. Even if you have the funds to deal with this in your IRA, it would be a pain to have to direct your custodian to release the funds for all of the ongoing issues you would face. In my view, this type of junior loan is particularly unsuitable for an IRA investment.

And getting behind a hard money loan is particularly high risk whether or not you are doing it in an IRA.