- Hi Clint Coons here and in this video I'm gonna share
with you my ultimate leasing strategy
for your rental real estate.
So with that, let's get started.
(light rock music)
Okay so when it comes to leasing out your property
you're probably doing the thing that many people do
and that is you enter into a contract with your tenant
to lease a property for a year or two years
or however long you can get them to stay in that house.
Well that works.
So most people do this.
We set up our LLC and we put a property inside of it
like this and then we lease it out to our tenants
that are going to rent the property from us.
Perfect, I get it, works.
So these tenants then if you have multiple LLC's
that you've created, many times I see individuals where
they have tenants paying each of the limited liability
companies rent on a monthly basis.
And so they got multiple bank accounts going on,
all the money's coming in, you're balancing out the books
like you should.
Well that's fine but I think there's a better way
of doing it that I like to do in that it's gonna give you
some tax benefits by setting it up this way,
it's gonna give you greater control over your income
and it's gonna change the relationship between you
and your tenants.
So rather than having the tenants deal directly
with these individual entities,
what you may consider doing is setting up,
I'm gonna use a different color here,
set up a C corporation, nope that doesn't work.
Let's set up a C corporation up top.
Set up a C corp.
Now with your LLC's that own the properties like this,
enter in
to a master lease arrangement between
the corporation and the various LLC's that you own.
If you haven't used that term before basically what
we're going to do is we're gonna have your LLC
agree to lease the property to the corporation.
So it's leasing the property to the company.
So the company's entered in to a lease agreement.
Now remember, you're on both sides of these transactions
here so don't sweat it, don't think hey if I don't pay
myself I'm gonna sue myself.
No we know that's not gonna happen.
If you want hey two calls we'll help you out there.
So the point is is that you're going to lease the property
from the LLC so you have this lease agreement.
So let's say we put this lease agreement in place where
I'm leasing this property from this LLC at $700 a month.
And this one at six, and this one's at 1K.
Now, your corporation is gonna turn around
and sublease this property back out.
So for each of these tenants,
this is tenant number one for LLC number one,
tenant number two right here, tenant number three.
I'm gonna have my corporation enter into separate
lease agreements with these tenants
to live in these properties right here.
So the tenants now are dealing with the company itself,
they're not actually dealing with
the property holding entity.
So my corporation, let's say on property number one
right here that I have this sublease agreement
or I mean this master lease agreement for $700,
let's say I'm renting it out to this tenant
for $1000 a month, great.
So I'm renting it for 700, so what happens is my corporation
earns $300 here.
That is the difference from what the tenants paying
and what I have to pay back to my LLC.
You might be wondering why would you wanna do that,
why would I wanna have an extra $300
rolling into a corporation?
Well to put it simply, tax breaks.
By having that money roll into the corporation,
you then have the ability to start picking up
on tax deductions that you may not be capitalizing
on right now with your current investing structure.
We see a lot of individual real estate customers
who come to us and they have this number one complaint,
how do I reduce my taxes?
Now if you watch my other videos you'll know
that in certain situations reducing your taxes
is not a great idea if you're looking to qualify
for larger loans that are income based.
But if that is not one of your motivations
then yeah definitely tax planning should be
on the radar screen, all part of real estate investing,
asset protection, tax planning, and business planning.
So my partner Toby Matthis does a phenomenal job
on discussing the various tax benefits that come
from investing or having money flow into a corporation.
But I'm gonna hit on just one topic here.
You get the $300 that comes in so what could
I do with that?
Well basically you should expense it out.
You can expense it out with medical,
say you had medical expenses, you could pay it out that way
out of your corporation tax free to yourself.
Vehicle, so a vehicle expense we could be picking up
through that corporation.
You have entertainment expenses or meals actually
is what we could be running through there.
So you have ways to deduct these expenses from the income
you're earning at the corporation level.
Now let's say that you don't pull the money out
or you don' expense it all out.
Well what's wrong with that?
Because at the corporation it pays taxes
at a flat 21%.
If you live in California I can imagine right now
you're sitting back thinking wow I pay taxes combined
state and federal of 39% or 45%.
Well you just cut your tax rate in half so any money
that you keep inside of that company,
let's say I've got 300 here off of this lease here,
I'm renting this one out for 900 so there's another
300 there and this one over here is $1500 a month
so there's another 500 there, what you have here is
$1100 a month.
You multiply that out over a year that's over
$12,000 a year, what could you do with an additional
$12,000 in your pocket?
Either you're pulling it out tax free or it's only
gonna be taxed at 21%.
Maybe it's to send your kids to school,
maybe it's to get another vehicle,
maybe it's to fund a retirement account.
Point is now you have options because now the money's
coming in it's being taxed at the lower rate
and more importantly you have control of it.
Whereas in the previous structure where your tenants
are paying the LLC's and it's flowing right down to you,
you have no control over that income.
It's gonna be taxed to you at the end of the year
in your individual tax bracket.
So using a corporation adds a different element
to your investing structure, I like this because it gives
me the control putting together these master
lease agreements.
Also I think it provides an additional layer
of asset protection if you have any problems with tenants
they wanna bring any claims against you,
those claims are not going against the property owners
they're going against the property managers.
Let's say it's a shakedown discrimination type claim
that they wanna assert because you evicted someone
or you wouldn't rent to someone,
those are common occurrences or somebody happens
slips on this sidewalk that wasn't salted properly.
Boom let the corporation pick that up.
Corporation doesn't have a lot of assets
so there's not a lot of lose there,
we wanna keep our assets protected down here
and away from our tenants reach.
(contemporary music)