During a recent episode of the “EntreLeadership” podcast, personal finance expert Dave Ramsey took a call from Matt, a business owner in Tahoe City, California, who asked about creating a limited liability company to lease equipment and vehicles back to his own companies. But the conversation quickly turned into a lesson on risk management and what Ramsey calls “swapping pockets.”
Not A Money-Making Move
Matt wanted to know if there was any financial advantage to setting up a separate company that would own and lease assets like a $50,000 mini excavator back to his underground utility contracting business and real estate ventures.
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Ramsey’s answer was straightforward: “There's no tax advantage to it. Why would you do this?” He emphasized that moving money between entities he already owns doesn't generate new income. “You’re just moving from the front pocket to the back pocket to the front pocket. It didn't create any money.”
He explained that buying equipment and then leasing it to yourself is essentially a wash. “If you reached it to somebody else, it would create money. But I'm not going to recommend you go into the equipment leasing business. I think you've got enough businesses running,” he told Matt.
It's About Liability, Not Profit
Ramsey said the only good reason to set up a separate LLC for assets is liability protection. “That's risk management and that I wouldn't mind,” he noted. “Like all my cars are in an LLC… So if there's a car wreck, the LLC's got a problem.”
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He then revealed that he personally owns almost nothing in his own name. “I'm rather poor personally. I don't have a single thing I own. I don't own cars, I don't own anything. Everything is in an LLC or a sub-S corp or a trust of some kind. Something else owns everything.”
Ramsey pointed out that separating assets into different entities can help contain damage in the event of a lawsuit. “If somebody falls and breaks their face getting drunk off the back porch and then decides it's my fault, they sue the owner of that property for liability,” he said. “Welcome to America.”
That’s why he keeps no more than $10 million worth of real estate in a single LLC. “After that, that's too big a target,” he said.
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Matt appreciated the insight and acknowledged that part of his reasoning was also to manage liability across his various operations. Ramsey was supportive of that, but cautioned him not to overcomplicate things or assume it creates extra income.
“There's no magic pill to this stuff, man. Go make a bunch of money, go do business well, go help people. Those kinds of things are where your money comes from—not from gyrations with purchased equipment,” Ramsey concluded.
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