Disclaimer: I am not an attorney and I am not rendering legal advice.  This is for educational purposes only to provide an overall understanding.  Seek professional guidance to meet your specific financial situation.

A land trust is a tool that investors use for asset protection: although it doesn’t offer any asset protection per se, it masks the true investor’s identity to the general public and makes them a less attractive target for seizures.  Anonymity is the first line of defense for asset protection, since it makes the investor in question appear to own less assets then they actually do.  This is useful if attorneys are performing an asset search and using that information to decide to seize assets or not.  Candidates that have fewer assets may be passed over for candidates that have more assets, since the attorney will earn more money with a larger number of assets seized.

It is not impossible to find out who is the true owner in a land trust, just more difficult because it’s  not available to the public, so don’t solely lie on this method for protection.  In a land trust, the three parties involved are the asset, the trustee and the beneficial interest of the trust.  The asset is the item that is owned, like a property.  The investor, the one who actually ‘owns’ the asset, is the beneficial interest of the trust. This could be titled as an individual or as a company.   The trustee is the name that appears on the public documents.  It can be a corporation, a person, or another entity.  Depending on how the trust is written, the trustee may not be able to do anything without the approval of the beneficial interest of the trust.  In contrast to that, some land trusts do allow the trustee to have access and some degree of control of the asset, so make sure that the trust is written to your specifications.  It is legal to put a property with a mortgage in a land trust, but banks may discourage you or force you to jump through a number of hoops.  They want to ensure that if the mortgage is defaulted, they will know whose assets to seize.

The land trust keeps your dealings private.  Only the trustee is recorded in the public records and the beneficial interest of the trust is kept hidden.  If you’ve ever seen The Wire, then you know that Avon Barksdale used this method to avoid the police, but it is a legitimate method used to protect investors as well.  Talk to an attorney about setting up a land trust to see if it may serve your purposes.

Disclaimer: I am not an attorney and I am not rendering legal advice.  This is for educational purposes only to provide an overall understanding.  Seek professional guidance to meet your specific financial situation.

There are financial risks related to real estate investing, but these risks can be manageable if the deals are structured smartly.  The difference in structure can turn a bad economic decision into a bump in the road or a financial nightmare.  Without proper knowledge of legal structure, your personal assets may be at risk if the real estate deal you invested in goes sour.  There are certain laws in place to protect your personal assets in order to encourage real estate investing, ensuring that the loss will be from your investments, not your house, your car, or your child’s college fund.  Asset protection is crucial to understand before investing in order to avoid potential crisis.

The dogma of asset protection is ‘own nothing, but control everything.’  Even though this phrase sounds like something from the Godfather, there is something to be learned from it.  Own nothing in your name.  The reason for this is because if an attorney does an asset search on you, it will appear that you own fewer assets than you actually do.  Unless they dig deeply, like The Wire style intel, then it may seem that you are not an attractive candidate to build a case against.  Remember, when an attorney takes on a case on a contingency basis, they get paid a percentage of the recovery awarded. The recovery awarded can be your assets and if you look to the general public as if you do not have many assets, the attorney may be less likely to take on the case.   This is completely legal and not an uncommon practiced strategy.

Of course, this only allows you to remain anonymous.  It does not offer any asset protection; therefore those anonymous assets can be traced back to you eventually and seized.  To achieve true asset protection, you will need to form a corporation: some examples are LLCs, S corps, and C corps.  The best one depends on your personal financial situation, and there is a tax element to these corporations which should be closely evaluated by a tax attorney or accountant.  Only by incorporating your assets can you safely protect your personal finances.

Asset protection is important to protecting your livelihood and the finances of you family.  Consult an attorney before heavily investing to secure your personal assets through a combination of anonymity and corporations.

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Disclaimer: I am not an attorney and I am not rendering legal advice.  This is for educational purposes only to provide an overall understanding.  Seek professional guidance to meet your specific financial situation.

If you’re thinking about getting into the business of real estate investing, then asset protection should also be one of the points you’re mulling over.  The government wants to encourage investing, so that’s why there are measures in place that can help you to protect yourself from losing your personal finances if you make a bad investment.   Asset protection allows you a certain level of protection to have a family and not worry about the consequences to their college fund if you utilize the mechanisms of asset protection.

One such method is by incorporating yourself.  This means setting up a limited liability company (LLC),  C corp, or a few other subsets.  An attorney can tell you which is the most optimal for your financial situation. It’s a good idea to put your assets in a few corporations, especially if you’re a landlord, because if something goes wrong in a property, you don’t want to lose everything you have.  The damage is restricted to the corporation the asset is in, so if you incorporate each asset independently, then all of your assets are protected independently of one another.  Of course, each time you set up a corporation costs time and money, so another strategy is to group a few assets together in each corporation based on risk.  If you have a million dollar property, that may get an LLC of its own, while $50,000 properties may be grouped in threes or fours.  There are many different structures you can achieve in this fashion. For specific guidance you will want to contact a tax attorney as well as an asset protection or real estate attorney.

Limited Liability Corporations are the most common type of corporations because they are the easiest to set up as well as operate, but others may be more optimal depending on your real estate strategies.

Putting your assets into corporate entities may seem complicated at first, but you only have to do it once and then your structure is set.   For more personal advice, please speak to as asset protection attorney.

It is a simple and wise decision to buy property insurance for your real estate endeavors, but a much harder decision is determining which policy is right for you.  What should you get covered? How much should you insure the property for?  Who can advise you?  Insurance is full of legal language and long, dry and incredibly boring documents.  The good news is that after this process, you will have insurance.  The bad news is that you have to, like everything else, research.

The easiest and most accessible option is to talk to an insurance agent.  They can detail all the things that are covered in the policy.  A good question would be to ask what is not covered as well.  For example, did you know that vandalism is not the same as theft? Depending on the classification, your insurance company might pay you nothing!  It is also important not to simply take your agent’s word for it, but read those documents for yourself as well.  If your agent was mistaken about what is covered, it does not matter when you are submitting a claim.  Your signature means you have understood and agreed.

There are several kinds of insurance policies to choose from.   The best kind is the policy which fits the real estate strategy you are utilizing.  For rehabbers and retailers, chances are you will not hold that property for very long.  Realistically, you will probably sell the property in less than six months.  Insurance policies generally come in options for six months or year-long, so make sure to only take out an insurance policy that lasts for six months, not a full year.  This will save you money and at the same time ensure you are adequately covered.

An important caveat is that many insurance policies do not insure vacant homes.  Unfortunately, policies that do insure vacant homes tend to be more expensive.  This is because more damage can happen to a property if nobody is living there, like vandalism during the night or flooding that was not noticed immediately.  If you’re able to find an insurance company that will insure you while you’re rehabbing, it is most likely going to be expensive.  You should budget this into your rehabbing costs, as it should be a necessary expense.

Insurance for rehabbers is more expensive, but that is because more things can go wrong than with the average home owner.  This should be more incentive to buy the policy: insurance companies know that there is a higher risk associated with this strategy, so it would be wise to utilize their knowledge. Don’t let the intricacies and cost of the policy dissuade you, but make sure not to gloss over the details either.

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Insurance is absolutely imperative as a landlord.  A large part of the behavior of your tenants is out of your control, so unless it is in the lease, if they burn candles, leave the oven on, keep the windows open or blast the heat, there is little you can do about it.   All of these actions can potentially cause damage to your property, and unless you’re properly covered the responsibility to repair the damage can severely hurt your wallet.

A plausible scenario is this: a fire breaks out due to a negligent tenant, but the tenant doesn’t have insurance.  You have no recourse against the tenant and you are liable for the bill.  Luckily, you have insurance and you make your claim to your insurance company.  Unfortunately, it is a low-end property and your tenants have no other assets to help the insurance company mitigate the cost of damages.  Your premiums skyrocket and the new price severely restricts the kinds of future properties you can buy and rent out.  Is there nothing you can do to rectify this situation?

Of course there is!  This is the second scenario: with your superior foresight, you’ve required the tenants to have renter insurance that has liability coverage in order to rent your property.  The liability policy has at least $150,000 worth of damage coverage, so your insurance policy can have some relief in damage costs.  Your premiums are only slightly raised and you vow to screen your tenants more thoroughly next time.  The moral of the lesson is have your tenant carry renter’s insurance and place your company as an additional insured so that you are notified of any non-payment or cancellation of the policy.

Unfortunately, I’ve seen a large number of novice landlords take out a normal home ownership policy on a rental property.  This is way too expensive!  A home ownership policy covers all the contents inside, including your tenants.  Why are you paying for your tenants, when they should be paying for themselves?  Some companies offer landlord policies, which cover the appliances and structure of the building but do not insure the tenants.  These policies are much cheaper than a home ownership policy and you are better covered!

Insurance is the first line of defense if anything goes wrong.  It is important to find the right policy that fits your needs.  There are many, many polices out there, so familiarize yourself with them before you commit to one which is too costly or unsuitable.

Real estate risks can be more daunting than in other areas of investment: a risk in real estate may mean you lose a property, can’t rent out a room while you are losing money from the mortgage, or can’t perform when you have a property on the line to buy.  In other words, real estate risks could leave you owing a lot of money.  These risks are daunting for many people entering the business, but there is a way to mitigate these risks.  Other than knowledge and due diligence, real estate risks can be mitigated with the help of insurance.

Ever pass on car rental insurance? How about the insurance when you buy a brand new Mac? Your assessment of whether to buy these insurance policies or not probably depended on your judgment of the likelihood of an accident.  In the case of a computer or car rental, this may feel like an assessment of your own ability to drive safely or keeping open beverages around the laptop.  In these examples, the risk depends on your own, personal behavior.  However, in real estate, these risks are, more often than not, completely out of your control.  Due to the nature of dealing with properties, damage from natural disasters or even your own tenants could end up costing you tens of thousands.   Insurance is absolutely critical when it comes to real estate.

However, property insurance is only critical when you take title of the property.  If you assign a contract without taking title, then there is no reason to worry about insurance.  However, if you rehab and retail or own rental properties, there is no question about it: buy both property and liability insurance.

Double closing is a separate scenario.   In that situation, you are responsible for the property in between the two closings, which may be immediate but can also last for a week.  You should assess your tolerance level and the price of the property to decide if insurance is worth it.  If you are conducting the second closing immediately, then there is very little risk involved.  If you are doing the second closing in 3 days and the property is a low end property, there may still be very little risk if you determine you can absorb the loss if something went wrong.   If the property is a mid-high end property, and any loss could wipe you out, get the coverage even if it is for 24 hours.  Probably nothing will happen in those days between closings, but then again, why take the risk if it could wipe you out.  Pay the fee to protect yourself.

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