As a hedge Fund Manager and Educator, I am often invited to speak at commercial real estate events for organizations such as the Apartment Owners Association.
Since the late 2013, and now through 2014, the main subject I am asked to speak about is: How I deploy millions of dollars in commercial and residential transactions and make millions in returns for the Investors in my Fund (www.MIGSIF.com) while eliminating the risk of frivolous lawsuits.
Most apartment building owners and other commercial properties feel the constant threat of unfair lawsuits that can wipe them out almost overnight.
Investors have insurance coverage on their properties, but the pressing question on their minds is: Will the insurance be sufficient to cover a large judgment claim by a litigant who has a devastating loss?
While risk comes in many forms, I am focusing in this article on frivolous lawsuits that seek astronomical awards and punitive damages.
If you are reading this and are thinking that such a bad event is highly unlikely to happen to you, then let me explain how the best insurance companies in the world mitigate risk: Their actuaries know that the more unlikely for an event to happen, the more devastating it would be if it happens.
Based on statistics and studies they minimize their exposure. Now that we got this out of the way, let me explain also that statistically 2 out of 3 businesses get sued in the United States.
The question in your mind should then be: Why be exposed when there is a simple and powerful way to be completely protected?
Investors are often overwhelmed by the attorneys promoting complicated and expensive structures pushing “separate LLCs” for “separate assets”. Entities that flow through to “anonymous Corporations” often in Nevada. And “trust accounts” with attorneys as Trustees quite often leading to “offshore arrangements” etc.
These structures not only frustrate commercial property owners but also confuse their accountants.
First of all setting them up cost tens of thousands of dollars and second of all, maintaining them costs a hefty yearly fee.
I will never forget the attorney speaker who presented one of these concocted structures very eloquently, but when an audience member asked him: “Who would maintain these or file taxes?”
The attorney’s answer was a classic one worth repeating here: “Our business is thriving and we do not want you to worry because we will not only set up all these entities for you, but we will also maintain them and assist you with your yearly tax filings, because no one else would be able to figure all this out!”
Haha, imagine that? Only “they” can keep you current from the operation and legal parts, to the accounting and tax standpoints.
Well, if a structure is not easy to understand, set up, modify and unwind, then you are at the mercy of the expensive attorneys and you are most certainly in big trouble.
Let’s cut through the chase, and allow me to share with you how I protect my personal commercial real estate portfolio of over $50 Millions Dollars in equity and how I do the same thing to protect the millions in cash capital being deployed in my Fund on behalf of my accredited investors.
The end goal is simplicity so let’s begin with simplicity. I call this the Ultimate Asset protection Structure because it is the most powerful yet the simplest and least expensive set up. It has never been challenged in any court because it is:
- A Law Suit Deterrent
- An Asset Protection
- An Asset Preservation
Here is how it works:
- Figure out how much equity you have in each of your apartment buildings
- Show a debt obligation (With legal reason and economic substance) against each of your properties
- No plaintiff’s attorney will want to go after an asset that has no equity as there is nothing to collect and if their clients, the litigants end up getting a charging order, it may trigger a tax invoice as phantom income on a judgment they could not collect.
- My office handles the entire structure in 72 hours by setting up One LLC in WY and capitalizing it by the amount of equity you need to strip from your properties.
- We draft a specific air tight 70 + pages Operating Agreement for the LLC, an individual Promissory Note for each of your properties and each Lien gets drafted based on each state where each of your assets is located.
If you have a separate entity for managing your Apartment Buildings we draft a UCC1 filing against that business entity as well to eliminate any equity in it so it becomes fully protected as well.
This structure cost you $5K only with a small fee based on each additional lien and I repeat:
- One entity only
- No transfer of assets
- No transfer tax risk
- No reassessment fees
- No “due on sale” clause risk by lender
- No complication to modify or unwind since you have the certificates of ownership of the LLC and can subordinate the lien position or cancel it if you sell the property without anyone’s help (Just hand the Certificates to the Title Co.)
- No offshore set ups
- No extra Trust entities
- No on going legal team or fees
- Only one entity to renew per year
- Everything is set up as turnkey
- No tax issues (It is tax neutral since you make one payment per year to the LLC that flows through to you)
- No complication to pass on the structure to your loved ones
- No anonymous structures
- No hiding of any asset
Most importantly you would have no worries of anyone suing you because there is nothing to go after and a lawsuit could actually cause them a tax liability.
Any apartment building owner or any other owner of commercial property can benefit a great deal from this level of peace of mind.
Many attorneys unfortunately complicate the simple and feed off the fear of their clients’ mind. What I am trying to do here, is to simplify the complicated and add to your peace of mind so you can focus on growing your business and adding value to all those involved with you.
Your peace of mind through our Ultimate Asset Protection Structure can begin within 72 hours and it can last forever.