If They Win …' – Here's The Savvy Reason Dave Ramsey Launches A New Real Estate LLC After Hitting $5 Million

When building a real estate portfolio, protecting your assets is just as important as growing them. Dave Ramsey, the personal finance guru, knows this all too well. During an episode of The Ramsey Show, he shared a practical tip that every aspiring real estate investor should hear: set up a new LLC once your real estate holdings hit a certain number.

Here's why Dave swears by this approach – and what it means for investors.

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Protecting Your Assets from Unexpected Twists

Ramsey wants you to imagine this: you own a rental property and one day a tenant gets drunk, falls off the porch and decides to sue you. Scary, right? This nightmare scenario is exactly what an LLC (Limited Liability Company) is designed to handle, among other things. According to Dave, when an LLC owns a rental property, the tenant can only sue the LLC, not you personally.

"If they were to win," Dave explained, the most they'll get is what that LLC owns. That means your home, bank accounts and other investments remain safe. For Dave, this is nonnegotiable.

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When to Start a New LLC

When Dave Ramsey was actively buying residential properties, he would group them into LLCs with a total value of up to $5 million. Once an LLC reached that threshold, he would form a new one to limit risk.

If one LLC’s assets are involved in a lawsuit, only those properties are at stake. By spreading his properties across multiple LLCs, Dave ensures that no single lawsuit can wipe out his entire portfolio. For larger properties, like a $15 million office building he owns, he creates stand-alone LLCs.

This strategy isn't just for multimillionaires. Even if you're starting small, grouping your properties into an LLC can give you peace of mind – and a safety net.

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Flipping vs. Renting: Know What You're Signing Up For

Dave also touched on the age-old question for real estate investors: Should you flip properties or hold them as rentals? His take is that flipping can be lucrative, but it's also time-consuming. "Flips are a pain in the butt," Dave admitted. You'll spend hours managing contractors, picking paint colors and pulling permits. It's a job, not a passive investment.

On the other hand, rentals provide steady income, but they're not hassle-free. Dave pointed out that cheaper properties offer higher returns but often have difficult tenants. High-end properties attract more stable tenants but yield lower returns. Either way, managing rentals requires active involvement.

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The Myth of Passive Income

If you're picturing yourself collecting easy checks every month, think again. Dave didn't mince words: "People who say passive income on real estate are morons. There's nothing passive about owning real estate."

Owning real estate is a hands-on business, whether managing tenants, fixing leaky pipes or handling legal issues. That's why Dave emphasizes understanding the challenges before jumping in.

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