- Hi, Clint Coons here with Anderson Business Advisors,
and this video I am going to discuss lending
and limited liability companies.
(upbeat music)
Now when it comes to LLCs and lending, this can be
a particular problem for many individuals who are looking
to acquire property, and what I'm getting
at is it has to do with underwriters.
I don't know how many of you that are watching these videos
now have been down that road before where you've created
LLCs, and then you go in to apply for a loan
and you're using traditional financing and the underwriter
gets your packet and they don't know what to do with it,
and so they just throw up all over it and send it back
and say to the broker, we can't help this individual.
I know this because I've been there myself with my own
tax returns, and so what I'm gonna share with you are some
things I've learned over the years of investing
in real estate where you have asset protection,
tax planning, and lending, where those all collide,
and they can create problems for you in growing
your business 'cause at the end of the day,
we want to make sure that you're able to maximize
your portfolio, grow it as fast as possible,
and you don't need underwriters to stymie that
because they don't understand what it is you're doing
or how you're structured because in my experience,
a lot of underwriters out there, they're not coming out
of college at the top of their class.
Some of them don't even go to college and they have not yet
taken courses to become familiar with taxation
or business entities.
They're great at putting numbers into boxes, but they can't
think outside of the box, and that can be a problem for you.
So let me just show you some things
that you need to be aware of.
Now, one of the strategies that we teach a lot of times is
to protect your investable cash, that is create a limited
liability company in Wyoming, so you have your Wyoming LLC
here, and this is where you're gonna put your cash,
and you're doing that for asset protection purposes.
I want to get the money out of my name so if I get sued
individually, that money's not available to my creditor.
Now, this can present a problem for you when it comes
to financing real estate, getting loans
on mainly residential, not so much on commercial,
but more so on the residential side.
So if you know that you're gonna go out and you're gonna buy
a piece of residential and you're going to use
traditional financing, that means you're going to close
in your own name, or even if you're not gonna close
in your own name, you're gonna close in a limited liability
company 'cause it's a portfolio lender, and you plan
to put down 20%, okay, that's what you're gonna be putting
down to buy this property, well if I have a,
let's say I had 160k sitting up in this LLC,
and I'm looking for property in the 80
to $100,000 price range.
I'm looking for investment real estate that falls
within that price range, then you know the most you're
gonna need to put down is probably about $20,000
if you find a $100,000 piece of property.
So what you should do then if you have this structure set up
which I highly recommend if you're a real estate investor,
you have your investable cash protected, you're gonna want
to take out a distribution out of this LLC of 20k.
The 20k represents the 20% down you're gonna need
on a $100,000 loan, so you're gonna want to take that 20k
out and put it into your personal checking.
All right, get that into your personal checking account,
okay, and you want to do it two months in advance.
Okay, that's very, very important you do this.
It's gotta come out two months in advance of you actually
getting that property tied up under contract.
Why? Well it comes down to seasoning of funds,
so when the underwriter or the broker asks you
to submit the information for the underwriter,
they're gonna put together a loan packet for you,
they're gonna want to see two months of bank statements,
and if your down payment needs to be $20,000,
they expect to see $20,000 in your bank account.
If they don't see the $20,000 in your bank account,
they're gonna want to know where is that money coming from?
Is it a gift, is it a loan, and if you tell them it's coming
from an LLC, then they're gonna want to know well,
why is it coming from an LLC, and you're gonna say well,
that's where I keep my investable cash when it's not
being deployed, and that's all of a sudden gonna create
heartburn for them because remember,
they like to put people into boxes.
You no longer fit into their box.
Let's say you have this LLC set up as a disregarded LLC,
which is the way my LLC is set up and how we set them up
for the vast majority of our clients so it doesn't have
to file a tax return.
They're gonna want to go to the IRS and they're gonna want
to find a tax return to associate with that LLC
so they can verify that it's yours, and you tell 'em
it doesn't file a return, and they're gonna look at you
and say how can that be?
It's a limited liability company, it has to file tax returns
and you're gonna say, but no, it's a disregarded LLC.
Never heard of it.
Literally, I've been down this road before, so I just want
to forewarn you, these are the types of individuals
you're gonna be working with, and they're gonna fight
with you that this should be filing tax returns,
and you're gonna tell them the IRS won't accept tax returns.
Well how do we know who the owners are,
how do we know there aren't more owners?
Well the answer is if there were more owners,
then it couldn't be a disregarded LLC because disregarded
LLC means there's only one owner.
If there's more than owner, then it has
to file a tax return, get it?
They don't, so rather than put yourself through that
heartache and stress of having to work
with these individuals who do not understand you
and your complicated life and how you put things together,
pull the money out two months in advance.
It's the simplest way to do it.
Now, when they look, they're gonna see that the money is
in your name, so if this was a situation where you're buying
residential real estate, you're using traditional financing,
how about if I'm using commercial or I'm gonna be buying
something in the name of the LLC?
Well in that case, we're gonna do it a little different.
What we're going to do is set up our LLC that we're gonna
make the offer in, so set up this LLC right here,
get your bank account set up in it, and if I knew
that I'm going to need, let's say, $100,000 for my down
payment up here, then what I would suggest you do
is you take the $100,000 out of this account
as a distribution, so you pull that down to yourself,
distribution 'cause you're the member, and then you're gonna
contribute it to this LLC, so that would be a contribution.
All right, and again, do it two months in advance.
All right, always make it two months in advance
of making the offer, and the reason being is that they're
gonna ask for two months of bank statements for that LLC
as well, and we want to see that money in the account
on those two months of bank statements so they know that
that money's been in there and it's been seasoned.
This is very, very important when you're putting
these structures together.
If you are going to be using a self-directed IRA
or a QRP to buy property in an LLC, again, same principle.
If there's financing involved, which you should never
do financing in a self-directed IRA because it's taxable,
but if you're gonna use a nonrecourse note, again,
get the money into the LLC two months in advance.
So when it comes to financing in LLCs, it can sometimes
be problematic if you don't move the money the right way
ahead of time before you're making your offer
so they can see where those funds are coming from.
Another thing to keep in mind that I just touched on
when working with underwriters as well, LLCs I like
to have them run through a holding company
as you've seen in my other videos.
Let's say that I have multiple LLCs set up
for my real estate, this is my rental real estate,
then I like to create this holding company right here.
This is typically gonna be Wyoming or it could be Delaware
if I'm dealing with commercial, and then I'm gonna have all
of these LLCs owned by this one.
This one down here I like to treat as a partnership, right.
I want it to file a tax return, and it gives me a K-1,
so I want to get that K-1 onto my 1040.
Again, this is something that lenders or underwriters,
when they look at a tax return for a real estate investor,
it's gonna give you a greater degree of credibility
with your investing when you're pulling it through a K-1,
your rental income, versus Schedule E page one
where you just have a bunch of properties listed there
because it indicates to them that you've taken
your investing to another level and you've made it more
of a business, and so that translates, again,
into their little box scenario for them,
so I preferred it to run it this way.
So lending can be complicated, there's no doubt about it.
With Dodd-Frank they, well Barney Frank first screwed it up
back in the day, and then he tried to fix it,
and they went overboard, and I know how frustrating
it can be, I deal with it myself.
Every time I got for a loan, I just cringe,
I keep my loan packet available on my computer,
I know everything they need ahead of time,
and still they come up with more information and say,
well we need to know how much you spent on wine last month
because that's a new calculation we have, so anyways,
don't let the frustration get you.
There's tremendous opportunities in real estate,
interest rates are low.
Go out there, take advantage of it, just make sure
you're setting yourself up the right way so you can close
without any hassles.
My name's Clint Coons with Anderson Business Advisors,
and in this video we talked about lending
and limited liability companies.
(upbeat music)