Author: Jeff Breglio (8 articles found) - Clear Search

Asset Protection – Basics #3

Utah Real Estate Investors Association

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In our last article we explained how the LLC can offer great protection for your personal and real estate assets as well as provide some great additional benefits. In this article, I’m going to discuss what you need to get that protection! Here we are talking about the LLC to protect your rental properties!

NOTE: This is a different LLC than you’d use for your flipping, wholesaling and other real estate investing areas! That we’ll discuss in two weeks!

This LLC should be formed correctly, meaning you need to choose the best way to set it up when it’s first created! An attorney can help with those decisions. Then, you need all the critical documents. The most important of which is the “operating agreement.” This is the “constitution” of the LLC and where you get the protection. Without an operating agreement, all you have is a name and no protection. Only an attorney can create this document!

Further, the operating agreement should be prepared by an attorney with asset protection experience. This is not just another business entity. There needs to be a number of clauses in the agreement that provide the specific protections we mentioned in the previous article. This is where the real value of a good attorney comes in. It will be worth it!

Luckily, we also live in Utah where we also have what is called a “Series” LLC. This is a very sp
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Asset Protection – Basics #2

Utah Real Estate Investors Association

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In our last article we warned against going too big too soon with asset protection structures. In this article I’m going to simplify the two kinds of liability that you face as real estate investors and how to protect yourself from them.

The first liability is risk you have while running a business. This is called professional liability. The classic example is a “slip and fall” in a rental or flip project that you own. If that happens, the plaintiff will sue the “owner” of the property. If that’s you, you will get sued and all your personal assets (house, savings, cars, jewelry, etc.) can be lost in that lawsuit if the damages exceed your insurance coverage. However, if you own that property in a limited liability company (or LLC), then the LLC will get sued and your personal assets will be protected!

The second liability is a risk you have just be being alive. This is call personal liability. The best example for this is a car accident you cause while driving. Because you actually caused the damage, you are getting sued, and that means your personal assets are at risk, including your real estate holdings! However, if you have the right kind of LLC set up, you can protect your properties from that lawsuit!

So, the right kind of LLC offers two different kinds of protection from two different liabilities!

There are additional benefits
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Asset Protection – Basics #1

Utah Real Estate Investors Association

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Asset protection is always in the background of real estate investing. But it should never be far from sight!

We work hard every day to build wealth through real estate, and that can be substantial and fund our retirement. The last thing we want is to lose what we’ve worked so hard to create. That’s where asset protection comes in.

Protecting assets can be very simple to highly complicated. I get asked all the time about complex trusts and layered structuring to out-of-state LLCs. After being the asset protection business for over 20 years, my opinion hasn’t changed. Start basic and then let your protection grow as your assets grow.

There are lawyers who will “sell” you a big, expensive package of “bullet-proof” asset protection structures. When I went to my first Rich Dad, Poor Dad event, there was a lawyer on stage with a silver briefcase that had the full asset protection entities and documents. This cost $5000! And all it included were fill-in-the-blank forms to create LLCs, Family Limited Partnership, S-Corp and a few other documents. You still had to fill out the forms correctly and file them with the state and pay the fees. I had a client purchase the set of documents and was instantly disappointed in herself when she found out I could do everything for her for half the price.


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Loan Defaults

Utah Real Estate Investors Association

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If you are going to be a lender, you’ll need to understand how your borrower might come into default and what to do about it.

The first way to default is failing to comply with any term of the note. This includes making a monthly payment or paying off the note when due. Monthly payments can be tricky. Your note needs to be clear about what constitutes just a late payment versus one that causes a default. General mortgage rules give the borrower 15 days from the due date to make payment without penalty. Then, he can make payment up to 30 days with just a late fee. Then, if payment is not made within 30 days, the note is in default.  Remember, however, that your note can modify any of those payment terms! You just need to know what those terms are. Your note should also be clear on the exact day the note is due.

Also, default can occur under ANY term of the note or deed. Your documents should include that maintaining property insurance and the payment of property taxes are both required or it will result in default. Your note may have other terms as well, such as not putting any other lien on the property. The key here is to really understand your not
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The Risks of Hard Money Lending: Part 3 of 3

Utah Real Estate Investors Association

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In Parts 1 and 2, we explained that loaning your own money could be a licensed or regulated activity. We also explained that loaning other people’s money for a fee is always a licensed activity. The other risk I see is when investors are doing these loans without the proper protections. Here is a good checklist to follow.

  1. Confirm the licensing issues for the kinds of loans you or your pocket lenders are making.
  2. Be competent at valuating the property and do so yourself. Do not rely on the borrower’s numbers. Learn loan-to-value!
  3. Always use a well-prepared promissory note (loan document). I see many that are not sufficient. You should have one drafted by an attorney, not a title company.
  4. Always secure the loan with a trust deed (mortgage). ALWAYS!
  5. Always run the loan through a title company or attorney’s office that confirms the recording of the trust deed in the appropriate position! The biggest fraud in real e
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The Risks of Hard Money Lending: Part 2 of 3

Utah Real Estate Investors Association

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In Part 1 we defined various types of loans and mortgages, which you should read if you haven’t. Be clear that making a closed-end, first position loan for the purchase of real estate is a licensed activity. This is where a lot of investors are taking a big risk.

This is because many investors are loaning funds without understanding the licensing issues. And many others are getting friends and family to loan them money. This can put your Uncle Joe or Aunt May at risk as well. While there may be arguments or exemptions that permit making these loans, there are arguments that it requires a mortgage originators license! The Division has broad authority over these kinds of loans!

Just because there are arguments in your favor, does not mean you will be successful if you—or your lenders—are investigated by the Division. If they deem that you have engaged in mortgage loan origination, the fines can be very steep. Before you engage in making or getting these loans from others, you should truly understand the rules and risks, and how to structure these loans correctly. That is beyond a blog post. You should consult an attorney.

In the above examples, I have assumed that the lender earning the interest is loaning his own money. There is a big difference if you are loaning other people’s money in which you make a fee or spread. What you’re doing now is “connecti
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Trusts and Real Estate, Part 2 of 4: The Real Estate Trust

Utah Real Estate Investors Association

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This article continues our discussion of trusts, specifically the real estate trust. First, only a couple of states, like Florida and Illinois, have true “land” trusts. I won’t get into the legal details on how they are different, as that gets complicated. Just know that unless you live in these states you are NOT using a land trust. This gets confusing as many investors attend educational events where these trusts are taught or sold without distinguishing them.

The rest of us have something a little different. We call these trusts real estate trusts, asset holding trusts, property trusts or the like. They are really just simple living trusts but should be created by a knowledgeable attorney. They are designed to hold title for privacy purposes and facilitate transactions such as wholesaling or even selling real estate.

Trusts are a kind of legal entity (like LLC) that can own things. They can be a named buyer on a purchase contract and be named on county land records. Because trusts are not registered with the state, no one will
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Trusts and Real Estate, Part 1 of 4: The 3 Trusts Used in Real Estate

Utah Real Estate Investors Association

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All investors will certainly hear about the use of trusts in their real estate business. Most investors may encounter these trusts in some way. A few will use them regularly. The fact is, there are a number of different kinds of trust used both in real estate and our personal lives. This set of 4 articles will highlight the types of trusts most commonly encountered by real estate investors. Here we generally cover the 3 trusts used in REI, and then we’ll follow up with an article on each one.

The first one is most commonly called a “land” trust. This is not super accurate! Only a few states actually have true land trusts as they are very specific types of trusts authorized by the state. For the rest of us, we use property trusts, real estate trusts, holding trusts or the like. These are simple revocable (changeable) trusts designed to simply own real estate—either by contract or title. These trusts are used for privacy purposes and to facilitate many REI transactions.

The second trust is the standard family living trust. This is a much larger and complicated trust as it’s design
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