Epic Real Estate Investing - Should I Hold ALL of My Properties in Legal Entities? | 3rd Degree Thursday

Episode Date: October 9, 2014

In an ideal world, being honest and ethical in your business practices would be enough to avoid legal trouble.  Unfortunately we live in a litigious society, and every savvy investor should take steps to protect themselves from legal liabilities.  In today’s episode, Matt answers a listener question regarding the use of corporate veils. -------   If you have a question, comment or concern that you’d like Matt to address live on the show, send it to him at [e-mail] and type "3rd Degree" in the subject line… or leave him a voicemail on the Epic Hotline at 1-888-891-7203.   See you tomorrow for a new episode of Financial Freedom Friday!   Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello and welcome. Welcome to Third Degree Thursdays, the show where I subject myself to you giving me the third degree. All righty, got a question via email from Jean Francois Truchon from Canada. And Jean writes, hey Matt, do you strongly recommend creating a company when owning rentals in the U.S. I currently own and rent under my personal and wife's name. A colleague of mine got me scared about legal liabilities. I am Canadian. Thanks, J.F. All righty, Jean-François, thank you for the question, and you ask for my recommendation on whether you should own your rental units within a company structure or your personal name. Well, I will gladly give you my recommendation, but due to legal liabilities, the same type of liabilities that raise this particular question, I must disclose that I am not a lawyer, and this is not legal advice. I have every bit of confidence that you wouldn't hold this against me, but you just never know. just if I, this is just if I were in your shoes, answer.

Sadly, that's the world that we live in right now. It's such a litigious society. You just can't be too careful. I can't be too careful. You can't be too careful. And I would say for the most part, you know, if you conduct your business correctly up front, you're straight with people, you follow through on your business obligations, you say what you're going to do and you do what you say.

And, you know, if you do that, all legal liabilities should be avoidable. There should be no reason for any sort of legal protection. But unfortunately, that's not enough. And for that purpose, you know, it's good business to go above and beyond doing the right thing and doing good business with your clients and customers. That should be enough, but it's not. You've got to go above and beyond good behavior and protect yourself with formal legal protection. And that comes in the form of setting up an entity that separates you and your personal assets

from your business and your business's assets. Now, I'm not 100% positive how this works in Canada. And I'm even less sure how this works living in Canada and while you're doing business in the United States. But if I were in your shoes, at the very least, I would set up an LLC to hold my rental units. That's at the very, very least. That's the bare minimum that I would do.

And see, the reason I do that, what this does is, you know, should a tenant have an issue with you? Or should a contractor have an issue with you? So any sort of dispute or a property manager get angry ornery and want to, you know, seek some sort of recourse. Or anybody have an issue with you or your rental property or the way or your business. Or should someone get hurt on your rental property? Whatever it may be. You know, the wind could blow wrong and someone could get angry enough at your property and seek legal action.

You know, for the most part, if that were to happen and you had your properties inside of a legal entity, they would be, you know, limited to the assets of the LLC should, you know, you be deemed in the wrong by the court. And your personal assets would not be at risk. That's what that would do. You know, for the most part, I should say. If you're seriously criminal or criminally negligent in your activity or actions, then in some cases even your personal assets aren't safe. but for the most part, you're protected by something that's called the corporate veil. Now, depending on the amount of rental units you own, you might want to split those up amongst multiple companies, multiple entities,

maybe one per entity, two per entity, three per entity, whatever it may be. Just do the math on that and see if it makes sense and it doesn't eat into your cash flow. I know here in California, fesh, that pretty much kills one whole rental unit every single year or one month. It is to keep the legal entity current. So do the math in your area. Also, you may want to look in depending on your net worth. You know, maybe the value of those properties and maybe the value of your other assets. If you own other businesses, you might have much more to protect than you think you do.

And you may want to go way beyond than just, you know, creating multiple companies. You might want to create several layers within those companies to, you know, even preserve. anonymity. But, you know, that would kind of, not kind of, that would be determined on a case-by-case basis. Most people, that would be an overkill and be careful of those little traveling side shows that come to town trying to sell you all these legal structures. Most of that stuff is way overkill for most people. They use fear tactics to try and sell it to you, and they tell you all these horror stories and blah, blah, blah, blah, about. Most of that stuff you don't need. And if you get into that stuff, sometimes it can be a real pain in the

butt to get out of it and untangle all that. But, um, Let's see. Yeah, that would be for you and your own legal counsel to decide. So Jean-François, if I were you at the very minimum, I'd heed your colleagues' advice and at least separate your personal assets from your real estate assets via some sort of corporate structure. And to determine the right structure for you and the level of protection that you need, I would make an appointment with a real estate lawyer. That's their profession.

That's what they do. I can just give you general if I were in your shoes type of advice. Also, you know, with you being in Canada, there might be actually more that you need to do. Or there might even be less. So I would want you to overpay or overwork for that, or do overwork there either. All righty. So hope that helps. Now, should you have any questions, comments, or concerns or rants that you'd like me to

address here live on the show, send them to me at mat at epic real estate.com and type third degree in the subject line. Or leave me a voicemail on the Epic hot. line at 1-88-8-891-7-203. I'll play your voice right here live on the air and I'll make you famous. All righty? See you tomorrow for Financial Freedom Friday. This podcast is a part of the C-Suite Radio Network.

For more top business podcasts, visit c-sweetradio.com.