In today's show, Larry and Kandas discussed asset protection. They talked about different types of entities, its pros and cons, and what you need to set up your business. Don't miss this episode!
Welcome to BRAG Radio which is all about being rich and generous. Every week your hosts Kandas and bestselling author Larry Goins will show you how to be rich and generous by investing in real estate. Broadcasting around the world on the BRAG Radio Network from the flagship station WBT in beautiful uptown Charlotte, here are your hosts the rock stars of real estate; Larry and Kandas.
Larry: Hello, hello, hello. How are you doing?
Kandas: Good, how are you?
Larry: I’m doing excellent, really excited to be here.
Larry: Another show.
Kandas: I know right.
Larry: Yeah, this is like 108 or something right.
Kandas: It is 108.
Larry: Show number 108.
Kandas: It’s a long time.
Larry: Yeah we’ve been doing this quite a while, what a year and a half-ish.
Larry: No it’s going on two years. What? Oh that would be right.
Kandas: Our first show was March-
Larry: We had 52 weeks during the year.
Kandas: Yeah our first show was March 26th 2016 so almost two years.
Chad: No, more than two years.
Kandas: More than two years because we’re past the 26th now.
Larry: That’s crazy.
Kandas: And Chad where has the time gone?
Chad: Time flies when you’re having fun.
Larry: I know right.
Larry: That’s awesome. So this show is all about bragging, being rich and generous. We teach you how to invest in real estate and then encourage you to go out and be a blessing to others, BRAG Be Rich And Generous, the second part of the BR, and AG part of the BR.
Kandas: Jeez Luis. Yeah about real estate.
Larry: Yeah and yeah so we’ve got a lot students out there making money and having fun.
Kandas: I know it’s exciting to hear them call in.
Larry: It really is. So I’ve had a lot of people that have asked me about can I buy a house in my personal name or what do I have to do? Do I have to set up an LLC or something any of that? So I thought we might chat about that some today.
Kandas: About the asset protection part of that?
Kandas: Yeah sounds good.
Larry: About the asset protection distraction.
Kandas: Get some clarity around it.
Larry: Yeah. So there are a lot of different things and different ways that you can do it. First of all, there’s two types of real estate okay. Real estate as a business and real estate as an investment. Did you know that?
Kandas: I did.
Larry: I know because you’ve been to our three-day many times.
Kandas: And I’ve been on the show.
Larry: What’s up with your hand? You got writing all over your hand
Kandas: I do, it was a phone number and an access code and it’s kind of smeared. I probably have it on my face too.
Larry: Where are you going?
Kandas: What do you mean?
Larry: Where people are writing their phone number on your hand.
Kandas: That’s my writing.
Larry: Oh okay. Are you left handed?
Kandas: On my left hand to my right.
Larry: Are you left-handed? I know that.
Larry: I know that.
Kandas: If you don’t you should.
Larry: I know, right. So-
Kandas: 13 years Chad, 13.
Chad: And he still doesn’t know what hand you write with.
Kandas: You even make comments and when we go to lunch, if we have to sit on the same side of the table because we’re with a group of people, that it won’t bother you because we’re both left handed.
Larry: Yeah that’s a good point, I’d forgot about that.
Kandas: Kill me.
Larry: I’d forgot about that.
Chad: But you guys are the only ones in your right mind right?
Kandas: Yes, that’s exactly right.
Larry: Yeah apparently.
Kandas: In this room.
Kandas: Chad’s right in it.
Larry: Was that a derogatory comment towards Chad?
Chad: It’s alright I’m used to it.
Kandas: He’s sleepy today. See here’s the thing I can get away with it today because his quick wit is more there-I don’t know what I’m trying to say with that.
Chad: It’s a little slower today.
Kandas: It’s a little slower today yeah. His quick wit-
Chad: It’s only more like a medium wit today.
Larry: I’m thinking of that.
Kandas: His quick wit has eluded him because sleep has eluded him.
Larry: It’s not quite as bright so it’s-
Larry: He knew where I was going with that.
Kandas: Bless his heart, poor little thing needs some sleep.
Larry: I know. He was telling us earlier, you don’t take power naps, do you?
Chad: No I take Bauer naps.
Larry: Chad Bauer.
Kandas: He’s got to like that.
Larry: That’s awesome I love it.
Kandas: He just renamed the power nap.
Larry: I love it, that’s awesome.
Kandas: And it sticks. Okay asset protection.
Larry: Yeah so I’ve had a lot of people that have asked me about setting up their entities and stuff like that. First of all I want you guys to know that basically if you’re going to buying and selling properties, buy sell, buy sell, buy sell that’s like buy, fix and flip, okay or buy and wholesale.
Right wholesale is where you find a property, you get it at a deep discount and then you add a little bit of money it might be $3000, $5000, $10,000 and then you sell it to fix and flip investor or somebody that’s going to fix it up and rent it out, right. So basically what you do and that’s a business okay so you need an entity for that.
That is a business alright. And we can talk about how it needs to be taxed because you’re probably going to tax that as an S-Corp okay, not as what’s called a pass through entity. A pass through entity is what’s called a disregarded entity for tax purposes and because the income flows through to your personal return.
Okay and I know we’re probably getting a little deep but if it’s a business it’s probably now you need to seek your tax advisor and if you don’t have one I’ll be glad to help you. You can give Kandas a call.
Kandas: Or an email.
Larry: Yeah or shoot her an email and we’ll be glad to point you in the right direction. However if you have a business, it’s probably more than likely going to be taxed as an S-Corp okay. And then you need an entity for your investments okay. Now Kandas you and I both know this, most people starting out in real estate okay they want two things; cash and cash flow.
Larry: But the problem is most people starting in real estate they need cash now right.
Kandas: That’s right. That is a lot of what we hear, “I need cash now,” yeah.
Larry: And then after you got some cash coming in, then what you’ll do is you’ll have cash flow right.
Kandas: If you set it up right yeah.
Larry: Yeah well you want to buy properties for long term right. You either properties or buy notes or seller financed properties or do lease options or whatever it is you want to do right.
Kandas: For the passive.
Larry: Yeah but most people getting into real estate they already have a fulltime job right.
Kandas: Most people?
Larry: And they’re trying to do real estate to get out of that fulltime job.
Kandas: Right or supplement.
Larry: So they don’t need another $500 a month, what they need is $5000 cheque.
Larry: Or a $10,000 cheque or a $25,000 cheque right. Now when we’re wholesaling properties and wholesaling is one of those businesses, I don’t do fix and flips by the way we’ll talk about that in a minute.
Kandas: We’ll get to that.
Larry: Yeah right.
Kandas: Hate relationship there’s no love there.
Larry: That’s true. So with wholesaling we try to make an average of $12 to $15,000 profit okay. And that’s basically we’re getting paid to negotiate deep discounts on properties right. And that’s a business, buy sell, buy sell, buy sell. It’s no different than if you own a convenient store and you’re buying inventory at one price and selling it at another price right.
Larry: Or if you’re buying and selling cars. Car analogy is probably a good one because they are a dealer right.
Kandas: It does fit yeah.
Larry: Yeah good. So you need an entity for that and you need to keep it separate. Now if you’re going to have investments for a long term hold, you also need a separate entity for that. Now that could also be an LLC which stands for Limited Liability Company.
And any attorney that deals in corporations or entities can basically help you set that up. If you don’t know of one we’ll be glad to refer you to several that we have, that we work with on a regular basis and refer our students to. And they know real estate by the way.
Kandas: They do.
Larry: So they know exactly what you need to do and how to do it. So you also need an entity for your investments, long term investments. Now it’s going to be set up a little bit different right. They need to have two different kinds of operating agreements okay. One as a business as a dealer right which is taxed one way.
And another one which is an investment and it’s probably going to be a pass through entity as I mentioned before. Which basically means you’re not going to file a tax return for that investment entity, it’s going to flow through to your personal return. And that’s where it’s going to be picked up and you’re going to pay taxes on the income. Does that make sense? Are you sure?
Larry: Good. So there’s a lot of different types of entities you can set up and I want to get into that and talk about some of those types of entities. And LLC is just one type of entity. You can also set up- I’m sorry K I’m going to laugh at your hand every time I see you putting your hand up to your face I see all those numbers written on your hand.
Kandas: It’s a security code, it’s not a phone number.
Larry: It is?
Kandas: And no it’s a phone number I’m just joking.
Larry: Good. Good because you’re shining it over there into the camera.
Kandas: Hey it’s not going to go anywhere. It tried.
Larry: That’s funny. So there’s LLC Limited Liability Company, and there’s a lot of ways that you can actually title a property okay. And when we come back I’m going to go through each and every one of them and the pros and cons and what you need to set up your own business, right.
Kandas: Yes that, but just to get started with a little bit more about who we are, give me a call 877-LARRY-GO for your investor kit. We can get the digital version out to your email at 877-LARRY-GO. Shoot me an email to firstname.lastname@example.org we’ll be right back
[10:01] [Break] [10:13]
Kandas: Welcome back to BRAG Radio, all about investing in real estate to be rich and generous.
Kandas: Thanks for showing up for the segment, a little delay there.
Larry: Hey I’m here.
Kandas: A little delayed.
Larry: I’m here, it’s okay it’s all good.
Kandas: It’s alright, it’s okay.
Larry: It’s all good.
Kandas: It’s alright.
Larry: So we’re talking about entities right?
Kandas: We were?
Kandas: We’re going to keep that going?
Larry: Unless you wanted to talk about something else I mean I told them when we came back that we were going to talk about some of that stuff and junk right.
Kandas: Go ahead.
Larry: So entities. We’ve been talking a little bit about LLCs right. So there are LLCs Limited Liability Companies and those are set up at the Secretary of State okay. The Secretary of State you can Google like North Carolina Secretary of State or South Carolina Secretary of State or Georgia Secretary of State. And at the Secretary of State you can reserve an entity name.
That’s just to make sure that that name is available for you when you set up your entity. And like I think South Carolina is scsos.com for South Carolina Secretary of State, right I believe that’s their website. And it’s kind of funny that I know that because we have set up a lot of entities that’s for sure.
Kandas: Yeah definitely.
Larry: And the reason that we’ve set up a lot of entities is that whenever you’re buying and selling real estate and whenever you have a business, you only want to have as much assets in an entity as you feel comfortable with. Also you have different asset classes, right. For example let’s say you have 10 single family homes, okay.
Each of them is worth let’s say $40,000 right, that’s $400,000. Maybe that might be all you want to put in one entity depending on what your equity is, right. A good rule of thumb a lot of people keep is probably around $250,000 in equity per entity okay, especially on your buy and hold type entities does that make sense? We have a question from the audience.
Chad: Is there ever a reason you would need to set up the entity in a different than the one you live in or the property you’re buying in?
Larry: I’m so glad you said that.
Kandas: This sounds like it’s scripted. Did y’all talk before?
Larry: That was next on my list.
Kandas: Did y’all talk before during the break or something?
Larry: So that is a really good point. A lot of people say set your entity up in like a Nevada corporation. You’ve probably heard the term Nevada Corporation where there are certain tax advantages to do that. However, the problem that most of these people do not tell you is let’s say you live in South Carolina like we do.
If I set up a Nevada corporation or a Nevada entity, okay, and I don’t do any business in Nevada, there’s really no reason for me to set that up other than a tax purpose, right. So it would probably be easier if that entity were sued like say it owned some property and someone fell and got hurt or the deck fell or something and some people got hurt.
If they were to sue that entity, it would be easier for them to break the corporate veil because it was set up there, just for tax purposes alone. So what the people we work with recommend is setting up your entity in the state where you live, and are going to do business. And the term for that is called Domicile right. Your entity is going to be domiciled in the state.
Kandas: We’re in deep now Chad.
Larry: I know right, I know my stuff over here.
Kandas: We’re into the domicile.
Larry: Oh you’re not funny.
Kandas: They know this, everybody listening to the show knows this already.
Larry: So anyway, right, so the state wherever you set up your entity, that’s called the state of domicile. Now let’s say you set up your entity in South Carolina okay. Let’s say you wanted to buy a house in North Carolina. Now what do you have to do to be able to do business in North Carolina?
Now you’ve got to go to the North Carolina Secretary of State website and you’ve got to fill out a form called Certificate of Authority to transact business in the State of North Carolina. So now you fill out that form, right, and let me tell you the purpose of that form. The only purpose in the world is really two purposes, number one is so they can start taxing you on the income you made in that state, right.
Kandas: Right, they want their share every state wants their share.
Larry: That’s true.
Larry: Exactly and yeah right. Chad knows we’re being audited right now, they want their share right.
Larry: So it’s just the way it is, it happens. And the second reason is if you ever have to go to court for some reason, if you do not have certificate of authority to transact business in that’s state you cannot gain access to the court system, right.
Kandas: I did not know that.
Larry: That’s just the way it is.
Kandas: I knew the first part.
Larry: You didn’t know that?
Kandas: I didn’t.
Larry: Wow. So anyway two reasons you’ve got to-
Kandas: I didn’t know that reasoning.
Larry: So you’ve got to have certificate of authority to transact business in any state that you do business in. you want to typically be domiciled in the state where you live.
Larry: Right, but like in South Carolina if we buy a house in Alabama we’ve got to have certificate of authority. Now don’t go out and set up your entity and then go out and get certificate of authority, say, “I’m going to buy houses in North Carolina, Circa, Georgia, Alabama and Tennessee.” Don’t go get that certificate of authority to transact business until you have a closing coming up.
Larry: Right, because if you do that and you never do a deal there, then they’re going to start asking you for an annual report because every year you got to fill out an annual report with the Secretary of State. And what that does is keeps your entity in what’s called good standing.
Kandas: With that state.
Larry: With that state. And they’re going to want to know what your revenue is for that particular state right. And we’ve had to do that in many different states. We’ve done deals in 12 different states right from Lake Wylie South Carolina.
Kandas: So only when you have a deal getting ready to close because anything could happen.
Larry: That’s exactly right.
Kandas: It could fall through, maybe you file for this thing and then you don’t ever find a property that meets your specific criteria.
Larry: That’s exactly right. So make sure you don’t do the certificate of authority to transact business unless you have a closing coming up. Now the other thing is, whatever attorney you have that’s closing your transaction, sometimes they’re title companies depending on the state like Florida uses title companies. North Carolina, South Carolina typically use attorneys.
The attorney can file that for you if it’s your first deal in the state, okay. Now they’re going to charge you instead of going to Secretary of State.
Kandas: Well they charge for everything else, so they might as well.
Larry: Well they do. So you can file it yourself right, you just go to the website print off the form and send them it’s probably going to be somewhere between $10 and $25 depending on the state. But they’ll file it for you but they’re probably going to charge you an additional 100 bucks or so, right.
Kandas: Yeah sounds about right.
Larry: Something like that. So that was a long roundabout way to answer Chad’s question, right.
Kandas: Did you get an answer to your question?
Kandas: Okay good.
Larry: That’s good.
Kandas: He did really good with that, there was no squirrel chasing or anything in that. Did you notice?
Chad: Yeah he was very focused, laser focused I might even say.
Larry: Wow, well I have good notes.
Kandas: He’s so full of it God.
Larry: As I hold up a blank sheet of paper, right.
Kandas: Well all good.
Larry: Yeah it’s just alright here Kandas, it’s just between my ears. It’s just all right there. I know what you’re thinking, yeah there is something up there right.
Larry: That’s funny. I knew what you were thinking right off the bat.
Kandas: If you say so.
Larry: Okay so you have LLCs, you also have corporations you can incorporate. If you see like XYZ Investments, Inc. that’s a corporation okay. And a corporation can be taxed two different ways as a C-Corp and as an S-Corp, okay. An S-Corp is typically for small businesses. As C-Corp is going to be businesses like Apple or Microsoft or Amazon, those are going to be C-Corps. They’re not going to be S-Corps, right, they’re going to be C-Corps. And those are taxed different ways as well.
Larry: Now with tax reform, that’s a whole another subject, we can do a whole another year’s worth of shows about tax reform, because there’s a lot going on with tax reform.
Kandas: Huge amount.
Larry: Yeah there is, a tremendous amount. Guys if you’re thinking about getting into real estate, if there’s anything at all that we can do to help you, we coach people, we mentor people, we have students around the country even around the world. In the US, Canada, Australia, New Zealand, Japan, China, Israel, the Philippines, Ireland, Chile and Denmark.
Kandas: You said that a few times.
Larry: I know a time or 12, call Kandas she’ll get you out a free investor’s kit with a couple of my bestselling books, right.
Kandas: Yeah get a set of Real Estate Day Trading and HUD Homes Half Homes are both in there. And it’s the investor’s kit you can give me a call, 877-LARRY-GO and I’ll get that out to your email. You could also text the word BRAG to 803-897-6063. Text the word BRAG to 803-897-6063.
[20:09] [Break] [20:26]
Kandas: Welcome back to BRAG Radio. What’s the name of the song?
Chad: Basketball throws.
Larry: Can I bring a guitar in here sometime Chad?
Chad: Why not?
Larry: That’ll be awesome.
Kandas: He just breaks all kinds of rules anyway you might as well go ahead and bring your guitar. Who sings this song?
Larry: It’s [Inaudible] [20:44] right. It’s Van Haley am I right?
Chad: You are correct that’s it.
Larry: My favorite band of times.
Kandas: You are correct sir.
Larry: Welcome back to Brag Radio leading the world to be rich and generous. We’re talking about asset protection and entity structuring, right Kandas.
Kandas: Yes asset protection and entity structuring. You’ve gone through a lot of information to have nothing written down, well you do now but only-
Larry: I did write a couple of notes now.
Kandas: Yeah since that break.
Chad: Did you know that that spells Apes? Asset Protection Entity Structuring.
Kandas: You are sleep deprived my friend.
Chad: APES, right.
Larry: I guess.
Kandas: Asset Protection Entity Structuring.
Chad: Yeah because I know how you like acronyms.
Kandas: He does love acronyms doesn’t he?
Chad: Yes he does.
Larry: So what does Taco Cat spell backwards?
Kandas: I’m going to have to write that one down.
Larry: Taco Cat. I saw my son had that on a shirt, Taco Cat spelt backwards is Taco Cat.
Kandas: It is.
Larry: You’re really writing it down.
Kandas: I did have to write it down. Did you know Chad?
Kandas: You did not.
Larry: Doesn’t everybody know?
Kandas: I didn’t know.
Larry: Oh that’s funny.
Kandas: I didn’t know.
Larry: So we’re talking about asset protection entity structuring, if you’re going to do real estate you need to have some asset protection, okay. And you need to seek the advice of some legal counsel, somebody that knows what they’re doing okay. Now I’ve been doing this for a long time but I’m no attorney, right. I’m no attorney or no CPA but we do have the right people in place that can help you. So if you need any help give Kandas a call and we’ll be glad to refer you to some people, right.
Kandas: Yeah or the email is email@example.com .
Larry: So we’re talking about some entities like we’ve already mentioned LLCs and they can be taxed as an S-Corp or as a disregarded entity, right. So an S-Corp is typically for a business, buy sell business or trade right. And a disregarded entity would be taxed as an investment entity okay. It’s going to flow through and it’s not going to have its own tax return it’s going to flow through to your personal return, okay.
Now we’ve also talked about corporations where you see the Inc. at the end, the Inc. like big companies, right. Now those can be taxed as a C-Corp or as an S-Corp. okay most of them for our practical purposes unless you grow the business to where you have multiple entities and maybe you need a management company, unless that is the case you’re probably going to tax it as an S-Corp.
But seek your advisor they’ll tell you, alright. Now the advantage of a C-Corp is and some of this is getting ready to change because of tax reform. But in the past with a C-Corp your first $50,000 in income is taxed at 15%, okay. So what some people do that have enough assets have enough business, have enough different entities, they would have a C-Corp as a management company, right.
And they would have at least $50,000 of their income where it would manage some of the assets and manage some of the businesses maybe provide services like accounting or payroll or something like that. And then they would set it up to where that entity is about 50, 60, $70,000 in income based on what that entity does. And that first $50,000 is going to be taxed to 15% okay which is a lot lower tax rate than typically real estate investors earn.
Kandas: Right that’s very true.
Larry: Because if you’re a real estate investor, you should be making a lot of money, right, so you’re going to have a higher tax rate. So the C-Corp you’re typically not going to need one of those, right, unless you have a lot of business going on and your tax advisor can let you know about that. Now some other types of entities that you can actually tittle property in, right for what we call anonymity meaning nobody can fins you.
Kandas: Why did you quote title?
Larry: Well title means like how the title to the property is going to be vested. In other words if you’re buying a house at 125 Oak Street are you going to put it in an XYZ Investments LLC, XYZ Investments Inc. or are you going to put it in 125 Oak Street Trust?
Kandas: Right. Because you shouldn’t be putting them in your personal name.
Larry: No, no. now a lot of people ask, “Is it okay if I put my first deal in my own? Do I have to set up an entity before I do my first deal?” no you font, right. I mean you could do every one of them in your own personal name. However that is opening you up to liability if you ever be sued, right.
Kandas: Right, yeah definitely opening you up.
Larry: Does that make sense?
Kandas: You need me to carry this while you get some water? We’re having a-
Larry: She’s trying to stall while I get some water.
Kandas: We’re having a technical difficulty here with the voice of Larry Goins.
Larry: Okay. So you can buy property in your personal name, I don’t recommend it. The first deal or two I did, back in the ‘80s I bought in my own personal name. But I do not recommend it. If you’re serious about it and you’re ready to commit and you’re going to get going, just go ahead and set up your entity.
Right, but chances are it’s probably not going to hurt you if you do your first deal in your own name. There’s also another way you can do business and that’s called as a sole proprietor, right.
Larry: That’s what’s you hear people say DBA, maybe you go to the bank and you set up an account, Larry Buys Houses DBA or Larry Goins DBA Larry Buys Houses. In other words you’re putting yourself out there as Larry buys houses but you’re buying and selling in your own name, right.
Larry: There’s zero asset protection for that, zero. If somebody sues Larry Buys Houses and it’s a sole proprietor then they can come after all your personal assets.
Kandas: That’s right.
Larry: If someone sues XYZ Investments LLC or XYZ Investments Inc. they can only sue the assets and sue for the assets that are in those entities. Right unless something happens and they can do what’s called Break the Corporate Veil. In other words there’s a corporate veil when you have any kind of entity that protects you personally.
That’s the reason you have those entities set up in the first place, right, to protect your personal assets, right. But if someone sues that entity, if you did not keep things up like keep up your corporate books with your annual shareholders meeting or annual managing member meetings that’s sort of thing.
Kandas: The quarterly ones, right.
Larry: Right. If you were sued, they may be able to break that corporate veil. Now probably not just because of the minutes of the meeting or the corporate books, but let’s say if you have this entity, XYZ Investments and let’s say you wanted to take your family out for dinner and then you used the company credit card for that.
If you have no disregard for it’s really two separate entities then it’s more possible that you can have the corporate veil broken. In other words if you just all of a sudden every once in a while you just write yourself a cheque out of the company.
Kandas: With no documentation.
Larry: With no documentation, nothing where it’s an owner distribution or where it’s payroll or whatever it is, then they could disregard that entity and if someone was suing you, they could go after your personal assets and that would not be a good thing.
Kandas: That is not good.
Larry: No that’s not good at all. So you want to make sure you get this set up right and make sure that you have somebody that knows what they’re doing. Like I said before Kandas can help you we can put you on the right track and get the right person, right.
Kandas: Right that’s right. All you get to do is send me an email, firstname.lastname@example.org and I can either refer you over to those people or have them reach out to you one way or the other whatever is easier for you. We could also while we’re in communication get you the investor’s kit out, the version out to your email address.
I just need that address to get that to. You can give me a call 877-LARRY-GO, 877-LARRY-GO or you can text the word BRAG to 803-897-6063. I really do like the questions that are coming in so I hope you guys keep those coming to email@example.com. And we are registering for upcoming three-day events so we could take care of that. What else do we have going on?
Larry: We got a lot going on office tours.
Kandas: Office tours, yeah so scary [Inaudible] [29:40].
Larry: We had somebody come by the other day.
Kandas: We had two people come this past week.
Larry: Well we usually have two or three or four people a week come by which pretty cool they go by and look at all the deals and stuff.
Kandas: Meet everybody too. So I can get that set up for you as well. Again it’s just 877-LARRY-GO to have all of that stuff squared away. If you haven’t been listening to our shows you can catch all the past shows on bragradio.com. We’ll be right back.
[30:07] [Break] [30:28]
Kandas: And we’re back.
Larry: Welcome back to Brag Radio, leading the world to be rich and most generous.
Kandas: Most generous.
Larry: That’s it.
Kandas: Now if you guys are calling me on the 877-LARRY-GO number know that I have Zenobia who’s in our office, she’s helping me with taking the calls. So if you don’t get me right away and she’s the one that calls you back, she is legitimate she is working in our office.
Larry: You dialed the right number.
Kandas: Don’t get all frustrated with me, yeah. Don’t get frustrated with me because you thought you were going to speak to me. I do have her helping me.
Larry: I want to talk to Kandas.
Kandas: She has given me some postit notes of people that wanted to talk to me and that’s fine I will call you back. But with the number of people that we have calling in to this show afterward and like throughout the week after, she’s been helping me because it’s getting to be a bit much.
Larry: It is. I was in California just the other day in LA I was there literally for 12 and a half hours.
Kandas: I know, I flew you.
Larry: I know.
Kandas: And flew you home.
Larry: I know, I landed at 5:30pm and I left at 6am.
Larry: So anyway, while I was there people were, “I love the BRAG Radio show.” I’m like, “You’re in California.” “Yeah I listen.” That’s good.
Kandas: And what.
Larry: That’s good that was pretty cool.
Kandas: And really we shouldn’t really be surprised because we put it flipping everywhere. It’s on podcasts, it’s on send out an emailers.
Larry: Emailers, podcasters.
Kandas: Podcasts and emails.
Larry: Alright so let’s talk about land trust okay.
Kandas: And it is just all business today, there’s like no playing with this today.
Larry: I’m sorry.
Kandas: Damn so boring.
Larry: Alright what you got, you go ahead.
Kandas: No, no I got nothing.
Larry: I’m going to sit down you go ahead.
Kandas: I got nothing I’m just saying so serious this whole show has just been like okay let’s get it let’s get down to business.
Larry: Well I’m a little nervous-
Larry: I’m a little nervous I heard the higher ops are going to like listen and critique us. So I’m a little nervous.
Kandas: Don’t let that change what we do. Like it’s going to change anything after the fact.
Larry: That’s true, right.
Kandas: And yes Dan I said that for your benefit.
Larry: It might determine on whether or not we’re going to be on another year.
Kandas: Hey I think as long as I cash a cheque it’s going to be on.
Larry: Alrighty then. So let’s talk about land trust okay. That’s one of the types of ways that you structure or title a property, right. Does that make sense that you can structure or title a property I should say. So land trust provides anonymity but no asset protection. Does that make sense?
Kandas: Say it again.
Larry: A land trusts provides what’s called anonymity but it doesn’t provide asset protection. Let me give an example.
Kandas: That might help.
Larry: When Walt Disney was acquiring property in Orlando, to build Disney World, right
Kandas: I’m with you so far.
Larry: He had to make offers and bid on properties that were owned by many different people.
Kandas: Massive amounts of acres yes.
Larry: Right, to get hundreds of acres.
Larry: So in order to do that he couldn’t be bidding on the property or trying to buy the property in the name of Walt Disney, he bought it in the name of trust.
Kandas: A bunch of different named trust.
Larry: A bunch of different name trust, right. So nobody knew that quietly Walt Disney was acquiring hundreds of acres that would eventually be known as Disney World, right.
Kandas: Very smart.
Larry: It was very smart. And that’s the way he did it. So the bottom line is no one can tell who actually owns the property if it’s in a trust, okay. Because with the trust there’s the trust agreement which tells the name of the trust, right. Tells the name of the trust and the trustee and the beneficiary right.
So the trust document is what says who owns the property, who the beneficiary is, who the trustee is and the name that that property is going in. that’s a land trust, makes sense? So then you have a trustee. The trustee is someone you know I can trust that they have to sign for everything right.
Larry: But it can’t be the beneficiary or shouldn’t be the beneficiary. It should be someone that you know I can trust with a different last name. For example we’ve used some trust in some retirement accounts.
Larry: And even though like my retirement account was the beneficiary and then you have the trust agreement, you were the trustee Kandas.
Kandas: That’s right.
Larry: So I couldn’t buy or sell any properties without Kandas’ permission. She had to do it.
Kandas: More or less yeah.
Larry: She had to do it, right. So in other words she signed everything as trustee so no one knew whose retirement account or who actually owned the properties for that sales.
Kandas: That’s right.
Larry: So basically it’s for asset protection but for anonymity so nobody can tell okay. So you need another layer in there. you need to make if you’re going to buy a property in a trust and you want to keep it anonymous as to who owns it, instead of making yourself the beneficiary you want to make an LLC beneficiary because nobody-
Kandas: Which you’ve got as the other layer.
Larry: Yeah nobody is ever going to see the trust document okay, nobody is ever going to see it right except maybe you might show it to the attorney but you tell them to shred it, rip it up whatever. Don’t keep a copy of it in the file and nobody really knows who owns everything. Now excuse me.
Kandas: You’re chocking, what is going on. What’s in that water over there Mr. Goins?
Larry: Anyway so unless it ever comes up in a lawsuit.
Kandas: A lawsuit?
Larry: Unless it ever comes up a lawsuit, right and then you have to do a deposition, you’re deposed by an attorney it may come out then who actually owns the entity. But it also just provides another layer.
Kandas: It is a lot of work though for somebody to go through all that just to find out.
Larry: It is a lot of work and quite frankly a lot of attorneys do not understand trust or especially land trust. They just don’t understand it so somebody brings a case to them where property is titled in trust, a lot of attorneys would turn it down. They don’t understand it, they don’t know much about it and I’m not saying anything bad about attorneys.
Kandas: Not at all.
Larry: It’s just not a lot of them know about land trust and how they operate.
Kandas: Right. Well if it’s not something that you deal with on a daily basis it’s going to probably take a lot more dedication to look into and things like that to figure it out.
Larry: Well that’s why they call it practicing. Basically someone is going to pay them to learn about trust right, if they don’t already know about it. Does that make sense?
Larry: Good. But there’s land trust and that’s what you title property in. there’s also what’s called personal property trust right, I mean you could deed your cars or title your cars in a personal property trust. You could have your bank accounts titled in a personal property trust, that sort of thing. You could also have what’s called an IRA trust.
And that’s one of the ones that you and I just talked about where you are the trustee of my IRA trust, okay. Now we eventually added another layer where there’s an LLC in there as well.
Kandas: Yeah now there is.
Larry: Exactly. So there’s advantages of land trusts, especially if you’re going to hold property long term. If you’re just buying and selling and buying and selling there’s typically no need for a trust, okay.
Kandas: Yeah you’re not holding it long.
Larry: Right. If you’re just flipping a property or just turning it over, there’s typically no reason that you would need a trust, right. Good. So now to kind of round this out and wrap it up, there’s also you can create an entity like a lot of people call it a cheque book IRA. I don’t really even like the term of that. I mean there’s promoters out there that say you can set up an LLC and then you can write cheques off your IRA.
Guys be very careful about that, you want to do it the right way. If you do have what’s called a cheque book IRA or your IRA invest into an LLC where you can control it, and write the cheques instead of having to reach out to your custodian to get the money, make sure you find somebody that can set it up for you. We’ve got a guy that does all of ours for us, he knows what he’s doing.
He’s very good about this and he makes sure that you do it correctly where you’re not going to get in trouble okay. That’s very important. So please make sure that if you do this, now there are advantages to it and you can do it the right way and be very successful at it. Or you can buy and sell property and not have to go through the custodian each and every time, right.
Larry: But there are certain things you need to do like you need to have a specific operating agreement. You don’t want to be-why are you laughing at me? You don’t want to be the managing member, your IRA is going to be the member but you’re going to have a third party be the manager.
Kandas: There’s a lot of stuff that goes into this guys. Be sure to send me an email to firstname.lastname@example.org hopefully you weren’t trying to write all of this mess down. We can definitely make sure that you get the recording of the show, see the show notes and things like that. Info$bragradio.com visit just bragradio.com or give me a call 877-LARRY-GO. 877-LARRY-GO
Make sure to tune in every Saturday for BRAG Radio leading the world to be rich and generous. Larry and Kandas will show how to invest in real estate and the many ways real estate creates the ideal investment. For more information about what Larry and Kandas talked about on today’s BRAG Radio or to get a free investor’s kit, call 877-LARRY-GO that’s 877-527-7946.
You can also text the word BRAG to 803-897-6063. It’s Brag Radio be rich and generous on News Talk 1110993WBT.