All Forum Posts by: Scott Smith

@Kenya Bolden I'm an asset protection attorney. What would you like to know?

For some background information, a good starting point would be clicking through some of my blog posts here on Bigger Pockets. Asset protection is highly personalized, and the best plan for you will depend on you and your investment goals. I see that you live in New York, which happens to be where I went to law school. But you can form your asset protection entity anywhere. My recent article on the Series LLC for Real Estate investors may be helpful to you.

What we want from a good asset protection strategy is separation of your assets--from each other and you personally--and personal anonymity. That means your name appears on NOTHING. With clever legal structures and effective operations under the guidance of an attorney, you can have this too! Don't believe the myth that asset protection is just for the fabulously wealthy. It can and does work for investors from the newbie renting out the other side of their duplex all the way up to the 7-figure-portoflio (and more!) set. And everyone in between, myself included. The strategies discussed in these posts stop lawsuits before they even start, so you can focus on running your business. It's great that you're seeking professional help, or at least guidance. I'm not your lawyer based on this post, but I'm happy to give you access to tons of free educational resources on the subject and answer any questions you may have.

Welcome to the world of never having to worry about lawsuits again. You can be protected quicky, and it really does offer peace of mind.

@Matthew McNeil Oh Lord, where to start, I've got tons of 'em. It's great that you're interested in asset protection. The best advice will be from a seasoned professional familiar with your circumstances, but of course there are some general guidelines to be aware of. You can read my Bigger Pockets blog features on asset protection and other legal topics here. There's enough on LLCs and Series LLCs to keep you busy for a little bit, but @Costin I. has a great diagram below that covers some of the basics.

You can also check out my piece on the different levels of asset protection for real estate investors to start thinking about the best strategy for you. I'm not your attorney so I can't give you personalized advice in a public forum, but am happy to answer any questions you may have and direct you to some materials that can help you get better informed! I look forward to discussing it further.

@Josh Lyons I don't know about need, but in your case it might be a want. But before you go buy that truck, consider how often you'll really need it. Also consider whether an RE attorney could take a look at your Lease Agreement to make sure these even are your duties in the first place! You may be taking on more than you legally have to.

It's totally admirable that you want to try really hard and make things as smooth as possible for your tenants. But things like moving couches aren't necessarily your responsibility. You don't state if your rental property is located in NC (where BP says you're from). But I'd take a look at the landlord-tenant responsibilities and statutes for that state before making any additional expenses. Consider throwing $100-200 at a Real Estate attorney to check out what your responsibilities are, and if you can draft a lease agreement to address what is and is not your job. Most lease agreements, including the template here on BP, clearly spell out the division of labor re: furnishings, appliances, etc.

I hope that helps you out and feel free to let me know if you have any additional questions!

@Daniel Tisdale  Like most things in life and investing, it depends! Fellow Austinite here. I have a LOT of thoughts on this, but to give you the best ones have to ask some clarification questions.

1. Which neighborhood/zip code? A situation like this in 78704 would be really different than the same story in, say, 78729.

2. Can you dive deeper into the source of the negative cash-flow? A lot of these higher end areas like Galindo, Tarrytown, Travis Heights, etc., will REALLY hammer you with property taxes.

3. Have you bounced this off of a CPA/personal attorney yet? Sounds like a situation where you'd want to call in the whole real estate dream team, and another seasoned Austin investor, to help you make the judgment call.

In case you couldn't tell, I'm an Austin investor as well. And an attorney, but I'm recommending getting ANY RE attorney to get eyes on this deal structure (because I'm not YOUR attorney). Still--depending on some of these details--$400 should be pretty easy to make up in this market. You're right, we're on fire down here. Is the final number negotiable at all?

@Ken Weiner I was in corporate litigation before transitioning into asset protection, and did my fair share of suing people. So definitely have a few war stories there. If you're interested in some stories of clients I've had since transitioning onto the defense side of real estate law--those who have come to me too late (after being sued) or those who have had their assets saved by planning ahead with proper strategies--I'm happy to tell a couple. Of course, I'll have to remove names and identifying info for legal ethics reasons. As another commenter pointed out, anonymity is a huge part of asset protection, so you're not likely to hear too many people sharing personal stories because it would defeat the purpose of the anonymity protections they have in place. 

Example of a recent one: We had a lady whose asset protection strategy saved her from a lawsuit that was all based off of a miscommunication--a single word in an email regarding which particular plumbing had been replaced. Her statement made total sense in context, but her exact words could have been used against her and the tenant started hollering threats to sue. Fortunately, her AP strategy stopped the suit before it really began. That's what the best ones do.

I'd like to point out most of the suits I've seen don't involve intentional, deceptive fraud. They're misunderstandings or mistakes that expose the person to liability, or often, cases that insurance declines to cover. 

@Ken Weiner

@Jon Dorsey Glad you know I'm not your attorney, but I can certainly help with giving you some questions. The information @Costin I. provided above is accurate.

If you truly want to protect your assets and streamline your business, particularly if you have multiple properties in multiple states, ask your attorney about forming a Series LLC. You can compare and contrast the advantages of a Series LLC structure vs. multiple LLCs. I have a hunch that if the attorney is familiar with the SLLC structure, he or she will likely encourage you in that direction. There CAN be tax advantages to these structures, but they must be formed and executed correctly. For instance, no matter which route you go, you're most likely going to want a pass-through entity. Here's some information on why a pass-through entity is important for RE investors. While the pass-through entity is advantageous for letting you report the entity's profits and losses on your personal tax return (Schedule E--very simple), there are potential deductions you can take advantage of come Tax Season as well. That's something to ask your CPA about.

I hope that helps you out. Please feel free to follow up if you have any additional questions or need any clarification on what I've mentioned here. Good luck to you, and bravo for thinking ahead to protect your real estate assets! You're already ahead of the game by being proactive. Too many investors want asset protection once it's too late. You're doing it the right way, from what you're sharing here, by setting it up BEFORE you have issues. The law truly favors the proactive in this area.

@Jacob Murphy That's a GREAT idea. Glad to see someone taking the initiative to share the results of such experiments.

That might be something my content people could pull off: Mythbusters for REI. Love it! Great idea!

You're already providing a pretty great lesson on due diligence. And it sounds like you're making the best of this situation. Keep us posted!

@Michael Hooper this publication of mine here on BP may help you get a better idea of how to handle these lending situations in the future.

@Costin I. is absolutely correct about the DOS clause and hit most of the highlights already. I would have personally recommended using a different method to avoid some of the issues you're seeing now. A land trust may still be useful to you for providing anonymity in the future, but you're definitely going to want to speak to an attorney who is familiar with your situation and these legal tools. And if you have additional questions from an educational standpoint, I'm happy to answer them.

@Jacob Murphy

I'm sorry you're having to deal with this. That sounds incredibly stressful, and issues like this can be common with foreclosure purchases. It looks like some other community members have helped address your main question, so I'm going to address how you can avoid this situation in the future.

When you bought this property, did you use contingency clauses of any kind? In the future, you can incorporate contingency clauses into your purchase agreements to prevent buying something that turns out to be such an unpleasant surprise. Contingency clauses have all sorts of uses, and smart investors get to know them well to guard against ending up in situations like, well, the one you're in now. Basically, you can work something like an inspection requirement into your purchase agreement, as well as a clause that states if your contingencies (i.e. requirements for purchase) are not met, then you're not buying. This can be tough in an auction setting, but could prevent these kinds of headaches in the future.

Hope you get this situation resolved. It sounds like a smelly disaster!

@Account Closed That certainly was not the point I was making, nor the implication. It's safe to assume most attorneys do get paid to write some form of contracts, but if you read closely, you'll see I recommended he speak to a family lawyer. I'm not one of those. Just clarifying, but yes, most of us that go to law school take courses on contracts. But since you won't catch us attorneys giving legal advice on BP, we can actually be really helpful resources for general information about the law. I empathize with his situation and provided some general info to ask his own attorney about. That attorney likely won't be me, but someone with family law experience, with AP and real estate investing as "bonus points." A lot of people don't know exactly what to look for in a lawyer. That's where this community can be helpful.

Thank you for providing some more details on this commonly cited statistic. Are you a family lawyer? I didn't think to refine down to first marriages, just marriages in general (again--divorce isn't my specialty). But thanks for providing some more information and adding some nuance to the conversation. That gives a little more hope to those of us who have not yet been married. So thanks. I love being shown when I'm wrong--or in this case, when I'm not taking the full picture into account. I do genuinely appreciate that and hope you were still able to get something helpful out of my posting. Pick on me all you like if you think I'm inaccurate. Hypersensitive people don't tend to stay in my line of work. Or investing in general! Have a good day, man.