Hey what's up guys. It's Clint Coons here.
And in this video, I'm going to show you how to get around
real estate transfer taxes for your real estate.
All right.
Let's get started.
All right. Now, I know I've got your interest there.
You're thinking how do you get around paying a transfer tax
when the state states?
Well, there you go.
That if you transfer real estate,
it could be subject to a transfer tax or reassessment.
So what do you do in those situations where you're investing somewhere
and you want to get the property?
All right. Let's say I have this property right here
and I'll just take Pennsylvania for, for instance, you're in Pennsylvania
and you would like to transfer this real estate
into a limited liability company like this
for asset protection purposes, because you're flipping the property.
So you got this LLC set up for your flip.
But if you were to deed the property into the limited liability company,
what's going to happen?
They're going to treat this as a transfer and they may assist you $4,000
on that transfer.
So instead
you keep the property in your own name and you do the flip in your own name
when if anything goes wrong and some more were to come after you,
then that equity in that property is completely exposed.
Or worse yet, I mean, not worse yet.
But you don't want the profits going to you
because this happens to be a flip deal.
You want the properties going to your business,
you don't want them rolling up into you.
So when the property sells, you don't want title cutting your check
because you want that income allocated to your LLC that's treated as a C Corp.
So how do we get around this issue?
Well, the way you get around the issue is looking
at the asset itself and determining what are we trying to protect.
So in this case, what I'm most interested in is the equity in the property, right?
So in in this deal, let's say I bought it
for $100,000 and I'm going to rehab the property.
I'm going to put $50,000 into the deal and then I'm going to flip it for 200 K.
So that gives me a spread of 50,000.
Now, I don't want this 50,000 being paid to me
out of escrow because I'm listed as the owner of the property.
I want to make sure that that 50 K gets allocated somewhere else
and I want to make sure that somebody looks at this property rights.
So I'm doing the rehab.
If somebody wants to come after me and they want to get a judgment
against me, somebody falls and gets hurt on the property
that I have secured the equity up.
So it's not just hanging in there because, you know,
if you bought the property for 100 K, you have a lender,
they're going to lean the property for the amount of the debt.
So so whatever the lender loaned you, that's going to get protected
against the property of a mortgage or first deed of trust.
So what do you need to do that?
Well, you need to figure out a way to come in here
and make a claim to this equity, put yourself on there on title
in such a way that doesn't trigger the transfer tax,
but it also ensures that when you sell, you're going to get that money
going to the entity you want it to go to for tax purposes.
Now, the way you do that is what we refer to as a memorandum
memorandum of interest.
Okay.
So in this scenario, what I would do if I was this investor, I would take this
LLC that's going to be running the flip property here, right?
Because that's my flipping LLC.
I would take it and I would file a memorandum of interest,
record it against the property.
Now by recording that memorandum of interest against the property,
what you're doing is you're putting title on notice.
When they look, they would see the first first deed of trust here with Apex
funding, and then they're going to see this LLC
as a move I recorded against it and it's going to trigger them
that they need to inquire as to what it means that
as to this entity having an interest in the property.
So at that point in time, what you would tell title when you go to sell,
you would say, yes, that this LLC is owed $50,000 or if you had it
actually advance the cash as well, you would write that up in the agreement.
It's also advance in the rehab money to do the deal.
It's owed $100,000.
So out of escrow.
What occurs, even though you're
the owner, you'll get it zeroed out there because you don't take anything.
Or maybe you leave yourself 100 bucks as the owner, but the rest of the cash
rolls up into this company as it comes from title.
So the memorandum of interest is a way for you to work around the title
transfer issues you have when you have real estate.
This really comes down when you're flipping properties so that if
when you go to closing,
the proceeds will flow to the entity which you want it to go to.
And of course you avoid the transfer taxes.
So best strategy.
I know of to get around that
and make sure that that interest is held by the entity.
If you have rental real estate
and you want to transfer that, I've told you in the past,
if you saw my other video and this isn't a flip deal,
then just take a deed deed the property to the LLC, but don't record the deed.
By doing that you've effectively transferred that real estate in the LLC.
It's the recording
that's going to cause the transfer tax, get that, get that thing going.
So if you want to avoid it, just don't record the deed,
but run the property as if it
while it is owned by the LLC so the tenants would have
their rental agreement with the LLC.
Have all the utilities paid out of the LLC.
If you use a property manager, the property manager will deal
with the limited liability company that owns the property.
It's just the deed never got recorded.
So you have two strategies here.
One, you can check out my other video How to Transfer Real Estate.
I'll put that in the show notes.
But this one memorandum of interest, if you're flipping property,
if you want to make sure those those profits are held to you,
use the memorandum of interest. Take care.