TBT: Ask Marco – Asset Protection for a New Investor

Nick writes in, he says, hi, Marco. I’ve been listening to your podcast and speaking with your team. I’m very close to pulling the trigger on my first investment property in Indianapolis. Nick, congratulations. It’s the first one’s always the hardest and the most exciting. I listened to the podcast from December of 23, I guess that’s December 23rd, about asset protection.

And my question is this, is it worth it for me to get the asset protection set up prior to getting my first property, or am I better off to just wait until I have a few properties? I will be setting up an LLC for the first property and we’ll transfer title after closing. But I am more curious about the series LLC that was discussed in that podcast. I would like to get this right out of the gate, but I also don’t want to make this complicated until I can get my feet wet. With all this, my goal is to have at least two to three properties by the end of the year. Thank you, Nick. Nick, congratulations. And I’m glad you’re thinking about this in terms of goals and objectives, not just the fact that you got your first property. So congratulations. Well, now that I have read your question to December of 23, I assuming means 2023, so December of 2023.

Okay, got it. Well, here’s my response. Nick, don’t complicate this question. It is a common question, and I get it quite often. The short, simple answer is this. You can set up your asset protection anytime before or after because it’s simply a matter of transferring title out of your personal name when you close on the property and into the entity that you’re using for asset protection purposes. Now, I’m assuming you’re financing the property because if you’re not using financing, you could close property in the name of an LLC or anything you want. There’s no lender involved. It’s the lender that wants you to close in your name personally, and then you have certain rights after the fact as far as whether you can transfer the title or not. Most lenders don’t want you to and don’t allow you to. The only exception to, to that by law is transferring it into a trust.

You can transfer any of your personal assets, including property into a trust, and that should not affect your mortgage loan or, you know, impact the lender in any way. They’re, they’re not gonna be suspicious or it won’t raise red flag. It’s not supposed to. And that’s the Garn-St. Germaine Act in case you’re wondering. Now having said that, you can set up your asset protection anytime you like. Most investors like to have that set up beforehand just for the sake of having it done all at the same time and getting it off your plate. But there’s nothing wrong with having it set up beforehand and then providing that information to the title company before you close so they can transfer the title into your LLC after you close on the purchase. But that happens the same day, and normally it happens minutes after you close escrow on the purchase itself.

So once all the docs are signed, you’re officially closed, you’ve taken title and the deal is done, and then five minutes later, the title company can create a, a deed of some kind to transfer the title from you to your new LLC or whatever it may be. Now, having said that, I don’t know a lot about the, the series LLCs. They’re still relatively speaking new on the scene. There’s a case law behind them. There is strength. I believe they’re very strong in Texas, the state of Texas, but again, I don’t know a whole heck of a lot about the series LLCs, but they are interesting and they do work. I did an interview, I think it’s the one you’re referring to in December of 2023, although I think it was much longer than that in the past, but someone who specializes in setting up series LLCs, and I believe they do it in the state of Texas and from the state of Texas.

But having said that, I don’t know if there’s a lot of case law behind them, but there probably is by now. So it’s probably a safe and solid option as far as asset protection purposes. The other comment I’ll make about asset protection in general is this, most attorneys that I’ve talked to and in my own personal experience, the LLCs are set up in the same state of your property. So if you are investing in Indianapolis, Indiana, you would set up that title holding LLC in the same state in the state of Indiana. It holds title, and then whoever owns that LLC or holds title to the LLC itself, that is the title holding entity for your property. It can be held by you or it can be held by another parent holding company, whether it’s a corporation or an LLC or whatever it may be.

It could even be a trust. So there could be layers between you and the property. There could be a holding company which holds title to the LLC that holds title to the property. And so that you’ve got two layers between the property itself and you in that scenario, you know, you can get fancy and you can create all kinds of complexity, but I don’t suggest you do that. It’s not necessary to overcomplicate things if you’re not comfortable with this work with an asset protection attorney. I’ve interviewed a number of them over the years since I can’t believe it’s been since 2015 nine years ago. But I’ve interviewed many asset protection attorneys. There’s, there’s always a common denominator. There’s a lot of things that they do and say in common, but there are subtle differences between many of these attorneys. Now again, this is not legal advice, it’s just my experience and my opinion.

So you have to do with it what you please, but do your own research, do your own due diligence, work with the right professionals, if that’s your plan. But having said that, Nick that’s all you really need to do is just set up an entity in the same state, ideally, and transfer title whenever you’d like before, during, or after you close on your property. But again, you can’t transfer the title until you’ve actually closed. So I hope that helps. If you need more clarification or you want me to dive in deeper, just let me know.

I hope you enjoyed this week’s throwback Thursday episode. If you haven’t already, remember to subscribe so you don’t miss out on a single episode. We’re releasing one every week, sometimes two, and I would not like it if you missed an episode. There’s just a lot of great nuggets and good content sprinkled throughout this show. If you have a question about real estate investing or finance, simply go to passiverealestateinvesting.com and click the Ask Marco button. I read all of them, I reply to many of them, and sometimes I cover them on the show, and I’m gonna try and do more of that. So, I am going to encourage you to go to passiverealestateinvesting.com and submit your question for Ask Marco. Lastly, help us share the show with other like-minded people that you know who can benefit from it as well. Just visit us on your platform. Most of you are on iTunes and leave us a rating and review. I would greatly appreciate it. I read them all and I will thank you in advance. And that is it for today. Thanks for listening. I will see you on our next episode.

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