A client today wanted to know how to best structure his rental real estate holdings for asset protection purposes. The client did not have any current creditor issues.
In general, each rental real estate property should be owned by a separate multi-member LLC. This structure has two benefits. First, having the property owned by a multi-member LLC limits a creditor with a judgment against the individual owner to a charging order against LLC distributions. LLCs owning real estate typically do not make distributions, except sometimes on the sale of property.
Secondly, the setup protects the individual owner from liability stemming from the property itself. A tenant who seeks a monetary judgment against the owner of the property should result with a judgment only against the LLC-owner, not the owner of that LLC. Even with a large judgment, at most the tenant should only be able to collect on the value of the one property in the LLC, leaving the remainder of the individual’s assets unavailable for collection purposes.
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