It's Maurcio here.
And today we're going to talk about part two of our ten most common mistakes
real estate investors make after they close their properties.
Now, if you haven't looked at the original video, please go check it out.
It's up here in the corner somewhere.
But in that video, we discussed the first five,
which were as follows Number one, holding your assets in your personal name.
Number two, not separating your assets from your liabilities
within your entity structure.
Number three, not thinking about privacy.
Number four, relying on your living trust.
And number five, relying on insurance.
Now, the sixth
most common mistake is waiting too long to put some type of a plan in place.
My two favorite quotes on this one is, you know, I think it's a John F
Kennedy quote that says the time to repair the roof is before it starts raining.
And then my good friend Robert Kiyosaki likes to say The time
to put your seatbelts on is before the crash.
So you'll want to make sure you're putting these
asset protection structures in place before not only the lawsuit, but
before you even know or reasonably know that there's going to be a lawsuit coming.
So if you get into a car accident, it's going to be too late to then
go out there and talk to somebody, an attorney or an entity structure,
to start transferring assets into LLC to protect yourself
because there's something called fraudulent conveyance, meaning the judge
will unwind that transaction
if you took an asset out of your personal name
and put it into some asset protection structure.
But that happened after the accident, after you found out about the claim.
The judge has the power to unwind that transaction
and they're going to be able to get to it.
So if you're going to put together an asset
to protect structure, which I recommend everybody doing,
make sure you do it before you find out there's a potential client mistake.
Number seven Relying on single member LLC is single member LLC
don't have the same asset protection value as multi member LLC that unfortunately
when it comes to husband and wives though, they are considered one single member.
The protections that are afforded a single member sometimes don't even exist.
And it makes sense. And let me tell you why.
The whole idea of this protection when you have multi members
is that if you in business with somebody, right,
you have a business partner and that business partner gets into an accident.
That person get sued and they lose.
Let's say it's a 5050 partnership.
They lose 50% of the company to a creditor.
Well, hey, I'm now stuck with this creditor, 5050 partners
with this creditor who has no interest
in running the business with me, no interest in growing.
You know what you're doing anything other than liquidating that 50%
so that they can go get their money and move on with their life.
And so there's this public policy
that says, look, if you have a partner, a multi member entity,
then we're going to give you charging water protection,
which means they're not going to be able to get your 50%,
you're still going to be able to run the day to day with your partner.
But any profits that would have gone to your partner
are going to go to the creditors.
So at least from the co partner, it doesn't really affect their
their business at all.
It just affects the the the person who owes the money.
They're going to have to give that money,
all of it or a portion of it to their creditor.
But when it comes to a single member LLC, that public policy
doesn't really make any sense.
It's just you you don't have any partners to worry about.
So most states don't recognize or don't apply the same charging order
protection on a single member LLC as they would do on a multi-member run.
If you haven't seen my video
and charging order protection, I would encourage you to go
check that out and put it up here in the corner again,
because that is sort of the bedrock
of LLC protection, but it doesn't apply to single members all the time.
So whenever possible, make sure you're structure LLC is where there's at least
two members.
Mistake number eight and this is the big one is co-mingling your funds
either with other LLC or with your personal funds.
What we're trying to do is we're trying to make sure that each LLC operates
individually, that you treat them separate, that they have separate
bank accounts or they have separate islands, they have separate books.
You're really respecting that independence from each entity
because legally these are separate entities from yourself.
But if you start co-mingling and starting paying some expenses of one LLC
with the with the bank account of a different LLC,
then you're going to be co-mingling those funds.
Then any judge is going to say, Look, you're not treating these separate.
So if there's any issue with one LLC, we're going to basically combine
those and you're going to have to be able there's going to be liability on both.
And same with your personally.
If you start using your credit card, your business credit card, to go buy
groceries or to go buy, you know, personal items, then an even worse,
if there's a judgment against your LLC, which is what you want,
they may actually be able to pierce that veil and actually get to you as the owner
where they ordinarily wouldn't get to because you didn't respect that
those boundaries. You got to respect the boundaries.
Make sure you do not commingle your funds.
Mistake number nine is that if your estate is large enough, meaning you've got,
you know, 5 million, 10 million or plus in assets that you owned,
a big mistake is not considering an asset protection trust setting up LLC.
That's the first level. That's sort of the basics.
Everybody should do that.
It's relatively inexpensive, but if you're at a higher level now
and you've got real assets to protect, then millions of dollars of assets,
then you really want to talk to somebody about having an asset protection trust,
whether that's domestic or offshore, again, depending on your situation.
But had that conversation with your attorney,
this is separate from a living trust.
We talked about in point
one that living trust has no asset protection value whatsoever
and that's because it's revocable. I can change. I can change my mind.
I can do whatever I want.
And asset protection trust has asset protection value is
is probably the strongest asset protection area because it's irrevocable.
Once we set up an asset protection trust,
I can't go in there and change it and do this or do that.
And so it really is considered a completely separate entity
that actually doesn't have any owners.
Like, I actually don't own my trust.
I'm just a beneficiary of that trust.
So if you've got a large estate look into having an asset protection
trust to make sure that you're as protected as you as you can.
And mistake number ten is not considering the state that you reside in.
In your analysis, I'm a perfect example because I live in the great state
of California.
California probably has the worst asset protection laws out there,
along with some other states like, you know, Georgia and a few others.
Not to not to call anybody out.
But you want to make sure you understand where you live because in some states,
like if you live in Wyoming, for example, I would have a completely
different entity structure than I would if I lived in California.
California, in addition to being a terrible asset protected state,
you've got franchise taxes to deal with every LLC.
So we don't want to create too many losses.
So there are some additional things that I would look at
if I was looking at an asset protection plan.
If somebody lived in California versus Nevada versus Wyoming versus Texas
or even versus Florida, what is a great example where,
you know, a multi-member LLC is fairly well protected,
but a single member LLC has absolutely no protection,
which is something we talked about earlier.