Asset Protection and Business Credit
One of our students, Joe, asks the following questions:
Tom, I have two questions: 1) Currently I have four rental units and waiting to close on the fifth, all of these properties are under one LLC. Value of all units is just above $500K with three properties owned free and clear est. $367,000. Would you recommend that I form another LLC for future properties to help protecting these assets from a lawsuit? What other ways would you recommend I protect myself from a lawsuit and increase my wealth? 2) At what point does your LLC have its own credit or are you as the owner always liable for the credit decisions personally? 3) Do you work with new clients? Thank you! Joe
A: First, you definitely have some exposure. Remember that every tenant is a potential plaintiff. So, with four rental units in a single LLC, you have four potential plaintiffs, any one of whom could sue you and claim against your $367,000 of equity. I would definitely consider additional LLC's to protect your assets. You can use a holding company to avoid additional tax returns and bookkeeping.
There are ways to generate business credit within your LLC's. First, you need a D&B number (Dunn & Bradstreet) for your LLC. Next, you need to borrow within your LLC. You can purchase a car, set up vendor accounts at your Home Depot and other stores where you go to fix up your properties, etc. Garrett Sutton, at http://www.sutlaw.com has a nice home study course on building business credit. FYI, Garrett and I teach a tax and asset protection class for Rich Dad Education if you want to learn more about asset protection.
Yes, of course, we work with new clients. Please contact Gennifer at 866.467.5809 and she will take care of you or send us an email at cs@provisionwealth.com.
Warmest regards,
Tom