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Let’s Talk Asset Protection

Asset Protection

Yes, I got all caught up in the hype at the free sales event.  I was going to invest in real estate, I was going to be rich, and I would need asset protection and it had to be “just right”, not just any old template based entity.  Some $10,000 later I found myself with trusts I didn’t need, entities I didn’t use, in States I didn’t live in, and an education on how to transfer all this wealth I was to accumulate.

So the Question is: Do I Need Asset Protection if I Don’t Have Assets?

The answer to me is obvious now, some 5 years later in real estate.  I’ve made money, I’ve lost money and I can’t say I’m rich yet like I was setup to believe.  Jaded?  A little.  I could have used that money for real estate investing!

Just like anything new in your life, you need to determine if this is something you are going to do for the long term.  If you’re new to real estate investing and don’t have any real assets, do you need protection?  As usual, the answer is “it depends”.

Here’s an Example where an Entity is Advised Even with No Assets

I have 2 stories where it is critical to purchase real estate in an entity.  First, this one lady I know made an offer on a property she intended to wholesale to another person.  She made the offer in her personal name.  This isn’t normally a problem as she didn’t have any assets, but she WAS in the middle of a bankruptcy and it caught the attention of the bankruptcy court.  Their question: “how can an individual buy property when they are bankrupt?”  This caused reopening of her bankruptcy procedures and a lot of maneuvering on her very savvy real estate agent to get the property to the end investor.

The second story is similar, where a man I know made offers on a property in his own name with the intention of rehabbing and reselling by joint venturing with a money partner.  The money partner funded the transaction and then found out this man owed a LOT of money to the IRS.  His name was on the deed as an asset, and it was her money that funded the transaction.  Even a Deed of Trust can’t protect you from the IRS if you funded the project. Can you imagine losing all of the money you invested in a deal only to find that the IRS will take it all?

Luckily both of these issues were resolved, and it took a lot of work to protect everyone.

Do You NEED Asset Protection?

If you have a squeaky clean background, decent credit, pay your bills, no history of deceit, paid all your child support, never convicted of a crime, nor have any outstanding judgments, you probably are OK for your first deal to be in your own name and not worry too much about protecting your assets.  Get insurance and make sure you are protected from any issue related to your first deal.

If you decide you like real estate investing and really want to make it a business, then go ahead and talk to your CPA or attorney on how to best protect your assets.  This advice is the same whether you sell apples on the street corner, open a retail store or online store, broker financial transactions, create inventions or any other adventure that you could make a business out of.  Try it out first and see if it’s right for you.  If it is, then setup your business correctly.

If you have some skeletons in your closet, then you may want to setup an entity to so you don’t attract unwanted attention.

An Example of Excellent Asset Protection in Action

Robert Kiyoski, famous for his book “Rich Dad Poor Dad” has several different business that he runs through several different entities.  Mr. Kiyoski, from what I can tell lives a very wealthy lifestyle.  But when a law suit resulted in a judgement that was beyond what one of his companies could honor, that entity, and only that entity filed for bankruptcy (http://abcnews.go.com/Business/rich-dad-poor-dad-author-files-bankruptcy/story?id=17463158).  I don’t know any of the particulars, but this is an example of excellent asset protection, where the acts of one company didn’t affect his other companies.

How has Asset Protection helped you?

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