Glad I watched this. Solid information. About to turn 40 and we are in the process of buying our first home. Following up by paying off all other debt and then buying investment properties. Starting late in life but better than never.
i say, get an llc as a property management co, to market your properties, collect rents, hold cash, and hold your property in your name. get an umbrella policy to cover yourself. evictions and loans are easier when property is in your name.
I'm confused.. So is it recommended to have the property under your name directly or the LLC? I noticed you mentioned an umbrella policy to cover myself. would that be for if property is under my LLC or my name.
I think the IRS might have an issue if the LLC is collecting rent as income without having any assets that produce said income. If the LLC is the one invoicing rent, isn't supposed to collect and pay sales tax on each payment?
@@markpatterson8208 in the beginning stages, you are your business, it doesn't matter how many llcs, corps you have. any attorney and or judge would see through your little operation and sue you personally. although, he is correct, it starts makes sense when your portfolio is substantial, lets say approaching $200k in value, beyond any liens and insurance limits. if you have mortgages on those properties, then it doesn't matter lol.
@@kewlace no, that is incorrect. The IRS doesn't collect sales tax. Rent isn't subject to sales tax in any state that I know of, and depositing rent checks on behalf of property owners is what every property management company does everyday.
Generally, LLCs can procure financing with a loan guarantee from a member. I would suggest gathering all your questions, then sitting with a CPA and Attorney for a hour to get all of your questions answered. $500 investment ($250/ hr 2x) for a solid foundation for years to come. All the best, A CPA who invest in real estate
Robert Clark I read your profile. I’m a veteran, 90% service connected, in Miami Florida. I’m currently in the process of searching for a great lender to fund my initial investment. Contact me.
This is an old video, but I have had several hard money lenders say they only lend to LLC owners. So I've considered getting one for that reason. Just to have more options.
I jiust watched and have one shortcut recommendation. If its just one property you're seeking additional protection for and you have a personal umbrella insurance policy, you should be able to place the homeowners under a personal umbrella. This likely wouldn't work as you scale up but is good for someone starting off.
There’s no other greater joy than having financial freedom and a life free of debts, all thanks to Mr carlos, cause he made me who I am today through binary trade. He has helped me a lot with his trading strategies which helps me to earn $12,550 weekly. I really appreciate it and can't help but let others know about it because it is so suitable anyone can trade from anywhere and anythime, you can reach mr carlos on IG @carlos_1uptrades his indeed a God sent. now i dont need to be working 9-5.
As for me, I always run my ventures through an LLC. I love commercial real estate because it allows me to use leverage while providing me the protection of an LLC without triggering the due-on-sale clause.
@WESTERN NY BIGFOOT llc is allowed on commercial loans, just not residential. even if said residential is a multi family complex, it's still considered residential. you can't get a conventional loan on residential if you have an llc set up. If you obtain a conventional loan first THEN set up an llc, then you are transferring title from you to the llc. so the lender will call your loan. unless they choose to let it slide, which does happen if you're lucky. Or, from the start you could get a commercial loan on your rental property if setting up an llc is important to you. but commercial loans have higher fees and shorter terms. Or, you could just buy a commercial building and obviously get a commercial loan. The moral of the story is, if establishing an llc is not really beneficial to your situation, then you don't need to jump through hoops to set one up. if all you're concerned about it getting sued by your tenants, then just get good insurance. especially if you own your property outright.
@@ChristianC-gy1yma couple things. 1. you can get a 30 year fixed conventional loan for a rental through an llc, but rates will be much higher. 2. banks often don’t call the loan if you transfer it to an llc, but the can.
@@MacLaw3084 Most big lenders will not give you a conventional loan through an llc... But some would, yes, at higher rates. yes, I mentioned they CAN call it, though they don't always. But that is a risk investors will need to take and not worth it in my book.
Own the property yourself and "lease" it to your LLC. When the LLC is sued only things that the LLC actually owns can be up for grabs. The property does not belong to the LLC. You do a "triple net lease" for the property which makes the LLC responsible to pay all expenses related to the property as well as make the "lease" payment for the property to you out of profits. With that in mind remember that you are always responsible for your own torts. I.E. if you personally do something that causes harm etc to the tenant then of course all your belongings are up for grabs anyways. Always be properly insured and never over capitalize your LLC. I.E. if you want to invest cash into your LLC always "loan" it the cash, or as much as the government will allow you to. Something like if you put 100k in loan 80k and invest 20k. Then in the advent that the LLC is sued you only lose 20k as the LLC has to pay you its "creditor" the 80k back. Also see a lawyer/cpa before doing anything as the law might differ where you are.
Amber Kay sorry, I should clarify. Llc is needed for the hard money lender that I work with here in MN. Not sure about other lenders, just the one I work with.
Each of my properties has an LLC and I have a umbrella insurance coverage as a back up to protect assets. It costs less than $200 to set it up and transfer the deed.
The answer is yes. LLC's force you to separate business and personal. So when you do get sued(you will get sued at least once as a landlord, its very rare that you dont) your personal assets are protected from the lawsuit which will be against your LLC.
@@gavip24 Gabriella is right. My best advice is to not rent to bla.. kk people. And white people are bad too. Renting to Latin/Latina people is the best. They pay on time and don’t wanna sue bcuz they don’t want law/govt involved at all
@@charlesg7926 u do realize that Latinos are black white and or native right? I happen to be a mix so yea ur comment is stupid dumb. 🤣🤣🤣 Especially when I rent out to a mix of people.
So, we're supposed to consult a lawyer to see if there's potential legal exposure involved in owning rental homes listed in our own name? They are going to say yes, 100 times out of 100. That's how they get paid. I had an attorney on Florida who wanted to charge me $5,000 to handle the paperwork of establishing LLCs for the five rental properties I owned at the time. My supplemental umbrella insurance policy (which I would probably need anyway) covering those rentals is $600 per year. Also, no tax preparer or lawyer has been able to answer this simple question, which I have posed, many times: How much will the state licensing fees for each LLC as well as the IRS tax prep charges (tax forms must be filed for each separate LLC) cost me annually? All I get are vague guesses and shrugs.
Crazy because I actually use an LLC to start taking action... as soon as I make my investors know that an LLC has been created it creates that sense of urgency to start moving the money into an investment!
Forming an LLC is a great way to protect yourself legally. But as investors, we also need to be aware of its considerations - like lending not being almost always available for residential properties. At 4:43.
Ding ding ding! Why doesn't anyone talk about this!! A friend of mine recently schooled me on this subject of corporate credit. I want the LLC for the credit! Let's talk more about this!
@@fulldoseofdave2505 Do you seriously think you can just go ahead an open an LLC to fix your fucked up credit? Lmao every broke ass idiot lives this dream. Let me wake you up: It doesn't exist. 99% of the business credit cards you'll apply will want your ssn as the personal guarantor. Yes, you can get some credit lines from Shell or Loews or Home Depot etc but it will take your years to get to that level that will provide you decent credit limits you need to rehab a property. It's much easier and faster to fix your own credit instead.
good idea, im thinking to ope a land trust for anonymity and get umbrella insurance, and good insurance in my cars too help full coverage the max coverage i can get
If in Florida and you already owned a property and do have a substantial real estate tax cap savings; if you transfer the property to a Llc, you’ll loose that cap savings, your real estate taxes will increase. This event is like selling the property to the Llc a separate entity. Only if you already owned a property with substantial real estate tax cap savings does it matters.
Based on what you said about leverage being high as a beginner and making sure everything transfers smoothly at the bank, I believe the answer here is to proceed with caution and eventually the time comes when you have more equity or go for another rental that you want to set up an LLC. Since you clearly stated it is not required to begin.
Sounds to me like I need to talk to a lawyer, but if I had to guess, when buying residential put the property in my name and make sure I have super insurance. When buying commercial set up the LLC and have super insurance. Sounds simple to me.
I don't know if other states do this, but there is a pretty good incentive in Kansas to get an LLC, as there are not state income taxes for the individuals that own the LLC. This goes for any pass through entity in Kansas. So if you're saving more in taxes than what the LLC costs, it can be a good idea.
Pass-through means that the income from the entity is reported on your personal tax return. That is IRS code. All states allow income from LLCs to pass through to your federal personal return. States that have income tax allow for pass-through treatment as well.
I'll be honest... LLC or not, you're right, I'm scared. Really want to get into my first rental property, but it sure takes some courage to take that leap. I'm 27 and and my wife and I built our own house from scratch that we're doing a cash-out refinance in order to finish some of the house along with paying off a personal loan that used to help fund some of the building process. The refinance is going to leave me with about $20k extra after improvements... I was hoping to use this cash as a down payment to get my first rental property, but trying to find a profitable first property is honestly a bit overwhelming. How do you find a good one, what about financing, do you look in your own area, do you look at other states, take care of it yourself since it's just 1 or hire a property manager??? So much to consider. Also, since we built the house ourselves, nail by nail, we've got about $70k of equity into it that we could use down the road to fund down payments for additional properties, so we don't really have to use the BRRR method. The downside to doing that though is that we'd be leveraging our primary residence, which (to us) is kind of like our baby. So that's a bit scary too.
1. Buy one near to you so you can keep an eye on it. 2. Put 20% down so you don't pay PMI. 3. Hire a rental property management company, and a good one at that. 4. Stop procrastinating.
STEP 1. Watch 100 Bigger Pockets videos. STEP 2. After that, if you do not have enough motivation, or enough knowledge, to begin, then I’m sorry real estate investing is not for you.
The problem is attorneys and CPAs don't know either. Ask 100 of them and you'll get 100 different answers. From what I've read LLC in most states don't protect you unless there's multiple owners of the LLC(family excluded) and thus setup as a real business, not setup for the intent of protecting your assets. I could be wrong. As far as leverage helping you, it won't if they pierce the veil. Your cars, savings, all rentals will be taken if the lawsuit settles for more than your insurance covers. $2,000,000 lawsuit and you only have 1,000,000 insurance means you're selling everything you own to pay the difference. Again, I could be wrong, I'm no expert.
I believe you have been misinformed or you have misinterpreted the information you have reviewed. At least in the state where I reside, there is no obligation for there to be multiple members in order for the LLC to provide protection to the member. In other words, a single-member LLC can be a perfectly valid business structure that provides protection to the single member against judgments in litigation. Regarding "piercing the corporate veil", yes, if it is pierced, then your personal assets can be reached. However, the corporate veil will only be pierced in situations where you fail to observe the required formalities. For example, if you fail to pay your annual registration fee with the state where you have registered the LLC, you could be out of compliance and your corporate protection can disappear. More commonly, the corporate veil is pierced when the member treats the LLC like it is his or her own personal piggy bank. When you start paying for dinners out with your spouse or for your gym membership or for family vacations or your cable bill or your lawn service, etc. using your business credit card or using automatic payments drawn on your business accounts, then you enhance the risk that the corporate veil will be pierced. The rationale here is that since you are not drawing distinctions between corporate funds and personal funds, then a creditor shouldn't have to draw distinctions between which pot he can pick from when trying to satisfy his/her judgment. Also, if your LLC is severely under capitalized or engages in fraudulent practices, then there's a good chance that your corporate veil will be pierced. Hopefully this provide you with some comfort.
l We have multiple rental properties, our Attorney had us group ownership of our rental properties into several LLC’s, for limiting exposure to liability. The cash flow from the rental llc’s pass through a “Holdings Account” which is owned by us and all of our children. Our children only share 1% of the Holdings LLC. There is precedence in the courts that punitive action against one owner of this type of LLC cannot happen because of the multiple owners of the LLC. This structure works for us. Do your own homework.
Thank you ,, this is Great ... LLCs and incorporating them could be and are very confusing . Especially for me . So many things to consider what exactly will it be used for etc... thank you for the insights!!
Curious in Texas, they can't take your primary home, so do I still need an LLC for my rentals? And how do I get the property off my personal credit report and into an LLC (if I need one) without triggering due clause payable?
Your more likely to have a non paying tenant then get sued by a tenant. If a tenant gets hurt at your property, your liability coverage on your landlord policy will take care of it.
Ryan Fagan I have no llc and I own thirteen properties and $2.5 million in equity. I was too busy buying properties to make llc and just quickly got insurance
I don't see how... It's only a couple hundred bucks... If you let such a tiny obstacle stop you then your probably better off in mom and dad's basement.
What about tax saving? I have a well paid job and if I get rental income it will all be taxed at 40%. If i get a LLC it is only (income) taxed when i draw a salary from the business and I don't necessarily have to do that. I can keep the money on the books and buy another house with it. I can then make my parents employees on paper and extract money out of the business every year up to a point tax free. I think tax is 19% on profits on a LLC owned property. Might be 11% not sure. I am buying my first property without an LLC but when I buy more I will buy through LLC. I am in the UK by the way.
Question for the example at 4:09 ; Would losing a lawsuit require the collection to extend over to other properties owned by “ mainstream llc “ If the worth of the property is not 500,000 to cover the expenses due ? I understand that this is not the case of you have multiple llc but what if all properties are under the same llc?
Any answer other than YES... is wrong. There is no other answer. NOTE: the LLC should be formed under a jurisdiction that provides "charging order" protection under the statute. Moreover, EACH property should be held by a different LLC so as to silo each asset from the liabilities of the others. If you have or plan to have multiple properties, a Series LLC makes a TON of sense as you only have to file ONCE and can spin off any number of sub-series. Also as a general matter: piercing the corporate veil is both very difficult and is a disfavored remedy under the law.
Organizing in a jurisdiction that provides charging order protection isn't going to do you any good if the jurisdiction you're actually doing business in doesn't defer to the rules of other jurisdictions. Also, just because a state has charging order protection, doesn't mean it has charging order protection for single member llc's. These facts combined with the hundreds of dollars extra per year that some states charge llcs, means that there are many situations where you are better off a sole proprietorship.
Series LLC is only good for in a handful of states. For instance, you can't do that in California. If someone wants to sue you, they'll sue you regardless of which rocks you hide under. Do you really expect the judge to buy into your LLC pyramid scheme? All of those LLC's have one owner at the end, which is you. When the lawyer asks you in front of the judge about who owns these legal entities, will you say "I don't know?" At the end of the day, you cannot protect your personal wealth if you lose the lawsuit. They'll garnish your wages and/or tax refund at the very least.
Boss Brandon, you the only reason i joined BP, you inspire me a lot!. you are awesome, youre much better than other host in bp webinar. i like you the way you discuss, very specific.
Regarding the comments on leverage as it relates to asset protection.. wouldn’t you want to put your property into an LLC if you only had $10,000 in equity? That way it’s all a lawyer could go after in the event if a lawsuit. But if the rental property in which you only have $10,000 in equity was not in an LLC, the lawyer could go after your personal assets instead of the $10,000. Maybe I’m overlooking something? If so please clear it up for me. Regardless, great video per usual! I will keep tuning in.
Wow you answer it perfectly for me!!! Thanks Brandon!!! You are truly a blessing I truly his world.... you do deserve the wealth. What you sow it was you shall reap!!!!!! Thanks!!!!!
Let's assume I have 3 rental properties in California. The minimum tax for LLC in California is $800 => 3x800 = $2400 yearly. With that much money, I can buy a $10 million umbrella policy. Any thought guys? $10 million umbrella policy vs set up 3 LLC with extra expenses and higher interest rate.
highly leverged in CA means that you have $200k of equity on day 1 on a $1M house. What do you think about having a parent company in a difference state? This could make it harder to litigate and collect perhaps?
I listen to an attorney the other day talk about owning properties in the Wyoming trust that might be out of state and his sense was that it's not a subject that has been highly litigated so a precedence doesn't necessarily exist but it probably depends on the two states specifically, and as well as whether or not you're in state court or federal court.
What about when utilizing business credit... ? It would be a way higher loan amount (10 - 100 times larger) than personal credit loans... utilization is taken as a good thing and they are non secure loans...
Well, whether or not an LLC, one thing I *wouldn't* do is buy property in my own name. Something happens to someone on the property, they can personally sue you.
awesome topic! i believe an LLC cost is deductible too... Also maybe you can do a topic on how to manage rental properties when you live across the country from them. Being in California is not exactly conducive to people starting out in real estate.
Bryan Shealy Not all the costs. Just an example, if you have an LLC, you need 2 umbrella policies instead of 1. You need a 'corporate umbrella' and you still need your personal umbrella. Your personal umbrella won't cover your LLC. The corporate one is a lot more expensive.
Bryan Shealy Couldn't you find deals online just as you would normally except you would look all over the country??? Then fly out there to inspect, close the deal and hire a property management company. Then go back to your home state.
you know that would be a good thing to cover on the channel here. how to find properties online, although I've been hearing a lot about how the best deals don't show online. you have to look at off market, but in that situation how do you look out of state?
Sounds like the LLC is really only worth it if you have assets to protect outside of the rental property itself. Have a property leveraged only protects you from someone forcing you to sell the property to pay a judgement, it doesn't protect the rest of your assets outside of the property. Insurance will only cover up to a certain amount, and then only if the insurance company isn't able to prove that you were negligent. If you get a judgement against you that is more than you're insured for, you're out of luck and it's likely that you will be on the hook for the balance. So, in the end, whether your leveraged or have insurance or not, an LLC makes sense if you have significant assets outside of the rental property that would be at risk. Now, if you only have a few bucks to your name and don't own a home or other assets of significant value and just have the one rental property, then by all mean, skip the LLC, leverage the property and buy lots of insurance. As Brandon said, you can't get blood from a stone.
Super hard to get loans after an llc. You have to get commercial loans. Which means higher rates and costs. Also they call the loans like every 5 years and you have to requalify . Ridiculous.
can get tricky if your LLC money goes into a account that is used for personal stuff you may have opened a box to allowing that money to be a target of a lawsuit .
Can you make a video of the downside of an LLC for a small investor. I have found many downsides and questions regarding real world protection that comes from an LLC
Fantastic content guys. Your videos are VERY relevant and super easy to consume. So many question I have a new investor you have addressed in full or at least in part in one of you videos. Thank you!!
As an owner of a service business that is set up as a single member LLC I can validate this information to be correct. I will not be setting up another LLC for my real estate investments.
it can be a lot easier to obtain some types of financing (particularly your standard residential financing) if all of your income is reported within an entity like that, as it becomes a singular income source with a historical average instead of numerous individual purchases/sales.
I have $2 million in my retirement (IRA). I just created an LLC. My intention is to invest in rental property. I am new to rental property investment. Should I take the loan using the LLC or take a personal loan? You advice is much appreciated.
Awesome! The sad reality is we live in a world of litigation.. at some point you will experience it and you must be properly prepared. Thanks for the tips, Brandon!
Chris M It's fun to be on the suing end though especially up against massive corporations like Walmart and Mcdonalds. I can go into Wal-Mart, slip and break my wrist and sue them for not having a "wet floor" sign and make like $10,000.
Pat L You better show the judge a broken wrist worth $10,000. Then doctor gets 1/3 lawyer gets 1/3 you get 1/3. And you'll have a broken wrist, and your girlfriend will ask you why you weren't paying attention.
Personally, I think the legal system is getting a little out of control. Everything is getting tied up in courts... they're becoming too powerful, especially in politics. I watched a Grant Cardone video recently where he was emphasizing that the single digit millionaire isn't safe legally. What? That's ridiculous! We need some kind of safety net or government program to represent people and businesses without millions of dollars in the bank in the legal system... it's hugely unfair currently.
Chris M It is out of control. That's why 99% of cases are settled outside of court. It costs tens of thousands of dollars to go to court to even defend yourself against bullshit claims.
Pat L Something needs to change. These days career snipers will come out of nowhere and say you did something 20 years ago and your entire career is ended.. it is getting insane. New systems need to be formed to protect people in this hyper litigation age.
Glad I watched this. Solid information.
About to turn 40 and we are in the process of buying our first home.
Following up by paying off all other debt and then buying investment properties.
Starting late in life but better than never.
No, you're not late. You're on time, buddy!!! BTW most millionaires became millionaires in their 40s and 50s🎉
i say, get an llc as a property management co, to market your properties, collect rents, hold cash, and hold your property in your name. get an umbrella policy to cover yourself. evictions and loans are easier when property is in your name.
I'm confused.. So is it recommended to have the property under your name directly or the LLC? I noticed you mentioned an umbrella policy to cover myself. would that be for if property is under my LLC or my name.
I think the IRS might have an issue if the LLC is collecting rent as income without having any assets that produce said income. If the LLC is the one invoicing rent, isn't supposed to collect and pay sales tax on each payment?
@@markpatterson8208 in the beginning stages, you are your business, it doesn't matter how many llcs, corps you have. any attorney and or judge would see through your little operation and sue you personally. although, he is correct, it starts makes sense when your portfolio is substantial, lets say approaching $200k in value, beyond any liens and insurance limits. if you have mortgages on those properties, then it doesn't matter lol.
@@kewlace I'm pretty sure the LLC would just be a Property Management company which doesn't need to own assets to accept checks from tenants.
@@kewlace no, that is incorrect. The IRS doesn't collect sales tax. Rent isn't subject to sales tax in any state that I know of, and depositing rent checks on behalf of property owners is what every property management company does everyday.
Generally, LLCs can procure financing with a loan guarantee from a member. I would suggest gathering all your questions, then sitting with a CPA and Attorney for a hour to get all of your questions answered. $500 investment ($250/ hr 2x) for a solid foundation for years to come.
All the best,
A CPA who invest in real estate
Robert Clark I read your profile. I’m a veteran, 90% service connected, in Miami Florida. I’m currently in the process of searching for a great lender to fund my initial investment. Contact me.
This is an old video, but I have had several hard money lenders say they only lend to LLC owners. So I've considered getting one for that reason. Just to have more options.
Really enjoy these kinds of videos where you talk through a specific subject instead of broader overall subjects
"Talk to an attorney" is a great answer. Thanks Brandon.
As an attorney, I would recommend getting an LLC.
Well, you make good money doing it. Pretty much assumed you'd push LLC's.
As a mechanic I recommend getting the blinker fluid changed regularly
As a Sales person I recommend you finance a $100,000 car at 18.99% APR meanwhile you only make $40k a year 😏
@@dairysmoreta6108 Sir, an individual can form an LLC on their own without hiring an attorney. It’s simplistic.
@@dairysmoreta6108 Brutal LOL
I jiust watched and have one shortcut recommendation. If its just one property you're seeking additional protection for and you have a personal umbrella insurance policy, you should be able to place the homeowners under a personal umbrella. This likely wouldn't work as you scale up but is good for someone starting off.
Only graham tells me to smash that like button
Straight facts
On god bro
Facts dude
YES KING
There’s no other greater joy than having financial freedom and a life free of debts, all thanks to Mr carlos, cause he made me who I am today through binary trade. He has helped me a lot with his trading strategies which helps me to earn $12,550 weekly. I really appreciate it and can't help but let others know about it because it is so suitable anyone can trade from anywhere and anythime, you can reach mr carlos on IG @carlos_1uptrades his indeed a God sent. now i dont need to be working 9-5.
As for me, I always run my ventures through an LLC. I love commercial real estate because it allows me to use leverage while providing me the protection of an LLC without triggering the due-on-sale clause.
How do you not trigger it
@WESTERN NY BIGFOOT llc is allowed on commercial loans, just not residential. even if said residential is a multi family complex, it's still considered residential. you can't get a conventional loan on residential if you have an llc set up. If you obtain a conventional loan first THEN set up an llc, then you are transferring title from you to the llc. so the lender will call your loan. unless they choose to let it slide, which does happen if you're lucky.
Or, from the start you could get a commercial loan on your rental property if setting up an llc is important to you. but commercial loans have higher fees and shorter terms.
Or, you could just buy a commercial building and obviously get a commercial loan.
The moral of the story is, if establishing an llc is not really beneficial to your situation, then you don't need to jump through hoops to set one up. if all you're concerned about it getting sued by your tenants, then just get good insurance. especially if you own your property outright.
@@ChristianC-gy1yma couple things. 1. you can get a 30 year fixed conventional loan for a rental through an llc, but rates will be much higher. 2. banks often don’t call the loan if you transfer it to an llc, but the can.
@@MacLaw3084 Most big lenders will not give you a conventional loan through an llc... But some would, yes, at higher rates. yes, I mentioned they CAN call it, though they don't always. But that is a risk investors will need to take and not worth it in my book.
Own the property yourself and "lease" it to your LLC. When the LLC is sued only things that the LLC actually owns can be up for grabs. The property does not belong to the LLC. You do a "triple net lease" for the property which makes the LLC responsible to pay all expenses related to the property as well as make the "lease" payment for the property to you out of profits. With that in mind remember that you are always responsible for your own torts. I.E. if you personally do something that causes harm etc to the tenant then of course all your belongings are up for grabs anyways. Always be properly insured and never over capitalize your LLC. I.E. if you want to invest cash into your LLC always "loan" it the cash, or as much as the government will allow you to. Something like if you put 100k in loan 80k and invest 20k. Then in the advent that the LLC is sued you only lose 20k as the LLC has to pay you its "creditor" the 80k back. Also see a lawyer/cpa before doing anything as the law might differ where you are.
Whoa that's the best advice sense I heard about an LLC
This is a great idea
Most likely won't work.. It can be easily pierced because you own the LLC
A business entity is needed for hard money loan under 100k in MN, so that's why I set up a LLC.
That’s not true
Amber Kay sorry, I should clarify. Llc is needed for the hard money lender that I work with here in MN. Not sure about other lenders, just the one I work with.
I’m able to qualify for loans much easier for a rental property in Mn here with an llc.
Each of my properties has an LLC and I have a umbrella insurance coverage as a back up to protect assets. It costs less than $200 to set it up and transfer the deed.
Don't use a Quit Claim Deed. You will blow up your title insurance if you don't transfer title properly.
The answer is yes. LLC's force you to separate business and personal. So when you do get sued(you will get sued at least once as a landlord, its very rare that you dont) your personal assets are protected from the lawsuit which will be against your LLC.
I heard you can pierce an LLC though
@@gavip24 Gabriella is right. My best advice is to not rent to bla.. kk people. And white people are bad too. Renting to Latin/Latina people is the best. They pay on time and don’t wanna sue bcuz they don’t want law/govt involved at all
@@charlesg7926 🤣🤣🤣 what kind of comment is this? Lmaoooo
@@gavip24 The politically incorrect but true kind. Hey, at least I’m complimenting Latin people! 😘
@@charlesg7926 u do realize that Latinos are black white and or native right? I happen to be a mix so yea ur comment is stupid dumb. 🤣🤣🤣 Especially when I rent out to a mix of people.
1:23. Press that a few times
No cap
So, we're supposed to consult a lawyer to see if there's potential legal exposure involved in owning rental homes listed in our own name? They are going to say yes, 100 times out of 100. That's how they get paid. I had an attorney on Florida who wanted to charge me $5,000 to handle the paperwork of establishing LLCs for the five rental properties I owned at the time. My supplemental umbrella insurance policy (which I would probably need anyway) covering those rentals is $600 per year. Also, no tax preparer or lawyer has been able to answer this simple question, which I have posed, many times: How much will the state licensing fees for each LLC as well as the IRS tax prep charges (tax forms must be filed for each separate LLC) cost me annually? All I get are vague guesses and shrugs.
Crazy because I actually use an LLC to start taking action... as soon as I make my investors know that an LLC has been created it creates that sense of urgency to start moving the money into an investment!
Forming an LLC is a great way to protect yourself legally. But as investors, we also need to be aware of its considerations - like lending not being almost always available for residential properties.
At 4:43.
Just want to add to your point LLC's give you the abilities to gain business credit to grow.
Ding ding ding! Why doesn't anyone talk about this!! A friend of mine recently schooled me on this subject of corporate credit. I want the LLC for the credit! Let's talk more about this!
And be sure to take out a business credit card and pay all related business expenses with it to further build your LLCs power.
@@fulldoseofdave2505 Do you seriously think you can just go ahead an open an LLC to fix your fucked up credit? Lmao every broke ass idiot lives this dream. Let me wake you up: It doesn't exist. 99% of the business credit cards you'll apply will want your ssn as the personal guarantor. Yes, you can get some credit lines from Shell or Loews or Home Depot etc but it will take your years to get to that level that will provide you decent credit limits you need to rehab a property. It's much easier and faster to fix your own credit instead.
@@bluerabbit1236 who said I wanted to fix my credit and furthermore who said I was broke? Why are you mad at me? Lol calm bbn it down meow
@@bluerabbit1236 you sound mad as heck 🤣 😂. Seems someone bent you over and smashed way too hard.
In California there is an annual, at tax time, flat fee of $800. My CPA told me I could get a lot of insurance for $800 per year.
good idea, im thinking to ope a land trust for anonymity and get umbrella insurance, and good insurance in my cars too help full coverage the max coverage i can get
The name of your Cali CPA would be helpful... And a contract number.
California charges $800 a year FOREVER. Get the insurance.
SUPER helpful content!! Thank you so much Brandon.
Simple and straight forward. Thanks much.
Wow. Easily the best biggerpockets video I've watched
If in Florida and you already owned a property and do have a substantial real estate tax cap savings; if you transfer the property to a Llc, you’ll loose that cap savings, your real estate taxes will increase. This event is like selling the property to the Llc a separate entity. Only if you already owned a property with substantial real estate tax cap savings does it matters.
Based on what you said about leverage being high as a beginner and making sure everything transfers smoothly at the bank, I believe the answer here is to proceed with caution and eventually the time comes when you have more equity or go for another rental that you want to set up an LLC. Since you clearly stated it is not required to begin.
This may be the best LLC video out there 💯
simple yet accurate explanation
Sounds to me like I need to talk to a lawyer, but if I had to guess, when buying residential put the property in my name and make sure I have super insurance. When buying commercial set up the LLC and have super insurance. Sounds simple to me.
Zoom in, zoom out, zoom in, zoom in, zoom out, repeat.
Straight badass effects. Award winning.
Lol so true. 😆
Now I can't unsee it.
OMG it is driving me crazy.
But only partly lol
I don't know if other states do this, but there is a pretty good incentive in Kansas to get an LLC, as there are not state income taxes for the individuals that own the LLC. This goes for any pass through entity in Kansas. So if you're saving more in taxes than what the LLC costs, it can be a good idea.
Pass-through means that the income from the entity is reported on your personal tax return. That is IRS code. All states allow income from LLCs to pass through to your federal personal return. States that have income tax allow for pass-through treatment as well.
I'll be honest... LLC or not, you're right, I'm scared. Really want to get into my first rental property, but it sure takes some courage to take that leap.
I'm 27 and and my wife and I built our own house from scratch that we're doing a cash-out refinance in order to finish some of the house along with paying off a personal loan that used to help fund some of the building process. The refinance is going to leave me with about $20k extra after improvements... I was hoping to use this cash as a down payment to get my first rental property, but trying to find a profitable first property is honestly a bit overwhelming. How do you find a good one, what about financing, do you look in your own area, do you look at other states, take care of it yourself since it's just 1 or hire a property manager??? So much to consider. Also, since we built the house ourselves, nail by nail, we've got about $70k of equity into it that we could use down the road to fund down payments for additional properties, so we don't really have to use the BRRR method. The downside to doing that though is that we'd be leveraging our primary residence, which (to us) is kind of like our baby. So that's a bit scary too.
1. Buy one near to you so you can keep an eye on it.
2. Put 20% down so you don't pay PMI.
3. Hire a rental property management company, and a good one at that.
4. Stop procrastinating.
Impressive! That skill set will kill it in real estate!
Get liability insurance when you insured the property, then get an umbrella which pays up when the liability insurance is all gone. Easy.
@@Notme-tq4xs can you explain this in english please
STEP 1. Watch 100 Bigger Pockets videos.
STEP 2. After that, if you do not have enough motivation, or enough knowledge, to begin, then I’m sorry real estate investing is not for you.
The problem is attorneys and CPAs don't know either. Ask 100 of them and you'll get 100 different answers. From what I've read LLC in most states don't protect you unless there's multiple owners of the LLC(family excluded) and thus setup as a real business, not setup for the intent of protecting your assets. I could be wrong. As far as leverage helping you, it won't if they pierce the veil. Your cars, savings, all rentals will be taken if the lawsuit settles for more than your insurance covers. $2,000,000 lawsuit and you only have 1,000,000 insurance means you're selling everything you own to pay the difference. Again, I could be wrong, I'm no expert.
I believe you have been misinformed or you have misinterpreted the information you have reviewed. At least in the state where I reside, there is no obligation for there to be multiple members in order for the LLC to provide protection to the member. In other words, a single-member LLC can be a perfectly valid business structure that provides protection to the single member against judgments in litigation. Regarding "piercing the corporate veil", yes, if it is pierced, then your personal assets can be reached. However, the corporate veil will only be pierced in situations where you fail to observe the required formalities. For example, if you fail to pay your annual registration fee with the state where you have registered the LLC, you could be out of compliance and your corporate protection can disappear. More commonly, the corporate veil is pierced when the member treats the LLC like it is his or her own personal piggy bank. When you start paying for dinners out with your spouse or for your gym membership or for family vacations or your cable bill or your lawn service, etc. using your business credit card or using automatic payments drawn on your business accounts, then you enhance the risk that the corporate veil will be pierced. The rationale here is that since you are not drawing distinctions between corporate funds and personal funds, then a creditor shouldn't have to draw distinctions between which pot he can pick from when trying to satisfy his/her judgment. Also, if your LLC is severely under capitalized or engages in fraudulent practices, then there's a good chance that your corporate veil will be pierced. Hopefully this provide you with some comfort.
l We have multiple rental properties, our Attorney had us group ownership of our rental properties into several LLC’s, for limiting exposure to liability. The cash flow from the rental llc’s pass through a “Holdings Account” which is owned by us and all of our children. Our children only share 1% of the Holdings LLC. There is precedence in the courts that punitive action against one owner of this type of LLC cannot happen because of the multiple owners of the LLC. This structure works for us. Do your own homework.
Annnette Adamson where are you located?
@@MrSethmo13 great answer
@@anujgupta9293 thank you!
Great job Brandon You killed it 👊
Great video. I’ve been reading a lot on LLCs, and this summarized many hours of research.
I second that!
An umbrella insurance policy may be enough for most people with multiple properties.
Great information and easy to understand. Thank you.
You should always,................. ALWAYs use an LLC to protect your identity of your ownership to the property!!!!
What stops people from googleing that LLC and finding the owner
@@5Hessens the anonymity clause attached to llc's in states like WY, NV, DE
You could ask your insurance agent if an umbrella is right for you.
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Thank you ,, this is Great ... LLCs and incorporating them could be and are very confusing . Especially for me . So many things to consider what exactly will it be used for etc... thank you for the insights!!
Curious in Texas, they can't take your primary home, so do I still need an LLC for my rentals? And how do I get the property off my personal credit report and into an LLC (if I need one) without triggering due clause payable?
Your more likely to have a non paying tenant then get sued by a tenant. If a tenant gets hurt at your property, your liability coverage on your landlord policy will take care of it.
A lot of people do hide behind the LLC question as an excuse of not getting started. Totally agree. This was great info.
Ryan Fagan I have no llc and I own thirteen properties and $2.5 million in equity. I was too busy buying properties to make llc and just quickly got insurance
@@MetalBum Do you have $million for each rental and did you ever think to open a land trust for anonymity?
I don't see how... It's only a couple hundred bucks... If you let such a tiny obstacle stop you then your probably better off in mom and dad's basement.
What about tax saving? I have a well paid job and if I get rental income it will all be taxed at 40%. If i get a LLC it is only (income) taxed when i draw a salary from the business and I don't necessarily have to do that. I can keep the money on the books and buy another house with it. I can then make my parents employees on paper and extract money out of the business every year up to a point tax free. I think tax is 19% on profits on a LLC owned property. Might be 11% not sure. I am buying my first property without an LLC but when I buy more I will buy through LLC. I am in the UK by the way.
It’s a pass thru so it will be taxed personally so if you are in a 40% tax bracket you will still pay 40%
You’re confusing it for an S corp
There is a point where until you are large enough there is no point in forming a company. But have good insurance and nax out leverage
Good point, I’m highly leveraged. So with heavy insurance I feel like I’m good to go.
OMG!!!! I've been struggling with this question in my head and researching and feeling stuck. Thank you so much for answering this question.
Thanks Brandon, real info here
Question for the example at 4:09 ; Would losing a lawsuit require the collection to extend over to other properties owned by “ mainstream llc “
If the worth of the property is not 500,000 to cover the expenses due ? I understand that this is not the case of you have multiple llc but what if all properties are under the same llc?
Any answer other than YES... is wrong. There is no other answer. NOTE: the LLC should be formed under a jurisdiction that provides "charging order" protection under the statute. Moreover, EACH property should be held by a different LLC so as to silo each asset from the liabilities of the others. If you have or plan to have multiple properties, a Series LLC makes a TON of sense as you only have to file ONCE and can spin off any number of sub-series.
Also as a general matter: piercing the corporate veil is both very difficult and is a disfavored remedy under the law.
Can you break it down what you mean by a series LLC? Is that different from a regular LLC
Organizing in a jurisdiction that provides charging order protection isn't going to do you any good if the jurisdiction you're actually doing business in doesn't defer to the rules of other jurisdictions. Also, just because a state has charging order protection, doesn't mean it has charging order protection for single member llc's. These facts combined with the hundreds of dollars extra per year that some states charge llcs, means that there are many situations where you are better off a sole proprietorship.
Series LLC is only good for in a handful of states. For instance, you can't do that in California. If someone wants to sue you, they'll sue you regardless of which rocks you hide under. Do you really expect the judge to buy into your LLC pyramid scheme? All of those LLC's have one owner at the end, which is you. When the lawyer asks you in front of the judge about who owns these legal entities, will you say "I don't know?" At the end of the day, you cannot protect your personal wealth if you lose the lawsuit. They'll garnish your wages and/or tax refund at the very least.
@@road2wealthrealty series llc an LLC that owns another llc known as a subsidiary
@@bluerabbit1236 trick is don't go to California😂 that place sucks.
We have an extra umbrella insurance policy covering all our rental properties, which are not in an LLC. Think it was $500 for the year.
I would like to hear more about this as well!
An umbrella policy is a great idea, but it only protects against certain stuff.
Thats it! small investors dont need a llc. all you need is a 1m umbrella policy. when your portfolio grows up to 10, 20 properties, do it.
What is it ?
I also have an insurance umbrella for an additional $1m.
Boss Brandon, you the only reason i joined BP, you inspire me a lot!. you are awesome, youre much better than other host in bp webinar. i like you the way you discuss, very specific.
Regarding the comments on leverage as it relates to asset protection.. wouldn’t you want to put your property into an LLC if you only had $10,000 in equity? That way it’s all a lawyer could go after in the event if a lawsuit. But if the rental property in which you only have $10,000 in equity was not in an LLC, the lawyer could go after your personal assets instead of the $10,000. Maybe I’m overlooking something? If so please clear it up for me. Regardless, great video per usual! I will keep tuning in.
This was VERY helpful. Thank you for all the great, informative content!
How many properties should you limit per LLC? Obviously, as your recommendation
Awesome you included the leverage as a liability shield. No blood in the water that way.
If the tenant sues for falling on snow and you have a management company that was supposed to shovel the snow could you sue the management company?
Wow you answer it perfectly for me!!! Thanks Brandon!!! You are truly a blessing I truly his world.... you do deserve the wealth.
What you sow it was you shall reap!!!!!! Thanks!!!!!
San Antonio has some good beans... and good investment properties.
Let's assume I have 3 rental properties in California. The minimum tax for LLC in California is $800 => 3x800 = $2400 yearly. With that much money, I can buy a $10 million umbrella policy. Any thought guys? $10 million umbrella policy vs set up 3 LLC with extra expenses and higher interest rate.
I got the umbrella. Very easy decision
highly leverged in CA means that you have $200k of equity on day 1 on a $1M house. What do you think about having a parent company in a difference state? This could make it harder to litigate and collect perhaps?
I listen to an attorney the other day talk about owning properties in the Wyoming trust that might be out of state and his sense was that it's not a subject that has been highly litigated so a precedence doesn't necessarily exist but it probably depends on the two states specifically, and as well as whether or not you're in state court or federal court.
What about when utilizing business credit... ? It would be a way higher loan amount (10 - 100 times larger) than personal credit loans... utilization is taken as a good thing and they are non secure loans...
Well, whether or not an LLC, one thing I *wouldn't* do is buy property in my own name. Something happens to someone on the property, they can personally sue you.
awesome topic! i believe an LLC cost is deductible too... Also maybe you can do a topic on how to manage rental properties when you live across the country from them. Being in California is not exactly conducive to people starting out in real estate.
Bryan Shealy Not all the costs. Just an example, if you have an LLC, you need 2 umbrella policies instead of 1. You need a 'corporate umbrella' and you still need your personal umbrella. Your personal umbrella won't cover your LLC. The corporate one is a lot more expensive.
Bryan Shealy
Couldn't you find deals online just as you would normally except you would look all over the country???
Then fly out there to inspect, close the deal and hire a property management company. Then go back to your home state.
you know that would be a good thing to cover on the channel here. how to find properties online, although I've been hearing a lot about how the best deals don't show online. you have to look at off market, but in that situation how do you look out of state?
Bryan Shealy
Connections with local agents who want to make a commission...i dont know how else
hmm so i suppose find the market then start cold calling agents for ugly listings?
Sometimes a simple personal umbrella policy is the answer
Growing your real estate portfolio is hard with llc. I am learning now. Commercial loans are ridiculous.
Wow and I just created a llc SMH
Should you have a separate LLC for each property? I have four and I’m hoping to buy another one fairly soon.
Hell no.
Yes there are many builder that have the property address as llc
no, get liability insurance
Yes.
As a realestate investor. Yes
Sounds like the LLC is really only worth it if you have assets to protect outside of the rental property itself. Have a property leveraged only protects you from someone forcing you to sell the property to pay a judgement, it doesn't protect the rest of your assets outside of the property. Insurance will only cover up to a certain amount, and then only if the insurance company isn't able to prove that you were negligent. If you get a judgement against you that is more than you're insured for, you're out of luck and it's likely that you will be on the hook for the balance. So, in the end, whether your leveraged or have insurance or not, an LLC makes sense if you have significant assets outside of the rental property that would be at risk. Now, if you only have a few bucks to your name and don't own a home or other assets of significant value and just have the one rental property, then by all mean, skip the LLC, leverage the property and buy lots of insurance. As Brandon said, you can't get blood from a stone.
Super hard to get loans after an llc.
You have to get commercial loans. Which means higher rates and costs.
Also they call the loans like every 5 years and you have to requalify . Ridiculous.
can get tricky if your LLC money goes into a account that is used for personal stuff you may have opened a box to allowing that money to be a target of a lawsuit .
Can you make a video of the downside of an LLC for a small investor. I have found many downsides and questions regarding real world protection that comes from an LLC
Great content. Ive subscribed and I love your candid discussions. I appreciate your content.
Amazing video. I’m not making any excuses!
Fantastic content guys. Your videos are VERY relevant and super easy to consume. So many question I have a new investor you have addressed in full or at least in part in one of you videos. Thank you!!
Perfect timing on this video. I have been working on limiting my liability this week. 😁
As an owner of a service business that is set up as a single member LLC I can validate this information to be correct. I will not be setting up another LLC for my real estate investments.
Excellent VIDEO. Learned a lot. Thanks.
Some state jurisdictions require a single member LLC to file a return (I.e. CA)
“Eating cold beans” is the new “watching dancing with the stars”
cold beans "under a bridge", "with the pigeons"!!
What ever happened to "eating government cheese... In a van, down by the river!" ?
...or like avocado toast.
Good Day, and Thank You!
3:18 if tenant slips from the stairs, can they really sue the landlord? What if the stairs had carpet? Just asking
After Watching this I got to step up my game!
So good man! I love you!
Everytime Brandon started talking about "cold beans" the crows started crowing lol
Lmao
Super helpful. So many questions and concerns validated.
😂
Good info. Thanks Brandon
What about putting the property into a land trust?
Good info, and to the point. Thanks
Brandon, don’t some states tax you on the transfer from a property held in your name to an LLC?
Thanks, can you talk about using LLC with self directed ira?
it can be a lot easier to obtain some types of financing (particularly your standard residential financing) if all of your income is reported within an entity like that, as it becomes a singular income source with a historical average instead of numerous individual purchases/sales.
I love you man!! thanks for your guidance!!
Do you have llc bt!?
If not in an llc
Can they go attack future wages to pay off any liabilities from lawsuit?!
I like the tax benefits for llc.
Great summary of pros and cons. Mahalo! “🤙🏽”
Hi, may someone clarify what type of insurance Graham was talking about at 9:30 ?
Thank you!
Thanks very informative
I have $2 million in my retirement (IRA). I just created an LLC. My intention is to invest in rental property. I am new to rental property investment. Should I take the loan using the LLC or take a personal loan? You advice is much appreciated.
Awesome! The sad reality is we live in a world of litigation.. at some point you will experience it and you must be properly prepared. Thanks for the tips, Brandon!
Chris M
It's fun to be on the suing end though especially up against massive corporations like Walmart and Mcdonalds.
I can go into Wal-Mart, slip and break my wrist and sue them for not having a "wet floor" sign and make like $10,000.
Pat L
You better show the judge a broken wrist worth $10,000. Then doctor gets 1/3 lawyer gets 1/3 you get 1/3. And you'll have a broken wrist, and your girlfriend will ask you why you weren't paying attention.
Personally, I think the legal system is getting a little out of control. Everything is getting tied up in courts... they're becoming too powerful, especially in politics. I watched a Grant Cardone video recently where he was emphasizing that the single digit millionaire isn't safe legally. What? That's ridiculous! We need some kind of safety net or government program to represent people and businesses without millions of dollars in the bank in the legal system... it's hugely unfair currently.
Chris M
It is out of control. That's why 99% of cases are settled outside of court.
It costs tens of thousands of dollars to go to court to even defend yourself against bullshit claims.
Pat L Something needs to change. These days career snipers will come out of nowhere and say you did something 20 years ago and your entire career is ended.. it is getting insane. New systems need to be formed to protect people in this hyper litigation age.
Can you transfer your mortgage loan to a trust fund????