How do you use an LLC to invest in real estate? That's the question that you've
been asking and today, we're bringing the answer. Kris Krohn here with Limitless TV,
sharing everything you need to know about getting that LLC right now.
So today we're talking about how to use an LLC to rock out your real estate
portfolio and some of you don't know exactly what that is but obviously a lot
of you do because you've been asking questions and a lot of you are in this
position where you want to get into real estate, you know you need an LLC and you
haven't set one up. So Steven, let's jump into this. What is an LLC?
- Well, an LLC is a Limited Liability Company and the purpose of it is just that, it's
to limit your liability. What is your exposure and how do you lessen that
exposure, in other words, if something goes wrong or something happens, if
someone trips on your property and they sue you, are you protected, right? - Yeah and
there's a lot of entities to choose from. There's s-corps and there c-corps and
then there's nonprofits and you're always going to find that real estate is
done with limited liability corporations and what the LLC does is, it's they're
designed to create protection, help you manage your portfolio and so in this
video, we're going to talk about how you specifically use one and by the end of
this video, I just hope that you understand that if you own real estate,
you need to have one and it's better to own one up front because you can
actually build credit with it and it can help you with your future investing.
So first of all, an LLC, Steven, let's talk about really what is it what are the
basics of this. - So first of all you need protection and legitimacy and I think
that's what really an LLC brings to the table. Especially when you're talking
about partnerships, right? When you get into partnering with other people, you
want this, you want to be protected yourself but you also want to make sure
that the person that you're getting into the partnership with understands that
you're legit, I mean, that you are a real investor, it's only the onesie twosie
type of investors who go into this the wrong way, don't get an LLC, don't set it
up, do it with a handshake and then when something goes wrong, they're up the
creek without a paddle. - Now I don't know what LLC translates into in other
countries around the world - *Speaks German* - Thank you, that's what it is for German.
*Speaks German* - Thank You Steven. - You're welcome. - Steven is always going to
bring you those little German moments but here in the United States, an LLC
also creates legitimacy with the IRS. You could claim that you have business tax
write-offs but the moment you're incorporated then business, actually, the
IRS actually looks at that and says, well I don't have a red flag over that, you're
incorporated so of course, it makes sense yet business expenses so by the way, LLC
allows you to not just create protection but allows you to write off your gas
mileage, it allows you to write off your home office, it allows you to write off
your cell phone, vehicle, some of your travel, a whole host
of other things. You need to have a good tax person, you can just even Google that,
there's a lot of advice on how to do that because by the way, if you're in a
10% tax bracket or a 40% tax bracket, you can save forty cents
on every dollar you spend, so it makes sense to track some of that and
that's going to flow through your LLC and your LLC is going to flow to your personal
and it's a way to basically say, I'm putting a corporate veil between my
personal life and my business life and that's the protection because like
Steven said, if anyone has a problem with you,
are they going to go after you personally? Well they are but if the business that
you did is inside of an LLC then they have to look to the LLC which means that
you've created some really great separation between your personal life
and your business life and that separates them from all of you and I can
tell you from past experience, you know, having done hundreds and millions of
dollars worth of real estate, owning right now probably over 40 LLC's,
it's important to have that separation. Now in addition to protection and
legitimacy, we want to talk about how you set up ownership. If you are the only
owner then the document is essentially going to say you own 100% of the company
and that's one of the first things to look at but if you have a partnership
for example, Steven and I own an LLC that we might own, we might decide we're
50/50 partners and an LLC essentially has two documents, there's the Articles
of Incorporation that you file with your local state and that's a really simple
short document but then you have an operating agreement and this is not a
formal published document because this is a privately held company, it's a
document that you have for you to understand, what is my ownership interes,
what roles am i playing, what roles are my partners playing and then what
happens in worst case scenario. So Steven, talk a little bit about
partnership and roles. - Absolutely. So first of all, you've got your manager and
then you've got your member, right? Managers and members are your typical
roles in an LLC. The managers are obviously the person who is doing the
day-to-day, they're making the decisions, they've got the voting rights. Often times,
you'll have multiple managers, for example, if we were to do an LLC, we may
both be managers on that property at a 50-50 partnership but sometimes,
you don't want both people to have say in a specific, you know, decision-making
process so maybe if I'm bringing all the expertise to the table and Kris is just
bringing in maybe the money and credit, I may say, you know, on this one, I'm going to
make the decisions, you're bringing the money in credit but we can set it up in
a way or he's still going to be protected. Although, I'm making the majority of the
day-to-day decisions as the managing partner, he's maybe just a member partner,
we're going to set it up in a way where he's still protected. - Now the cool thing
is that, when you do an LLC, a lot of it is already the LLC that we used, we've
already put the money in and we already have all of the different pieces we need
in there so there's only a couple of things to customize, one of them is who
owns what percentage of what, the next one is who are the active and passive
managers and then who are the members and so in that, you know, Steven's using
these terms of manager and member but also, you're going to have a chance to put
in the definition of, well what does the manager do,
oh they're actively doing this, they're the day-to-day decision makings and then
you also have someone that's maybe a passive member, this could be the person
that's bringing money to a real estate deal, for example, or money to the
operation and depending on whether they want voting rights or not will determine
whether they're the actual member or whether they're one of the managers, some
can be more active, some can be more passive, this is easy stuff, I know for
some, it might be like, "Well Kris, there's some new turns here on, swimming in this."
But it's actually really simple if you have competent help, this is actually
something that we provide and we actually help people set up their LLC's
because we're setting them up all the time, we're doing so much real estate, you
need to know how to set them up correctly so..
- I don't know if you're going on on something else there
but I wanted to, I want to move on for just a second, I want to talk about
worst case scenarios because I think this is one of the reasons, we
talked about protection in the beginning but really that it's protection from
what and it's protection sometimes from those worst-case scenarios that could
arise. One worst case scenario could be that one of the members of that LLC or
one of the managers of that LLC dies or passes away. - And then you have their
spouse jumping in saying, "What do I own? Do I get to start making active
decisions in the business?" and you're thinking, whoa whoa whoa whoa that wasn't
actually the original intent but everything might head south because you
haven't thought through what happens if someone dies or what happens if the two
of you have a disagreement or what happens if you have a different
understanding of the contract and all of that gets pre-decided upfront so at the
end of the day, it's like, alright, well let's look to the agreement,
let's make sure we understand what we do in this situation and we use a
particular LLC that has been vetted by our legal team over the years where
we've been able to add to it. Just about every scenario, a good operating
agreement, our operating are in mint has between 30 and 40 pages after it's been
put together which, you know, most of that you're not going to care about, you're
never going to need to worry about but should something go wrong, you're going to
be grateful that it is in that document and that it's already been designed and
defined. - Yes, at the end of the day, when it comes to LLC's, when it comes to
protecting yourself appropriately and being legitimate in the marketplace as
you're going out and finding partners or buying real estate and protecting
yourself, the biggest thing that we could say is, make sure you get one, make
sure you put something in place that you know what you're
doing there that you hire someone who's competent to help you out and like Kris
said, we do have, we do help people, we've been helping people for years and
years and years, put together these type of agreements to make sure that they're
not just protected, not just legitimate but that they're moving forward in the
most powerful way. - You know, when you're dealing with people, weird strange random
things can happen and what you're trying to do is have an agreement that says,
"Listen, we don't know financially what's going to happen over the years,
we're working together." and you're going to have people where things happen in their
life, you're going to work with people where things change and if you don't have the
right kind of agreement, it can create drama.
Look how random this can be.. I could say, "Steven, check out that curtain right
there, isn't that amazing?" and I come in here, I'm like, actually putting on the
choker holdin, I'm going to take him out and I'm going to do something mean like that
and afterwards, he's dead. No, he's not. He's just passed out then he wakes up
and he says, "Kris, I hate you. I never want to work with you again, yeah, and at
the end of the day, what do you do when weird stuff in front of
the camera happens like that. I tell you, that over the years, I've seen some
pretty bizarre things happen. Steven and I, even though we've been friends for
nearly 20 years, we've had our moments where we didn't see eye to eye. In fact,
we went through several years where we didn't really agree with each other's
philosophy or business operation systems and we always worked it out, it never
needed to get legal, nowhere near but what do you do when things get weird or
strange or those things.. - Those things do happen, that's like, that's the reality of
it, those things do happen. I know, for example, that I can never control Kris.
- Yeah, exactly. Who can? - I know that I can never control hulk.
No, I can never control Kris, right. In other words, he has his choice to do whatever
he wants in whatever the circumstance may be, I can only control myself so the
only reason why we're putting these operating agreements in place while
we're putting this LLC in place and defining those roles and defining those
exit strategies and defining those worst case scenarios is because I know
that I can't control him, he knows that he can't control me and if that
disagreement ever comes to a head where it's end of the road for one of us or
the both of us, we already have it in place and we don't have to get crazy
like, this doesn't have to take some long like 18-month legal
process and it's called an exit strategy. - So at the end of the day, when
you take a look at what we're talking about here, we're talking about what an
LLC is, you're defining ownership, you're defining rules, you know what to do in
worst case scenarios and you have an exit strategy. Friends, use your LLC's
wisely, make sure that you have them even before you start buying real estate,
if you're not currently incorporated, it's a great idea so that you're fully ready,
prepared and set up to dive into the world of a successful real estate investing.
If you own real estate but you don't have an LLC or if you're planning
on buying real estate, now is the time to get an LLC. Click the link and my team
will get you your LLC set up and streamlined with all of the language
that you need from the lawyers to help yourself safe guarded and protected
right now.