What's up guys.
Hey, it's Clint Coons here and in this video I'm going to be walking you through.
If you're a first time real estate investor and you're buying that property,
how to property, restructure it for asset protection purposes.
All right. So what am I referring to here?
Let's say that you just getting started in real estate investing.
You've heard all about land
trust, limited liability companies, limited partnerships, corporations.
And your head's just spinning.
You're thinking, what do I need to do?
What should I set up right away before I buy that first property?
You tell you this, take a breath.
That is not the most important thing.
The most important thing when it comes to real estate
investing is actually buying real estate, land trust, LLC, corporations.
All that stuff is really important
and you should factor that into protecting your properties.
But here's the thing.
Knowing how you're going to acquire that property is so important
when it comes to real estate investing, because that's going to drive the decision
that we're going to make on the back and on how best to structure it.
So what am I thinking of?
Well, if you're going to buy your first property,
you're using a qualified mortgage, some of that for Freddie, Fannie.
And it's a single family.
If it's residential real estate,
then you're going to be required to take title in your own name.
So just don't worry
about the entities right now because you have to close in your own name.
Now, maybe if you're fortunate enough
that you've set up a relationship with a community bank
and they're going to issue you a non-qualified mortgage.
And all that means is that it's not going to be sold to Freddie Fannie.
So there are different underwriting guidelines there.
Well, then maybe you're going to want
to consider the strategy you're going to share with you and start there.
But most of the investors that we talk to when they're first getting started,
they typically using the Freddie Fannie type qualified mortgages
to buy their first rental property.
Maybe it's
because your daughter is going to college down at the University of Arizona
and you want to set up a house and then rent out rooms to people.
And so you're going to buy that property possibly as the second residence,
and then start renting out whatever the case is.
But when you're buying
that property, typically you're going to take title in your own name now.
So here you are.
You bought that first house and your first rental and it sit in your own name.
Now you can appreciate there's risk associated with that.
You talk to other real estate investors and they say, what?
You got a property in your own name or rental? Are you crazy?
If something goes wrong, you're going to be sued.
You're renting it out to students.
That's just nuts because they like to drink and party.
More liability for you.
So you think I've got to get this out of my name?
What should I do?
Well, the first thing you have to look at is what type of mortgage did
you use to qualify to buy this house?
Did you buy it as a secondary residence?
Is that the type of mortgage you used?
Because if you bought this using a loan that say it's going to be
a secondary residence for you
and now you're going to turn into investment property,
then you have to be careful about something
that's referred to as the do on sale clause.
That means if you were to transfer title to this real estate
over to
a limited liability company, if you're moved over to this LLC,
then your lender could accelerate the note and call that no do.
I don't want to see you
put yourself in that situation if you if you have one of those types of loans.
So we're not going to use this strategy right away.
On the converse side, if you didn't use that type of loan,
it was an investment loan, conventional loan, basement property.
Well, then you could actually set up a limited liability company
and deed your property directly into the LLC.
So again, you're going to set up an LLC, but you're going to set it up
after you've closed on the property.
If you were a new investor and this was a property that you're
working with, with a non qualified mortgage lender like a community bank,
then you should have gone down to the bank before closing and asked them
whether or not you could close in the LLC, whether or not
they had finance a property and allow you to close it.
Many times the answer is going to be yes.
So another option you have that we talk to investors about
if they have this property and they bought it as a secondary
residence, which a lot of investors do, because they get the cheaper money to
to to set that deal up smaller down payment.
You don't want to risk having the note called.
So what you could consider setting up is what's referred
to as a land trust.
All right. You can set up a land trust.
Now, a land trust is a guarantor trust.
It's like a living trust that we use for estate planning.
And if you set up this guy right here,
you can deed your property into the land trust
typically without fear of the bank ever accelerating the note
because if the lender was to look, they're going to see properties
now held in this trust name
and they're going to assume that you set up the trust for estate planning reasons,
which there could be a component of that in the creation of this trust.
But the real reason why we're using this particular type of vehicle,
and if you're not familiar with it, check out my YouTube channel.
I have plenty of videos on Land Trust that you can explore to understand this
in more depth in all the different uses associated with it.
So set up a land trust and move your property into the land trust like this.
And so now it's held in there
and you're going to be what's called the beneficiary of this trust,
which means you're the owner of that land trust
and as the beneficiary, you're entitled to go to control it
to get all the rents and everything that come from the trust.
So the problem is, if you're starting if you're just starting out
as a real estate investor and you hold this land trust as is,
if anything goes wrong with that property,
well, there's no asset protection there except in Florida.
So if you're looking for asset protection, you have to go to that next
level and create that limited liability company
and then move that land trust into the LLC.
And the way you do that is via an assignment that is,
you take your beneficial interest and you transfer it in with this one
piece of paper that states.
I concludes, hereby assign my land trust
to this limited liability company and that you make the LLC the beneficiary.
So when the LLC becomes the beneficiary of your land trust
and you own the LLC,
the way the money flow works, because I mean, that's really why we're investing is
you just have your tenants here, pay the LLC directly,
just collect all the rents down here and then you distribute them out to yourself.
You can even pay the mortgage
and everything else out of that limited liability company.
All the expenses can come out of there and whatever the less left,
you come down here and hit your pocket individually.
Now that's how we look at structuring the first rental property
that somebody is going to buy. Typically, they're using those loans.
They have to take title in their own name.
Then it's a question of Do we go directly to the LLC
or we go directly to a land trust?
And that's going to be driven by the type of loan you got.
Now, on top of that, the other thing we want to look at
is let's say you you're going to acquire that second property.
So ideally you should use another or separate
limited liability company for your second property
that is set up this Miriam EJ structure and then go about it that way
for for the best asset protection.
But I've turned into plenty real estate investors at first when they get
that second property that they just don't have the money
to invest to set up a second LLC, but they still want some asset protection.
Well, here's what you could do on the second deal.
Again.
When I buy the second property here, why not move it into another land trust?
So I'll set up another land trust down here.
So now I have two land trusts that I've created.
I would be the initial beneficiary.
You have to do this way to start with.
And I got the property of transferring my property into it.
So now my property is held by that land trust.
You could if you, you know, be like,
take that land trust and move it also into that LLC.
So now you got to land trust in one limited liability company.
Now there is some risk there because if anything goes wrong
with one land trust, then that puts at risk this property
and this other trust as well, because land trust do not offer asset protection.
But as a beginning investor, you're at that point where you're thinking,
all right,
I can I'm going to take
on a little more risk here until I build up some more cash flow.
Then I want to actually set up
a second LLC and do this deal.
Right?
Well, by working with land trusts,
what you're doing for yourself is you're putting yourself in a position
that when you're ready to set up this second LLC over here, it's going to be
really easy for you to transition out of this dual land trust structure
and one LLC into a structure where you have one land trust per.
And what do I mean by that?
Well, by using the land trusts when I'm ready to move it
out of this LLC here, all I have to do is reverse it,
assign the interest back to myself via one piece of paper,
and then take that and assign it over to the LLC.
So essentially what will occur is this trust now
by doing what I just showed you will be owned right up here.
Here's my land trust.
It'll be owned by my limited liability company over here.
So now I've been able to split it up.
There's no deeds that have to be filed.
No one will see that that transfer from here to here because it's all private.
So as a beginning real estate investor, if you're thinking,
what do I need to be looking at right now from an asset protection standpoint,
how should I be structuring the two entities
you should be most concerned about?
Setting up is going to be one land trust and another is this LLC
to protect yourself, protect your beneficial interest in your trust.
That's where I see a lot of real estate investors.
I direct them when they're first getting started.
I think it offers the protection they're looking for
and it gives them the flexibility.
So as when they start to grow, we're minimizing the complications
to extricate ourselves out of a less than ideal structure
into a more protected environment.
If you want to learn more about these types of strategies
and what they can do for you, I'd like to invite invite you to my Tax
and Asset Protection Workshop that I teach on Saturday.
There's a link below on the next event that you can catch it worth
for an entire day.
You're going to get a complete download on how to use structures like this
for your real estate investing.
And then we're going to show you how real estate can create massive
tax deductions for you on the planning side.
So I invite you to that.
And by the way, when you come
in, you join me on the tax and asset protection event.
The best thing about it is that we have a team of attorneys there
answering your questions.
So bring all the questions you have about entity structuring
because they'll be answered live by my support staff of attorneys
and actual tax preparers.
Look forward to seeing you there.