Investment properties are important assets to protect from personal debts and liability that also require a layer of protection from internal liability. There are many ways to protect real property and equity, a strategy should be developed for the number of properties, amount of equity in each and associated risks. Asset protection vehicles and business entities offer excellent protection and privacy of ownership the amount of legal tools used should be determined by the properties and value being protected.
Privacy of Ownership
Privacy provides a protective layer around real estate assets. Land Trusts are excellent tools in order to own real property privately. Titling property to a trust keeps an individual’s name from public title records, this enhances lawsuit deterrence for real estate owners and investors. Predatory legal opponents search for deep pockets prior to pursuing legal action. Through the use of land trusts one can own multiple properties without a public paper trail of wealth.
Personal Liability Protection
In order to protect an asset from personal liability it must be legally separated from the individual. This can be done by owning the property using a limited liability company. A business entity is a separate legal person that can own property, open a bank account and pay taxes among other things. This separate legal person comes with limited liability for members, or owners of the business, from the liability and debts of the business through the corporate veil. Legal separation also protects business assets from personal liability of the business owners. LLC interest is not an asset that can be seized to satisfy a judgment, unlike shares of corporate stock, which make LLCs the preferred business entity for owning real estate while offering protection through the corporate instrument.
When protecting real estate using LLCs, separating properties by equity value is an important decision. When owning multiple properties through a single entity, liability from one property could jeopardize the other(s) encumbered in the same company. If a property has more than a quarter million dollars of equity (or an individual’s own comfort level), it warrants it’s own business entity, this limits the amount of equity at risk at any given time. Owning several properties with low equity value can be done with a single business. Properties with equity that create positive passive income should be encumbered in their own business entity.
Splitting up properties should be done on a cost/benefit basis. Each legal vehicle will have to be established, funded and managed separately in order to strengthen the corporate veil. This includes accounting as well as operating formalities. With a large portfolio of properties it would be advisable to encumber them in a much stronger asset protection strategy.
Ultimate Property Protection
For the most protection against lawsuits and liability a personal asset protection strategy encumbering all assets using the strongest legal tools available lowers the number of entities utilized and increases the level of protection. In leu of establishing many LLCs and cost of maintaining each of them annually, a single asset protection strategy can be established that takes advantage of the strongest protection laws in the world.
Investment properties should always be protected and real estate investors should have a personal asset protection strategy in place.