- Hi, Clint Coons here with Anderson Business Advisors,
and in this video we are going to discuss wholetailing.
Now, if you're not sure what that term means, it's flipping.
Going from a wholesale deal into a flipping deal.
All right, with that let's get started.
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All right guys, if you watched the previous video
where I talked about wholesaling properties,
I discussed that I was gonna show you then how to move
from a wholesale into a wholetail.
That is, you decided that you want to take this property
down yourself or maybe you couldn't find a buyer
that would step in and you could assign that contract
to them so you realize hey, this is a good deal.
I will actually flip it myself or potentially
you're gonna treat it as a long-term hold.
Well the issue comes up is how do I structure this?
Because if you've entered into the agreement with the seller
in the name of your corporation or maybe you're using an LLC
like I described in the previous video, how do you move
that over to another entity or you do it right
through your corporation?
Well, in this video we're gonna talk about that.
So as you recall from the wholesaling video,
here's your corp, all right, it's right here.
Now, I talked about using a limited liability company
to make your offers in.
The benefit of that is that if you're making an offer
in the name of an LLC right up here and you decide you want
to close on that property 'cause you're not gonna
wholesale it, and then you want to flip it, you're actually
in the prime position right here because you never want
to flip inside of your parent corporation.
That's just gonna be a huge mistake.
That's a disaster waiting to occur, it's a minefield.
So many real estate investors have made this mistake over
and over again.
They set up one entity and they just keep flipping
through that same entity and then disaster strikes,
and it just screws everything up that they've been working
on building up.
So a deal that they had closed and they thought
they were done six months ago comes back to bite them.
I don't want you to be one of those clients showing up
in my office saying, Clint, I knew a better way to do it
and I didn't do it because I got so busy with my business.
Follow these rules, set it up this way.
You take title in the name of the LLC on that property
so you close in the LLC.
Then, the LLC as I stated is owned by your corporation,
you're set up in the driver's seat.
This deal is ready to go forwards.
All you need to do now is conduct your flip through here,
flip the property, bring in the cash, and then distribute
that cash down to your corporation and it'll be taxed
at your corporation's tax bracket.
That LLC, that doesn't have to file a tax return
because it's a single member disregarded entity
which means that it only had one owner
which is the corporation so you can set it up
so it's ignored for federal tax purposes.
So by using the LLC to structure your wholesale transactions
to make your offers, you're really setting yourself up
to flip the property should you choose to close on it
because you got the right structure in place.
Now, for those of you that are not using the LLC
and you're using those short form purchase
and sale agreements that allow you to assign them,
then the other scenario here what you would do is
so if I had this property right here under contract
with a seller and the contract ran directly
to my corporation, create a limited liability company,
assign your contract to the LLC just like you would
if you were dealing with a third party or, you know,
you're looking to make some money from
on that wholesale deal.
So assign it to the LLC, and of course that LLC is owned
by your corp, and then flip it through the LLC.
So that's how you run from a wholesale into a wholetail
with the limited liability company all owned
by your same corporation.
Now, let's assume that that property right there,
you rehabbed it and now you want to turn it into a rental
or you're gonna do an Airbnb or something like that.
You don't want to flip the property or before you even did
the rehab work you realized, you know what?
This would be a better scenario as a long-term hold part
of my portfolio of properties rather than flipping it.
So in that case, what I would recommend you do is hopefully
make that determination before you close, all right?
I mean that's always the ideal situation.
You know going into it what you're gonna do
with the property, but I get it, things come up,
and we don't often know this ahead of time,
but let's assume that we did because we're on our game.
So what you would do there is if you watch my other videos
where I talk about the benefits of a Wyoming
or Delaware limited liability company especially
for rental real estate investors, you know everyone
should have one of these entities in their portfolio.
They should have a Wyoming LLC right here for their rentals,
and what I mean by that, you're not actually owning
the property there.
This is providing you anonymity
and asset protection is what it's doing.
So if I know that I am not going to flip this property
and I want to treat it as a long-term hold,
then before I close, if I had adopted this strategy
right here, strategy number one where I made the offer
in the name of the LLC, what you'll want
to do is assign over your LLC to your Wyoming LLC
and then close on the property.
The only issue that may come up here is
if you need financing.
If you're using Freddie Fannie financing here
to take this deal down 'cause you don't have private money
lined up or you just don't have the cash to do the deal,
then that's gonna be a bit of a problem for you
so there will have to be an intervening step here.
Assign the entity over to your self and you'll have to close
in your own name first off, right?
Because that's what they're gonna require,
the banks are gonna require, and then when you're done,
move the property back up here into that LLC owned
by your Wyoming LLC for that anonymity
that you're looking for.
So that's how I would handle the property that I intend
to add to my portfolio that I'm not going to flip.
So that's option number one.
Now let's say option number two, again,
is with those short form purchase and sale agreements
that provide for assignability.
Again, look, you have to determine how are you gonna
take the property down?
If it's financing then just assign the contract to yourself.
Just assign it to yourself, close in your own name
with the financing, and then do what I just showed you here.
Put it inside of your limited liability company,
and if you're not sure about that I've got plenty
of other videos on my channel that will walk you
through this process and explain the benefits.
Be sure to catch those.
If you are gonna buy it for cash, well then you don't have
to go through this process.
If I used option two where I'm using
that short form agreement, so the agreement runs
to the corporation, the corporation is the one
that has the ability to assign that contract over.
Then what I would do if I plan to buy it for cash
is I would create a separate LLC over here that's owned
by my Wyoming LLC, and again we're doing that
for asset protection for anonymity, then I would assign
the contract to this LLC and I would close here
just like that.
So essentially what we're doing is we're making
the determination are we going to hold it long-term
or are we gonna flip?
Flip, you can leave it right up here.
Hold, move it down here.
Now, the one aspect I did not cover you might be thinking
about right now is, well that's great, Clint,
but I don't often think ahead.
Things just come at me when I'm driving down the road
or late at night, and I'm like, you know,
I should really keep that property, but you're already
in the situation where you're doing the rehab work
for your corporation.
Well don't fret 'cause that happens a lot
with real estate investors.
In that particular situation, then what I would do there
is I would sell the LLC to the Wyoming LLC.
Sell the LLC, actually sell the LLC, get this,
for what you paid for it, all right?
So you don't create a taxable event up
at the corporate level.
You want to keep it neutral so if you're invested
into that property right now, your basis in that property,
what you paid for it and what you rehabbed it was 150,000,
then sell it to your corp,
then sell it to the LLC for $150,000.
Therefore, it's a nontaxable event to the corp,
and then you can just take that money back out.
This is all about an installment sale
if you don't have $150,000.
Once the money hits your corp, take it out
of the corporation, you know, pay it back to yourself.
Hopefully, you know, when you're structuring these deals
here with your corporation, if you're putting capital in
to rehab a property, you're doing it as a loan.
So you can pull all that capital back out
without any negative tax ramifications, okay?
That's a key point there that you should pick up on.
This needs to be structured as a loan,
so if you're putting money in, it's structured
as a loan if it's coming from you.
So you repay yourself on the loan, put the money into here,
and then roll it back up into there.
I mean, there's so many different ways we could do this.
Another way that people will do
is they'll just transfer it out.
If it hasn't hit a tax return yet, then they'll move the LLC
out that contains the property,
and then treat all that activity as if it happened down here
and the corporate's just doing the work
on behalf of that LLC.
That's a way to do it.
It might be a little easier for you,
but whatever the case is, you want to get it out
of your corporation, down over here
into this limited liability company,
and holding it the right way because it's a rental property.
I hope that answers your questions
on how to wholetail property
that you thought you were going to wholesale.
My name's Clint Coons with Anderson Business Advisors.
I'm wishing you the very best with your investing.
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