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Separate Properties, Separate LLC s
By Ted Scearcy

One of the vital aspects of investing and building your business is adequately protecting what you have worked so hard to build. One of the ways to do this is through proper use of corporations to own both your businesses and your investments. Owning investments in stocks and bonds with corporations can be somewhat tricky so in this article I will be talking about investing in real estate.

Consider the following example: you have worked hard over the last several years and your business is starting to take off. You have made the wise decision of forming an LLC, or Limited Liability Company, to own your business. Lets call it Big Biz, LLC. After taking distributions from the profits of Big Biz to support yourself and your family there is still a decent amount of money left over. Lets say there is $45,000 that you would like to invest in real estate. After considering your options and conducting your due diligence you find three small rental properties that you decide to purchase. You put $15,000 down on each and finance the rest through your local bank at a favorable rate. All three properties are owned by Big Biz. Each property throws off a cash flow of $300 each month that contributes to the overall income enjoyed by Big Biz. This monthly cash flow of $900 and the continuing profitability of Big Biz soon allow you to purchase two more investment properties, again putting $15,000 down on each. Your total monthly income from the rental properties alone is now $1,500 a month! Not bad!

Your tenants all seem to be decent people and there have not been any significant problems. However, the winter rolls around and one morning a tenant slips and falls on their front step before your maintenance person has a chance to salt it. The fall is a bad one and they end up in the hospital with fairly serious injuries. You send them a &ampldquoGet Well Soon!&amprdquo card and think nothing more of it until you get a phone call from their lawyer. The lawyer informs you that you are being sued for negligence. They take you to court! You are not too worried because you took the smart route and formed an LLC so you know that you are protected. WRONG! It is true that your personal assets, such as your home, cars, etc are protected. However, everything, and I mean EVERYTHING, that Big Biz owns is fair game. They can take all five properties AND your business.

Although this scenario may seem clich&ampeacute, it is far too common for you to not take steps to avoid it. Generally, the best way to prevent this scenario is to form a separate LLC for each property. The easiest thing to do is to name them whatever the address of the property is. With a separate LLC for each property, if the above scenario occurred, the only assets that would be vulnerable to the lawsuit would be that particular property and they could not get at anything else.

Obviously, as with any legal matter you should consult an attorney before making any decisions. This technique has served me well with my properties and has definitely allowed me to sleep better at night knowing the assets I have worked so hard to build are well protected!

Ted Scearcy

http://www.thewealthyman.com

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