The federal minimum that I got back in March from my CPA is 1.63% for a loan passed through from owner to LLC. I am not a CPA but will pass that on with the grain of salt. Note that a loan from a foreign entity to an LLC may differ.
NOTE - "title insurance" includes every con in the book - if you have another really valid reason for putting a lien on your property and are certain that the scams of the 80's that were so rife will come back and bite.... then yes, go ahead... it is free to do (well a $5 notary stamp) but I do just err on common sense.
Ultimately the levels of asset protection- apply all as thought of
simplified and paraphrased for brevity - consult with appropriate entities etc
Keep your property to Code (- buy in dry climates?)
My first property I bought in Alaska was because the tenant had abandoned the property unbeknownst to the previous owner and the pipes froze, the furnace froze and 20k in damage was done. My second I bought was because the previous owner didn't remove the snow and ice (in theory a tenant's responsibility) but they ended up slipping and suing the landlord for 50k and won - yes, absentee landlord just not caring enough.... (interestingly I still own the property and have the same tenant who sued who has been there for 10 years now...)
Best means of avoiding being sued - keep your property up to code, conduct quarterly friendly inspections and never, ever ever shirk on this.... get tenant and landlord to sign off and deal with any issues (trust me, they will happen, they will cost something but definitely save you in the long run).... you are buying a property with people involved. Do NOT think that problems won't pop up - they will - who you have dealing with it, how it is dealt with and the delicate diplomacy is critical. Start as you mean to go on, be consistent and be friendly! We all talk about being sued but how about trying not to be sued in the first place.
Imagine for one second a place where health insurance doesn't exist and you have a child who broke their arm on your premises even if it isn't your fault and just a childhood mishap.....often these people just don't have any perceived option but to sue or face 10k in a hospital! If you are an absentee and unknown entity, they may consider it... if you are someone who gives a Christmas present, knows their names, have documentation to CYA (cover your a@#$), you have just avoided 90% of all issues...!
Title Insurance
Beyond mandatory - don't leave home without it - don't even THINK of buying a property that doesn't have the max in title insurance.... that means title insurance that also covers mechanical liens.... this covers every fraudulent transaction known to the industry ... and again, mechanical - not included in standard title insurance but let's say I went and put an a/c on the roof of your property before it was foreclosed on (5k)... the lien for that work can be filed at any point up to statute of limitations - so I pop around to the property, discover it is foreclosed and say, well I will just wait for a new owner to come buy and bill them - they will be able to pay the bill! Unbeknownst, you buy that foreclosed property and lo and behold, 2 weeks later, you are presented with a $5k bill for an a/c unit that has probably been stolen in the interim...!
Standard title insurance doesn't cover that, those that include a mechanics lien do.
Landlord's Insurance - mandatory and I always, always recommend that you get a minimum of 500k in personal liability insurance - if you own only 1 or 2 properties, this "should" amply cover you (a brain tumour operation is about 250k...)
LLC Formation - if you wish - the theory is that they will sue your LLC and not you... the practice is that if they really sue you beyond the 500k, they are completely going to try to and pierce the corporate veil to attack you personally - so follow your LLC guidelines, don't unless necessary file an operating agreement and do do do renew each year - of course if your LLC is owned by a trust, they don't pierce the corporate veil, you will probably be fine... HOWEVER, do NOT attempt to think that refinancing an LLC through the states is easy. I have only just managed to get 8% hard cash financing for my clients with 50% LVR and they are baulking at LLC's......
Umbrella Insurance - what I love - if they pierce your corporate veil they can come after your personal assets - so, in other words, they pierce one LLC and get to your other US based assets.... EXCEPT... you own umbrella insurance up to 3 million so you are covered by that.... For what it is worth I was once told by a very very good friend of mine who is an attorney that the first thing any attorney suing you does is look at the total value of the asset they are suing against because that is what a judge will look at- if you have a 60k property, chances are the max they will get is that property... right now with umbrella insurance they have to go through
Lien on Property
Aaaaah, the scams of the 80's and 90's.... forge a document and sell your property - ooops, you didn't even notice..... but if you place a lien on the property, title will "pull" the lien up when they handle the "sale" transaction so they would then contact the lien holder and thus prevent it from happening.
Ultimately - if you feel this may happen - whack the whole lot on.....it is definitely true, a property with a lien on it is far less capable of being submitted to this fraud...
Hi HA
We have similar set up and will also be looking at lodging a lean against each property backed by a loan agreement between ourselves and each LLC.
I am still working through this process and trying to sort out what the interest rate charge will be?? One thing for certain it will be well over 7%. Would be interested on your thoughts regarding this issue?
Thanks
Cheers, Marisa
