In real estate, the only thing that’s truly certain is that in any situation where you own assets, there’s always the risk of losing those same assets for whatever reason. This is why real estate asset protection is such a vital necessity to you as a real estate investor – you don’t want to be losing the assets and properties that you know you worked hard to acquire. Clint Coons is the Founding Partner at Anderson Business Advisors. Using his experience as a real estate asset protection expert and as an avid real estate investor, he speaks to Marco Santarelli about why getting asset protection should be the top priority of absolutely anyone acquiring assets.
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Asset Protection For Real Estate Investors
Do you take asset protection seriously? The importance of protecting your assets as an investor is completely unparalleled. If you’re looking for ways to ensure the success of your real estate business, you have the following tools and options available to you and there are four. The first is debt. This strategy works like this. If you continue to pull the equity out of your existing properties and reinvest that money into new properties, you’re building your portfolio, but you’re also continually avoiding the excess liquid capital that sits around in your properties. This is a form of protecting yourself because you are not showing that you have equity or wealth. This is otherwise known as equity stripping. Most people will follow through with this strategy by either refinancing their properties to pull that equity out or using a home equity line of credit, also known as a HELOC.
The second tool and option you have available to you are LLCs or Limited Liability Companies widely available in every state in the United States. The benefits of setting up an LLC are almost unparalleled there. They’re next to none. No one will be able to see the assets that are hidden behind an LLC. That’s the beautiful thing about having a limited liability company. For one, an LLC will limit your personal vulnerability. When your investment properties are owned by an LLC, your risk exposure would be insulated by the protection of that company or that entity. It will leave only the assets owned by the LLC as opposed to all of your own personal assets exposed to potential lawsuits. The third tool is insurance. This is what most people think about first and foremost. Unfortunately, sometimes they stop thinking about it at that point. Insurance is the easiest way to ensure your real estate assets are protected. That’s simply purchase insurance. It is important to have insurance in place for your primary residence, but it’s as equally important, if not more important to consider insurance for your rental properties, all of them.
Last but not least, you have trusts. This is an area that a lot of people get a little confused or there’s misunderstandings or misinformation about trusts and what they are and how they work. We’re going to talk about that with my guest. If your real estate business continues to grow, there’s a chance you may end up needing to one-up your real estate asset protection. The debt strategy and insurance can only go so far but eventually, you’ll need to consider expanding into trusts, other entities and other structures. A combination of these tools together may be the best option for advanced real estate investors. Using the right tools mitigates your liability and for a legal opponent planning to pursue and sue you and go after your assets. What you’ve done is you’ve placed multiple roadblocks by using two or more of these tools. You have hidden, protected and/or stripped the properties of their value. In the end, there is little to nothing for a legal predator to go after. In the process, you’ll have also created an estate plan, not for yourself, but your loved ones, your family and your heirs. Let’s talk about that with my great guest, his name is Clint Coons. I’ve had him on years ago, and it’s time to have him back.
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It’s my pleasure to welcome Clinton Coons. Clint is the Founding Partner at Anderson Business Advisors. I’ve known him for many years. He’s a good friend of mine. He is a real estate asset protection expert and he’s an avid real estate investor. In fact, I love to see professionals like attorneys and CPAs that are actual investors in what we talk about all the time. He wants to help every investor create a well-balanced plan so that they can continue to grow their portfolio and they have the capital and investments protected. With that, Clint, welcome.
Thanks for having me on.
It’s great to have you on. It’s been a long time. We’re long overdue to bring you back on and talk about some things that are related to asset protection and maybe a little bit of tax strategy stuff and answer some questions that investors frequently ask us. Sometimes they get misinformation out there from all the so-called gurus. I don’t like when that happens because then we have to break that false understanding or belief that they have in order to put them back on the right track and we connect them with guys like you. Why don’t we start off with some of the basics here, Clint? For those people who are not completely polished on the whole idea of asset protection and why you even need it, let’s start with that. What is asset protection? Why do we need it?
When you talk to a lot of people or even attorneys, they’ll tell individual investors, “Purchase insurance. That’s all you need to do. You don’t need to get complicated with your life. You don’t need to create structures because it’s going to make things more difficult for you.” The reason why real estate investors need asset protection is because it’s not if you’re going to be sued, it’s when you’re going to be sued. What most people don’t realize, and when I say the people that tell everyone to buy insurance is there are forms of asset protection, is that a lot of the cases or there are a lot of reasons you’re going to be sued have nothing to do with insurance. You’re not going to be covered under the policy. It’s something that being in the space for over twenty years and being an avid real estate investor myself, I see this.
When I talk to people that they found themselves in this situation, they said, “My insurance company didn’t cover me because there’s a no dog bite exclusion in my policy. My tenant had a dog and it bit somebody who was in their backyard trespassing. Now, they’re being sued over this.” It’s a thing that people don’t appreciate. Asset protection is about ensuring that if something like that does occur in your life with your investments, you’re not betting the farm. I would not want to risk my entire portfolio on my insurer stepping up and making sure that the person that’s suing me is going to be adequately compensated and the attorney is going to get everything they want out of the deal. I want to control that myself and put firewalls up between all of my assets. If something does go wrong or when it does go wrong with one of those assets, that’s the only thing I’m risking and the rest of my portfolio is not in jeopardy.
You’re talking about a worst case scenario here is like when it actually happens and then how does that unfold or how are you protected. A lot of people choose to set up an asset protection plan, not for the protection of if and when it happens, but to discourage lawsuits. How does that work as far as a lawsuit discouragement?
One of the things that we teach is set up your structure so that people don’t even know you have it. This is the same that we’ve adopted. You can’t see what you can’t see. The one way to discourage lawsuits is to hold your structures or hold your real estate in a form that it does not tie back to you so you don’t become an attractive target. At the end of the day, any attorney that is looking to take on a client and they’re seeking recovery against a property owner, they want to get paid. They’re not doing this stuff for free. If it doesn’t appear that you have a lot of assets in your name, then it decreases the likelihood that I’m going to aggressively pursue this. I’ll give you an example. I had this client in LA. In that situation, two patrons left a nightclub. One of them lost two legs and the other one lost one leg when a drunk driver hit these two guys and pinned them up against a nightclub.
Three attorneys jumped in to represent two clients. Talk about the epitome of greed here. How much can we get from these individuals? They came after my client who was a nightclub owner and they ended up settling for his policy limits. Going back to the insurance angle here, the insurance company wasn’t going to defend them and they held back a reservation of claim against him because he didn’t have the valet company name his insurer as additional insured under their policy. There’s some little quirky clause in his policy that if they had a valet company, they had to be named as additional insurance. He was on pins and needles there. Eventually the insurance company did do the right thing and they ended up settling for the policy limits. The building owner, he tried to settle for policy limits.
The building owner is the least culpable person here. All they did was own a building. You can’t say that the building contributed to these guys getting pinned up against it. That guy ended up having to pay policy limits plus a lot more. What was interesting here is the building owner was my client’s father and he couldn’t understand. He said, “Why do I have to pay more than my policy limits?” The opposing counsel said, “We did an asset search. Your son doesn’t have anything. You do. We know you can afford to pay.” What was so astonishing about that claims that the son is actually worth more than the father, but they couldn’t discover the assets because of the way they were held. That’s why you do it in this manner, set it up in this manner.
Is that the same as privacy? It’s hiding your assets from public, but you still control them. You don’t technically own them. They’re held by entities that you control or own. Through the use of entities, you control your assets, but you don’t show that you own anything. You’re effectively hiding it from the world.
You’re not hiding from the IRS. You’re not hiding from banks. You’re not having to have attorneys and CPAs. I don’t need somebody to jump online and figure out what’s going on with my business. That is my business, not the world’s business to discover.
Proper asset protection planning is not about doing anything wrong or illegal or crooked. It’s making use of existing tax and legal laws to protect you and your assets from people who are trying to sue you or throw a frivolous lawsuit at you or anything like that. It’s protection.
That’s all it is. On top of that, this privacy angle, I’m pretty passionate about it because in my own business, I’ve been through situations where in this day and age, it’s not about suing somebody and having a valid claim against them. It’s about assassination of character and shakedown. What better way to do that than over the internet? Hide behind aliases, docs people, send information out to their employers, this person is a horrible landlord. They do this and this. You can’t trace it back to that person that’s coming after you because they’re using alias accounts. People wonder, “Why am I in the situation?” It comes down to your name’s all over everything. They know who you are. You set yourself up for this type of attack.
Unfortunately, unless you have the resources to fight that. We went through a lawsuit like that with an ex-employee who tried to do tremendous damage to our firm. She would send out messages to everyone on our Facebook page that Anderson’s been raided by the FBI or the IRS has shut us down. We sued her. We got a $90 million judgment against her and ended up putting her in jail. It took me $200,000 to fight that. I don’t think the average real estate investor has $200,000 that they want to spend defending themselves in that type of action. That is why privacy is so important in this day and age.
Clint, years ago I went to the seminar and they had different speakers. It was one of those circuits where you have a platform of keynote and then you have a bunch of presenters and everybody is educating you but then selling something very expensive at the back of the room. There were these two guys on stage and I believe one of them was an attorney. Maybe they were both attorneys, but they made asset protection so bloody complicated. They had these charts up on PowerPoints with boxes under boxes with everything circled with a larger box and rings and arrows going all over the place. They had this package presented at the end where for X number of thousands of dollars, you get X number of LLCs and this and that. It was ridiculous. Granted, to be honest, I didn’t know as much about asset protection back then as I do now because I’ve spent years studying it a little bit here and a little bit there. Now, I have a pretty good understanding of it, but they complicated it. Why are these promoters complicating asset protection when it doesn’t have to be that complicated?
It’s because they feel that they need to hide the ball. You have to use them. They’re afraid to give you the education. It comes back to my grandfather. He was an attorney for 50 years. Two years out of law school, so I’ve already sworn in as an attorney and I started practice with my partner, Toby. We took this approach that we’re not hiding anything. We’re going to educate everyone on how to set this stuff up. You see my YouTube channel, I give away all of the secret sauce so people can do it on their own. It was with this thought in mind that if I made it so that you could understand it and it wasn’t so complicated and I tried to hide stuff, then you’ll actually engage with me because there’s transparency there. More importantly, you understand what it is we’re doing. It becomes more of a collaborative effort. My grandfather saw what I was doing.
He said, “You’re never going to make it as an attorney because you do not hide the ball. You’re teaching your clients how to do everything that you could do for them. Why would they ever use you?” I looked at him, I said, “Our business model is that we don’t want clients who don’t understand it and that they’re going to become solely dependent upon us because then they probably won’t utilize it going forward. They’ll screw it up somehow some way and won’t protect them the way it was designed to.” It’s a difference of philosophy on how to go about it. We’ve been extremely well building our business through the education model, making sure our clients understand it all. If they want to do it on their own, great. Do it. If you understand that you don’t have time, it’s low value work, you should be invested in real estate then we’re there to help you.
I love that model and that’s the approach we take too. We want to show you everything, show you how the sausage is made. At the end of the day, you don’t want to be a sausage maker. I want to buy the sausage. I talk about treating your real estate investing as a business. I’ve heard you say that you should treat your real estate asset protection structure as a business or something to that effect. Maybe I’m butchering your words, but can you explain that? A lot of people still think as real estate investing as a hobby or something, that is a very part-time endeavor and you shouldn’t take all that seriously. At the end of the day, it’s a very powerful tool and you should take it seriously.
What happens here, and the reason people fall into this trap, is that you’re getting your information from either an attorney or a CPA. Even though I’m an attorney, I’m not the traditional type of attorney. I’m a real estate investor. I have over 120 properties across seven different states. I look at things a lot differently than a standard attorney. An attorney that’s focused on asset protection, they’re going to see every problem as a nail and they’re the hammer they’re going to pound it in. Everything is a nail out there in the world. A CPA is going to focus on taxation. All we’ve got to do is reduce your taxes, and that’s all you should focus on. They’re a screwdriver and everything out there is a screw that they’re going to take care of.
I don’t want to diminish that because at Anderson, we do both. We do taxes, we do asset protection, we have CPAs and attorneys that work hand in hand. The overarching plan and what we focus on is what I look at as the third leg of this stool. You have asset protection, tax planning, and business planning. Real estate investors need to appreciate that what they’re doing should be looked at as a business. If you treat it as a business and you put the systems in place and you put the proper structures in place, it’s going to help you succeed in acquiring real estate. Many people wonder, “Why am I failing? I’m not getting the success I thought I would have at this point in time.” Many times, they’re chasing the shiny objects and they’re not focusing on their investing, but it’s also they don’t have the proper systems in place.
You take an entity, for example. Many real estate investors will go to their CPA and they’ll say, “If you’re going to flip, if you’re going to manage, you should set it up as an S corp.” My response is never use an S corp. Always use a C corp. They push back on and they go, “Why would I do that?” I said, “If you want to borrow money and you’re going to work with lenders, they’re going to ask for copies of your tax return. If you want to be toxic to lenders so they’ll never want to work with you, run it through an S corporation, let them know you flip real estate. You’re a real estate investor and you basically taking yourself out of the conventional lending market. You’re going to be in the mid-market working with private money lenders or hard money lenders. You’re never going to know why other than the fact that you’re saving a few thousand dollars in taxes and nobody wants to work with you. It’s because of how your tax returns look.”
I’ll walk into a room and I tell people, “How many people here want to reduce your taxes down to zero?” 90% of the people raise their hands. I say, “Great, none of you will ever be able to borrow money.” They’re like, “What are you talking about?” “The lenders aren’t going to loan to people who make no money. Come on. You need to show income in order to get a loan. You’ve got to balance this out.” That’s what I’m talking about, the business planning side. What are your goals? How are we going to set up a structure that’s going to help you achieve those goals rather than prevent you from achieving them?
Back to asset protection. You’re setting up your asset protection plan. You’re working with Clint Coons or you’re working with an asset protection attorney. You’re building out the plan and following their advice. How does an investor know? How do you know when you’re properly protected? Is there a litmus test or a rule of thumb? Is there something in the industry that says, “I’ve got my plan in place and I’m properly protected?”
I wouldn’t say there’s a litmus test. This is the horrible thing about what I do from my standpoint. Every once in a while, I want my clients to be sued because then it gives me great stories to tell people. “If you do it this way, it works.” We’ve had clients that had been sued. I shared with you a story like that. The key thing that you need to focus on is that when you’re creating your structures, that you’re setting them up the right way with the proper documentation, in the right jurisdiction for the type of investing that you’re engaging in. They’re set up to protect your assets. You’re making a tax election that’s going to be efficient for you but still at the same time, it’s going to help you on the financing side of building the business. You have to look at multiple facets here. It’s not a one size fits all approach. Everyone wants to think that all they need is an LLC. I can’t say that until I look at your individualized situation.
Here’s a related question to that. I have heard from different people that if you’re holding properties in an LLC, you should limit the number of properties based on the amount of equity that you’re comfortable holding within that LLC. It’s not so much the number of properties, it’s the amount of equity that you’re willing to put on the line or “risk.” Do you subscribe to that model? Is that how you normally measure it? How do you do it?
One property per LLC, unless I’m working with an institutional lender because it’s a package deal and I’m forced to carry all the real estate inside of one limited liability company. It comes down to numbers. People that look at equity, they don’t understand real estate investing. I’m buying property, not for the equity. I’m buying it for the cashflow. If I had ten properties in one limited liability company that generates for me $5,500 a month, but it only has a total of about $350,000 equity, what’s more important to me? It’s that cashflow that I’m living on, that’s supporting you, that’s paying for my child’s education. The last thing I want to do is risk that cashflow because of one lawsuit that wipes out all of those properties. Sometimes you will say, “Clint, you’re fear-mongering when you say stuff like this. It’s not going to happen.”
It may not happen. I hope he never gets sued. If he does, every one of my clients that had been in that situation never came back to me and said, “I regret you telling me to set up one property per LLC because it saved my butt.” Those that don’t follow that advice, I had one in my office with three properties in one LLC and he’s freaking out because he’s going to lose everything. What do I say to him? I said, “I told you the way to do it. You didn’t follow my advice and this is what happens.” I don’t want to see people in there. Setting up LLCs, it’s not expensive. It can be very inexpensive. I call it an inexpensive form of insurance to keep your portfolio growing.
I know what some readers are thinking right now. They’re thinking, “If I have a portfolio of 10, 20, 50 properties or 120 like you and I have each one in an LLC, I’ve got the annual state fee, a resident agent fee, I’m not sure what else.” Maybe you have to file a form every year, which you could do on your own or you could hire someone to do very inexpensively. They’re probably asking, “What’s going to cost me per year per LLC?” to get a ballpark idea of the carry cost on that. I agree with you. It is insurance.
Average is going to be about $200. Some states are going to be more expensive. Let’s say it was in California and you had California LLCs. In California, I heard it’s $1,000 a year. I run with this all the time with people. I said, “It’s $1,000 a year but your properties are worth $700,000.” When you do the math, the amount of protection you’re obtaining for $1,000 to protect a $700,000 property or property that produces for you $6,000 a month rental income. Are you crazy? That’s $72,000 a year in rental income. You’re spending $1,000 to protect it. I don’t know what that number is, what that amounts to, about 1.5%. It’s well worth it. Maintenance people don’t look at it that way. They find themselves in that situation where a lot has been put at risk.
It’s a matter of perspective. You’re right, it’s all relative, but that is a cheap form of protection and you can look at it as an additional layer of insurance. It makes sense. This is something that actually came up in our team meeting with my investment counselors. Someone was asking about land trusts. There’s a lot of misunderstanding about what they are and how to use them. The question was, what is a land trust for starters, but why should an investor even know about this entity and use an entity a land trust? Technically it’s not an entity, but why should an investor even use a land trust?
If you’re going to go out and you’re going to construct a house, you have a whole bunch of tools that you’re going to use in building that house. You may not necessarily use all of them in the framing process and you’re going to use some. When you’re doing the drywall, it wouldn’t be used by the framing. Think of it that way. Land trust is another tool and you’re going to use it in the appropriate circumstance. Many times, clients will use it if they have a property that’s in their name and they want to put it into an LLC and they realize that a direct transfer will trigger a transfer tax in that state, fine, we can get it in. They’re typically using the land trust. Put it into land trust first, then assign the land trust over to the LLC.
You get the protection of the LLC and you avoid the state transfer fee on top of it. If you buy a property and you don’t want your name to be on title. Let’s say you’re going to go down and you’re going to buy properties at auction. I have a lot of clients who do this. I don’t want my name being on title ever hitting title. When I’m at auction, I’m buying all my properties in land trusts. I’m giving them these names because I can create a land trust right then and there at the auction. Put a name on a piece of paper, sign it, trust the name you did the title in. It works well for that type of investing. If you want anonymity for existing properties, you can set them up that way as well.
You can get the property out of your name by transferring into a trust with a nominee trustee or you set up an LLC that’s going to be your trustee. There are a lot of different uses and it depends on the circumstance when we’ll set it up for an individual and make that recommendation that they use it. You need to know about it because a lot of people who do not know about this tool and then as professionals, they’ll tell their clients, “You can’t do that. If you’d move it into there, it’s going to create this problem for you.” They’re not realizing there is a way to accomplish it, if you understood every tool that you have.
It needs to be stated and you can obviously verify this, but a land trust should not be looked at as an asset protection vehicle in any way, shape or form. It is there for anonymity, not for asset protection. It’s used in conjunction with LLCs or whatever else you might be using.
It’s a title holding entity. The only state that offers asset protection for a land trust is Florida. That’s only from the inside. If something happens with the tenant, then you have protection. If you get sued personally, they can take your trust from you. Unfortunately, I’ve heard people at REIA groups tell individuals, “All you need to do is set up land trust and you have all this protection.” You don’t. I’ll challenge them on it. They’ll say, “It stands up in court and they can’t pierce it.” I’ll say, “Great. Give me the cause number and I’ll look it up.” I’ve yet to get a cause number from anyone that told me that a land trust will protect them and they saw the case in court or they were part of it. It doesn’t work that way. It’s a tool that has its use, but it’s not going to provide what many people portray it to provide.
A question as far as a warning to people. You’ve got services out there like prepaid legal. You’ve got self-serve websites like LegalZoom, and I know it’s the bane of most attorneys’ existence. A lot of investors think that they can go there and download the templates and fill in the blanks. Probably to some degree, that works. What’s the difference with, we’re actually working with a real live human being, an attorney that does this day in and day out versus doing it the self-serve way through these self-serve websites?
You don’t know what you don’t know and that’s never going to be brought to your attention until you’re involved in a lawsuit. Everything’s going to work as long as you’re not in an audit or you’re not being sued. When the documents get tested, that’s when you find out where the weaknesses lie within your agreements. You can use untested documents to create your structure or you can use tested documents that had been through lawsuits that have withstood creditor attack. You know that they’re being drafted with that type of investing that you’re engaging in mind. As I said, it’s not a one-size-fits-all approach.
When it comes to creating limited liability companies, there are a lot of different operating agreements that we use depending on the types of investment activity that the individual is engaging in. We want to make sure not only are they getting the proper protections, but we’re also making the proper tax election in that document as well so that the IRS isn’t going to come after it or if a lender looks at the document. Many times, lenders are going to want to see your operating agreements that it’s not going to throw them off as well. There’s a lot that goes into the drafting that is not typically obvious to the novice investor who goes to the legal you set to put that together.
Would you say the operating agreement is more important than the entity type or the state because it all comes down to the court or the judge or whoever is looking at that operating agreement, what’s written in there and what’s not written in there? Has that come down to that?
It does because here’s what the attorney is going to want to do because you have to understand that judges typically do not have a specialty in business disputes or LLC operating agreements with the exception of Nevada, Wyoming and Delaware. Those have business courts that are designed to adjudicate those types of transactions. If you have a dispute with someone, say you live in Texas and you have this operating agreement that you set up on LegalZoom and you’re using it and I’m coming after you, I’m going to pick it apart. I’m going to use the small components that are not favorable to you, bludgeon you over the head in front of the judge, assassinate your character and say, “Look at the mess. He’s doing this, this and this and his operating agreement doesn’t provide for that. It violates this statute here. It’s runs contrary to that. We should disregard the form.” You’re going to sit there with your mouth open like a fish that got tossed out of the pond and you’re trying to suck oxygen and you can’t get any because you don’t know what to do. You can’t go back in and redraft the operating agreement at that point in time. The horse has left the barn.
This is an actual client case that we’re dealing with. We have a particular investor who firmly believes that they need to have the entity, the property that they’re purchasing in an entity before they go for financing in order to have that asset protection in place. I don’t think I’ve ever heard of this before. I don’t believe it to be true because it’s my understanding that you can close on a property and transfer title into an entity at any given time and you’re protected from that point forward regardless of whether you were on record of having qualified for the financing prior to that. Can you break this question down and tell me what the truth is on this? It’s a single-family home.
If it’s a single-family home and they’re told they need to have an LLC set up in order to obtain financing, then that tells me they’re not dealing with the Freddie, Fannie product. They’re dealing with most likely a community lender that’s going to treat this as a portfolio loan. The community lenders’ standards are such that they want that property in an entity to ensure that there aren’t any potential adverse claims that could be filed against the property, vis-à-vis the owner. It’s not a bad way of doing it. They’re trying to ensure that they have first position right of title against that property. When you’re dealing with institutional lenders, for example, and you’re going to pick up maybe fifteen properties, the institutional lender that’s going to loan against those will do the same thing. Their requirement will be that they will only do the deal if those assets are inside of an LLC. They will not deal with an individual. They only want to deal with the entity itself because it’s one less potential claimant. I can sue you and then I have access to your property. They’re trying to minimize that to the greatest extent as possible. There could be some validity to that with a portfolio lender. That’s what I’m assuming that he’s dealing with.
Let’s do a what-if. What if it’s a standard three-bedroom home, a rental in another market and not a state purchase? It is a conventional loan, a Fannie or Freddie product. There’s plain vanilla. There’s nothing special about this. It’s not a portfolio lender.
They can’t do it. Freddie/Fannie guidelines won’t allow them to take that type of deal inside of the business entity. It would have to be a commercial loan. Under their guidelines, anything four units or under is classified as residential, which would require that the individual themselves be the owner of that property. You couldn’t even refinance that property as a commercial property inside of the LLC because it doesn’t meet the definition of commercial.
The real question is, does the asset protection go away if they purchase the property and then transfer title to the entity and now, they’re the owner of that property through the entity and they still have that conventional financing? They still have asset protection.
No. They still have asset protection because that’s who’s on title to the property. If somebody gets hurt while they’re out at the property, you sue the owner of the real estate, not the previous owner. You’re in the chain of title. There’s somebody on that property before you. We’re not going to sue people on the chain of title to find the deepest pockets, unless you live in California where they have no rules there on who you can sue. That was a joke. All my great stories, they do come from California.
It was a time delay joke. I was processing the thing you said before.
There are so many whack job cases or decisions out of there. You do have protection and that’s why you do it. One thing that comes up on that, and you’re probably going to ask me this. I’ll beat you to it. Is that due on sale clause? People will say, “If it’s encumbered and you put it into an LLC, the bank can call my mortgage.” That’s a what if. They possibly could. What is the reality? In twenty years, I can think of maybe four instances where a note has been called when somebody transferred their property into an LLC. It had nothing to do with the fact they transfer in the LLC. It’s because they quit paying their mortgage. They did insure the property. That’s why the note got called, not because it was in a limited liability company. Lenders are in the business of loaning money, not owning real estate. As long as you’re staying current on your mortgage, you’re keeping your property insured, it’s never been an issue.
I’ve never heard of one case in the past few years. I’m sure it happens but it’s very rare. To me, it’s a scare tactic that some people use in order to sell more of whatever it may be.
Everybody wants to sell land trust and so they use it in that person. They tell you the land trust avoids the due on sale clause. Technically, it doesn’t avoid the due on sale clause. For non-owner occupied property, it maybe diminishes the likelihood that somebody will call the note due because he is there thinking it’s in a living trust. They don’t realize it’s a land trust, but it doesn’t eliminate the due on sale clause. People use it any way they’d like.
Clint, any last thing you want to say about asset protection?
We talked about quite a few different things here and as you can probably gather, I didn’t tell anyone this is what you have to do for this type of investing. The reason why I shy away from that is because unless we know your entire structure and what you’re trying to accomplish, it’s very difficult to make those types of recommendations. We talk in the general. If you want specific and you want someone to look at your individual situation, we are offering a free strategy session to your readers and in order to obtain that free strategy session, you go to ABA.link/marcoss. You can sign up for a free strategy session. Typically, it’s $750. We will waive that for your readers. They can get that free strategy session and we’ll sit down with you one-on-one and we’ll go through your individual investing and design out a plan for you.
I wasn’t expecting that, Clint, but thank you. I appreciate it. Thank you for spending time with me. This is always an interesting conversation. Some people don’t want to hear about it or talk about it because it’s too complicated for them. It’s too confusing, but at the same time in the back of their mind, they know, “I can’t avoid this and stick my head in the sand all the time. I have to deal with it and put it in place.” You’re better off putting it in place before the day comes when you say, “It’s too late.”
Marco, thank you. It’s great seeing you.
Thank you, Clint. I appreciate it.
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I hope you enjoyed this interview about asset protection and why it’s important for real estate investors. If you want to build a solid foundation and build your real estate business, you have to have proper asset protection in place. It’s not an option. In wrapping up here, let’s make sure that you click that subscribe button so you are always notified every week. If you have questions about real estate investing, by all means, let us know. If you’re working with an investment counselor here, then ask them, call them, email them, let them know what your questions are because we’re here to help you. Speaking of real estate investing questions, if you have an investment counselor, work with them.
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