- Hi, Clint Coons here with Anderson Business Advisors,
and in this video I'm going to discuss
tax lien investing.
All right, you want to get started
in tax lien investing because you know
the opportunities that are there,
that you can get in for a very low amount,
and you can actually reap huge rewards.
But the question is how should you
structure those investments?
You know, because we're looking at
not only making money but also keeping
more of what we earn.
And the type of structure you choose
for your tax lien investing
can have a huge impact on that,
not only from a tax side
but also from an asset protection side.
So if you're a tax lien investor,
the first thing you need to ask yourself
is what type of income do you want to make
from these investments?
Now, forget the redeemed aspect of it.
But I'm thinking long term
if you actually get the property.
Do you want to hold those properties?
Do you want to flip those properties?
Many times people just don't have
the right answer for that 'cause they don't know.
And so that even makes it even more difficult to plan.
So if you're a tax lien investor,
what I would tell you is that if you need active income,
so this would be the real question we have,
do you want active income?
Now, why would I want active income?
Well, maybe I need to show a greater W-2
so I look better to traditional lenders
for deals I want to put together.
Maybe I want to put some money aside
in a Solo 401(k) so I can defer taxes.
You know, whatever your motivation is,
if you desire active income,
that's going to drive the decision-making process.
So if I need active income,
then as an investor in tax liens,
I'm going to create a corp for my investing.
I'm going to create a corporation.
Now, this could be an LLC taxed as a corp,
or it could be a traditional corporation.
If you watch my other video on LLC versus corporation
for real estate investing,
I discuss this in more detail.
But if you want active income,
so if I want active income,
then I'm going to run my deals
through my corporation.
That's where I'm going to take my tax liens,
tax deeds, right through here.
And so if they get redeemed,
then all the money flows into the corp.
And then what I'll do from there
is I pay myself out a salary with those proceeds.
That's W-2 income to me.
And again, you're going to pay a little more in taxes,
'cause you have to pay employment taxes on that.
But there's a reason why we're doing this,
because it's about building our business going forwards.
And so you recognize you want that W-2.
Well, maybe you don't need that much W-2.
So what you're going to do instead
is you're going to throw onto this a Solo 401(k).
So now if I'm taking out $18,000 in salary,
I'm dumpin' it into my Solo 401(k)
so I'm not havin' to pay taxes on it.
And then I'm doin' tax liens and deeds
possibly out of there.
How cool is that?
Then you don't have to pay any tax on the money.
So this is one way to do it
if you want active income.
Now, one other caveat here.
If you obtain a property, all right,
if you end up getting a property off of one of these,
'cause they're not redeemed,
then the issue becomes
what are you going to do with that property?
Well, first thing is is that you need to know
ahead of time whether or not you intend to flip it
or you want to keep it.
Because if you want to keep it,
then do not take title in that corporation.
Because the corporation is only there for flips.
If you want to keep it,
then what you need to do
is when you take title to that property,
you should have a limited liability company
set up over here to own that real estate.
And remember, I talk about this a lot,
not only on my videos but also
in our three-day tax and asset protection workshop,
the importance of having multiple LLCs
to reduce your risk exposure.
So if you're going to take it,
then move it over here and take it title in an LLC.
If you're going to flip it,
then you can keep it over in the corp,
because flipping activity is active income.
Now, we talked about this
being the primary motivating factor initially for you.
What happens if you don't necessarily
want active income and you want to try to keep
your investing as passive as possible?
In that case, I would do this through a LLC here
if I want to make it passive.
And I would have this treated as a partnership,
or I would make it a disregarded entity,
disregarded for tax purposes.
So then you're down here.
This is your LLC; you're up here.
You're doing your tax liens and stuff through here.
So the money flows into here,
and then it comes out to you.
It's going to come out as passive income.
Unearned income is what we're looking for on our return.
So we're not going to be able to contribute
to the Solo 401(k) or anything like that.
Great, that makes sense.
You can do it this way.
But if you're obtaining these properties
and you don't want to keep 'em
'cause you don't want to be a landlord,
now it comes back to the other problem again.
You get a property here,
and you want to just turn around and sell it.
Well, now we're running the risk
that you're going to get tagged as a dealer.
So we don't want to sell properties out of this LLC.
Only thing we want to do with this LLC
is bring in the income from the redemptions.
Or if we're going to hold things long term,
collect the property here and then move it off
to a different LLC, which is important.
You never want to own a bunch of properties in this LLC.
This would just own the tax liens, deeds.
You're not going to take the properties here.
But if I want to flip, then what I'll do,
I will have a corporation set up over here for my flip.
So now you get pushed right back in that active side.
And in this case this corp could be an S corp or C corp.
I'd probably make it an S corp,
because you want to keep as much passive income as possible.
If you wanted the active income,
I would have made it a C corporation
tax status up here.
So with tax liens, I mean, it is kind of complicated.
There's no doubt about it.
And what really drives the structure
is more from the tax side of it.
What type of income do you want to generate
from your investing activity?
And then we create the structures around it.
And so invariably, it typically ends up being
a two-tiered structure.
There's a corporation there, and there's an LLC there.
And the difference between the two
is what our motivations are.
Are we going to make most of our offers,
buy most of 'em in the LLC
because we're looking for passive income?
Or our main motivation active income,
so then we'll buy everything in the corporation
and then just move 'em out
if we're going to keep 'em as holds.
Tax liens investing, it's important.
Make sure you click on the link
to get a strategy session set up
if you're a tax lien/tax deed investor
so we can walk you through
how to create the right structure for your business.
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