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Asset Protection: 10 Rules for Arizona Real Estate Investors

Posted by Ike Devji | Mar 25, 2020 | 0 Comments

Asset Protection for Arizona Real Estate Investors

Real estate investing is a proven method of wealth building but is not without risk. Asset protection for Arizona real-estate investors takes many forms, from insurance and risk management to proper legal structuring. 

What we share is based on nearly two decades of experience and having a front row seat to many of the issues that have wiped out real estate investors including during the 2008 recession. One glaring mistake not listed below? Failure to diversify. We saw far too many people who were so heavily invested in concentrated R.E. holdings that they lacked any reasonable level of liquidity and had little or no cash or equivalent assets when the market collapsed. This meant even people with eight and nine figure net-worth levels were largely wiped out, while more "average" successful people lost everything they had ever worked for.

Asset Protection: 10 Rules for Arizona Real Estate Investors 

1. Understand the limits and extent of the personal guarantees you sign. Many investors will sign as jointly and severally liable for six or seven figures in total debt when they only own 20% of the deal, as one example. Limit your liability % to match your ownership % where possible or you'll be responsible for your partners debts too;

2. Avoid signing blanket personal guarantees, be specific or the bank will value what you own at pennies on the dollar and try to take it all;

3. Protect yourself from your renters, their guests and business invitees, you are liable for all of them and their health, welfare and safety. Have specific leases, written policies on conduct and the use of the properties and ENFORCE penalties for violating them;

4. Have leases, indemnity agreements and other legal docs drafted by a lawyer, or at least reviewed by a lawyer BEFORE you use them. Asking us what we think after the fact is useless as is relying on your estate planning trust or "RLT".

5. Heavily insure against liability incurred on the property. You will almost always be more collectible and better lawsuit target than your renters and insurance is your most cost effective and predictable first line of defense;

6. Don't put too many eggs in one basket. Divide properties based on use, equity and danger or liability. If you have multiple pieces of property in a single LLC, for instance remember that ALL of them are potentially at stake for an exposure at one property;

7. Adequately insure yourself against loss and property damage, as distinct from liability. Use only top rated national carriers that you can sue if they don't pay under the policy as they should. Yes, this is common, “bad-faith” lawyers exist for a reason. Remember that vacant property is often not covered by general loss and liability insurance after as little as 30 days if you don't let the insurance company know and pay them extra;

8. Get professional accounting help to maximize deductions. Using strategies like energy studies, property tax reviews and cost segregation studies to reduce your fixed long term costs and maximize what you get to keep;

9. Implement personal asset protection planning TODAY and consult with experienced legal counsel on how you are protected and which of your other personal assets are at risk and should be made legally distinct. If he or she says, “just by more insurance” get better help. I personally turned away over 50 "former" millionaires seeking help in 2009 alone because they called too late for anyone to help them. Nearly all of them had high dollar estate plans in place from so-called top law firms and had never been told that the estate planning (death planning) they had in place in the form of a Revocable Living Trust would not protect them. Shockingly, the same lawyers that dropped the ball and left their clients exposed then wanted to implement asset protection planning and now hold themselves out as asset protection experts. They weren't then and they aren't now;

10. Get ALL the right insurance. If you are professional manager you need general liability, E&O (like professional malpractice) and potentially D&O insurance (directors and officers) if you are a director or officer of a company that may be personally named for professionals acts or omissions, i.e. “I made the call that re-enforcing the balcony railings was too expensive…”

This list is just a starting point, always get personal legal advice that accounts for your unique fact pattern. 

About the Author

Ike Devji

ASSET PROTECTION LAWYER IKE DEVJILawyer:- 16th year of Asset Protection only legal practice, helps protect national client base of over 5,000 clients and over $5 billion in protected assets- Sample clients include of physicians, business owners, real estate professionals, C-level executives, Fami...

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