A Short Respite From Our New Real Estate Investor Chronology
Posted @ 10:26 pm - Filed under 1031 Exchanges, Real Estate Investing, Sez Me, Retirement, Investment Lessons, RE Investment Practice
Had to write on this subject, as it’s been consistently coming up lately. And if clients bring it up, it needs to be addressed here. Asset protection, in my humble opinion, has become a racket — a huge cash cow racket — but a racket nonetheless. I’ll make use of the BawldGuy Disclosure:
The following opinion plus my Starbucks card will get us both some strong coffee and some really cool cookies. At least my opinion has been vetted by some pretty impressive attorneys.
(That last part is me saying, ‘Neener neener neener’ to doubters.) ‘Course I don’t actually say those words, I just refer to the bazillion dollar an hour attorneys I consulted. Gets the job done though, doesn’t it? Works for me. 
Been sayin’ this for years — at least since the mid-90’s. After nearly 15 years of Asset Protection seminars, infomercials, and Fred yer next door neighbor tellin’ you how everything you own is in danger, you should smarten up and spend thousands on LLC’s and new fangled limited partnership agreements, and they should all tie into the…Stop! My ears are bleeding.
Has anyone told you the cost of residing in California with a few LLC’s? Try about $800 a year just to file the LLC tax return. Unless you’re unfortunate enough to have established one of those Blue Light Special LLC’s for ‘Just $99 Today!’ a real live LLC drafted by a real live real estate attorney with more than five minutes experience, will cost you $2,500-4000 for the first one. He’s creating it for you, not the last dozen clients. That cost real money. From then on the price crashes to $250-500 depending upon the attorney, and/or their mood. Gonna buy half a dozen properties? You’ll be advised to initiate more than one LLC. Let’s say the first one costs $3,000, and the next couple are $250 apiece. That’s $3,500 right off the bat.
You hold the properties for five years. That’s $12,000 of filing fees. Geez. I’ve already posted before about the tax deferred exchange problems. They’re not nearly as bad as they used to be, but they still can present problems. Lenders are usually the catalysts. I’ll skip that part of the story, but suffice to say holding investment property in a way which might possibly weaken or, perish the thought, cause a 1031 exchange to be disallowed, ain’t the way to a consistent sleep pattern, know what I mean, Verne?
Look, liability is what yer trying to protect yourself from when all the smoke clears, right? Right. This ain’t rocket science people. I’m not the Lone Ranger when it comes to this school of thought. I’ve finally heard the LLC word one too many times. So here’s my thinking, and that of the three real estate attorneys queried on the subject.
Buy a simple umbrella insurance policy for a few billion bucks a year and call it a day for Heaven’s sake. OK, maybe not billion, but a few million. It’s cheap as all get out, and you’ll be covered. A battery of attorney’s just frothing to take your side against the meanies tryin’ to take your stuff from you will be standing by. The point is, the insurance will solve just about whatever problem of liability that arises. Will it protect you against every possible scenario? Probably not, but then I don’t know of any alternative that will.
When experienced real estate attorneys say buy the umbrella policy and go to sleep? I listen.
You should too. And remember. This is my own personal opinion. When it comes down to it, I always send nervous clients to the best Dirt Lawyer I know. He’s worth it. Bottom line? We stick with our clients from Day 1 to Retirement — We tell our clients what we think is in their best interest. When it comes to this subject, rest assured, we’ve spoken to big time experts.
Get the insurance.
It’s time for us to talk. The only way that’s gonna happen is for you to decide you need to make a move to secure the retirement you’ve had in your head so long. Seriously, stop thinking about it, and do it.
It’s the doers that win in this life.
Those who try are destined to read about those who do.
This entry was posted on Thursday, June 19th, 2008 at 10:26 pm and is filed under 1031 Exchanges, Real Estate Investing, Sez Me, Retirement, Investment Lessons, RE Investment Practice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.