Cover Your Assets Part 1 – Protecting Your Wealth Today and Tomorrow

An essential element of real estate investing is protecting the assets you’ve worked so hard to acquire.

When you’re just starting out, your investment business is pretty low liability. But as you acquire properties, the liabilities build up … and a legal problem with one property could cascade and affect your other assets if you don’t have the proper protections in place.

In this show, we’ll talk with a Rich Dad advisor on how to sort your assets into buckets so you NEVER lose everything at once.

Part one of this two-part series is for beginners and experienced investors alike. As John F. Kennedy said, “The time to repair a roof is when the sun is shining.” NOW is the time to put in place protections to keep you safe if troubles arise.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your host, asset Robert Helms
  • His liability of a co-host, Russell Gray
  • Garrett Sutton, best-selling author and legal advisor to Robert Kiyosaki

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Firewall your assets

The society we live in is very litigious … and that’s not going to change any time soon. So what can investors do?

We talked to Garrett Sutton about precautions YOU can take to protect your assets as they grow.

Your best option, Garrett says, is probably an LLC, simply because they provide the best asset protection. An LLC allows you to firewall your assets so one lawsuit doesn’t set off a chain reaction that leaves you asset-less.

Why is an LLC better than a corporation? Besides better asset protection, LLCs offer more tax flexibility and charging order protection.

Charging orders are legal judgments that allow creditors to access the money you make through your business. But some states offer charging order protection to LLCs.

And, Garrett says, most lawyers prefer to go through insurance so they can collect right away. So ideally investors have two firewall protections … an LLC or corporation AND insurance to back them up.

Some states, like Utah, California, and New York, don’t provide great asset protection for LLCs. Creditors can blow through the LLC and force the sale of assets … not ideal.

What can you do if you live in a state that doesn’t have the best rules for entities? Garrett reminds us you DON’T have to form an entity in the same state as your property or your residence.

How to set up your own LLC

While setting up an LLC may sound onerous and difficult, Garret says it’s really not that hard. There are two main steps:

  1. Set up an LLC in the state you want.
    1. Pick a name and make sure the name is available
    2. File your articles of organization, operating agreement, and certificates.
  2. Transfer the title of your property into the name of your LLC. This is NOT a sale … simply a transfer.

While there are plenty of websites advertising do-it-yourself LLC help, it’s much better to talk to an attorney, says Garrett.

A certified legal professional can walk you through all the steps and help you understand which business decisions are right for you.

And, an attorney will help you stay aware of formalities … the easy-to-follow rules that will keep your LLC safe from legal troubles.

Fine-tune your asset protection strategy

Garrett is a best-selling author. His books on starting your own corporation or LLC cover the strategies and techniques YOU can use to increase wealth and reduce risk.

A technique SOME people use is changing their LLC from partnership taxation to C or S corporation taxation.

That’s fine, says Garrett … as long as you don’t forget to amend your operating agreement.

Business decisions as simple as tax changes have many permutations we don’t even think about … another reason an asset protection attorney is essential.

Other investors are looking into offshore asset protection trusts. Something some investors don’t realize is that more than 10 states have created onshore trusts. But while these trusts make your money bulletproof, recent cases have demonstrated that it’s only bulletproof in the state where you’ve set up the trust.

Although there are many tricks for upping your protection level … and your wealth … investors don’t need 17 layers of LLCs.

They also don’t need to spend a ridiculous amount of money to form an LLC. For example, a Wyoming LLC provides great protection levels, for only $50 a year (plus any legal fees).

And LLCs don’t mean you’re locked into operating decisions. You have the latitude to make changes. LLCs are flexible!

Interested in delving deeper into the legal realm of asset protection? Delve into what Garrett has to offer on his website.

And while Garrett provides affordable asset protection and legal services, that doesn’t mean you shouldn’t seek out your own legal help … just make sure the people you work with are serious about helping small investors stay on top of corporate formalities.

In part two of our asset protection series, we’ll delve deeper into the legal world with a discussion of offshore asset protection strategies. Listen in for info on taking your profits outside of the States!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

The Market Detective – Uncovering Clues for Finding Great Markets

Across the country, real estate markets are hot … and getting hotter. That means compressed cap rates … which in turn mean a lower rate of return for investors.

So how can investors find a market that will offer great returns in good times and bad? In today’s show, we’ll discuss the market fundamentals that can make or break your next real estate investment deal.

Luckily, markets leave clues. If you’re an excellent market detective, you’ll be able to spot subtle indicators that will help you make an educated guess about the market’s future.

For this episode of The Real Estate Guys™ show, we recruited the best private eye we know to guide us through his analytical approach to investigating and choosing new investment markets.

You’ll hear from:

  • Your sleuthing host, Robert Helms
  • His clueless co-host, Russell Gray
  • Real estate developer and author Victor Menasce

Listen

 


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Broadcasting since 1997 with over 300 episodes on iTunes!

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Stepping into new markets with Victor Menasce

Victor Menasce is the author of Magnetic Capital and a successful U.S.-based real estate developer. He’s a strong believer in the principle that the best markets aren’t necessarily the ones you live in … or near.

Instead of automatically going for nearby markets, Victor undergoes a thorough evaluation process for potential markets, whether they’re near or far.

One of the things we look for when we’re analyzing a new market is net in-migration … essentially, we want to know whether there are more people entering the market than exiting.

Metrics like these can help you predict whether a market will serve your investment goals.

For Victor, market evaluation begins with the most basic metric of all … supply and demand. That means choosing a market where demand outpaces supply.

He says investors should focus on three things when entering a new investment deal, in the order listed:

  1. The market.
  2. The team who has boots on the ground in that market.
  3. The specific investment opportunity.

If you perform due diligence on the market and the team and something doesn’t line up, then you need to step back and reassess … before you even look at specific investment opportunities.

Philadelphia market analysis

To model his process for market choice, Victor guided us through an analysis of one of his current investment markets … Philadelphia.

“You have to look on the macro level,” Victor says.

Like many large American cities, Philadelphia has a large low-income population. This is a benefit, says Victor, because it creates areas where high-priced real estate and low-priced real estate brush up against each other.

The key is to find the arbitrary line between high and low properties … and then move that line by creating value.

Another reason Philadelphia is so successful is because of its proximity to an overpriced, overcrowded market … New York City. Victor says he sees a lot of renters moving from the New York market to Philadelphia because of its relative affordability and proximity to the Big Apple.

Two other big factors Victor looks at are population influx and job creation and availability.

He also evaluates cap-rate compression. That’s how he discovered that he can build new for 25 to 30 percent less than he can buy used. “That’s a competitive advantage,” Victor points out. “We’re creating opportunity out of thin air.”

Another point of consideration is rental rate per square foot. In Philadelphia, Victor can charge between $1.50 and $1.75 per square foot … $1,200 to $1,400 per month for an 800-square foot B-class apartment.

Victor compares that to Raleigh, North Carolina, where the average rents average $1.15 per square foot, even for class A properties. That’s about $920 for the same 800-square-foot apartment, for context.

Although rents differ, the cost of building in Raleigh and Philadelphia is comparable. That’s why Philadelphia makes far more financial sense for Victor.

Victor also walked us through the process of finding a team in the Philadelphia market. “I only go to Philadelphia one to two times a year,” he says. He started by making friends with an active group of investors already in Philadelphia who had good connections to local contractors and businesses.

Then, he amassed property by buying land and derelict structures for “pennies on the dollar.”  

Lake Charles, Louisiana market analysis

Although big markets like Philadelphia generally make more sense for real estate investors and developers than smaller markets with fewer resources and infrastructure, Victor is currently investing in properties in a small town in Louisiana.

Why? The town, Lake Charles, has several compelling factors that make it a great place for long-term investing.

He walked us through his process of discovery and analysis.

Through personal relationships with people in the Louisiana real estate market, Victor came across Lake Charles, a town on the I-10 corridor.

The town is poised to produce 118 BILLION dollars of natural gas over the next decade … now that’s a staggering number.

Because of its increasingly important status as an exporter of natural gas, jobs and ancillary services are expected to increase over the next decade … and with that, the population is expected to keep rising.

With 48-50 billion dollars of construction in the works or anticipated, the population growth isn’t solely temporary workers, but also new permanent residents.

This is a town where skilled labor prevails, so the average household income is north of 90k a year … not the typical tenant profile. That means rents in Lake Charles average around $1.50 per square feet, even though it’s not a major city.

Because Lake Charles is growing so rapidly, it needs construction of all kinds. So Victor has dipped his feet into several markets, including workforce, family, and senior housing as well as medical offices.

It’s a lesson to investors … start with the market, then discover the needs and assemble a team to address those needs. Investors who go into markets operating only in a small niche may miss the best opportunities.

Why is Victor so confident in Lake Charles? “This is a town that has embraced heavy industry,” he says. He expects few obstacles to pop up as the town continues to grow. And he’s confident in his assessment because he has relied on folks who have their boots on the ground.

Treat real estate investing like a business

Victor has a pragmatic approach to market analysis. He’s logical and thorough and treats every investment decision like it’s a business decision.

We like to say that most people know a little about a lot, but Victor knows a lot about a lot. But he also knows his limits.

It’s really hard to be involved in more than a handful of markets at once … careful investors can’t do the kind of analysis Victor has done for Lake Charles for 30 markets simultaneously.

And Victor has spent the time to cultivate relationships with his teams in Lake Charles and Philadelphia. That’s important too.

We think Victor is a great resource for investors looking to take a careful approach to market choice and more. Looking for more real estate wisdom? Listen in to his Real Estate Espresso podcast, a 5-minute, interview-style briefing he puts out 7 days a week.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.