www.TaxSalePodcast.com
Transcript:
Hey guys, it’s Casey Denman here from Tax Sale Academy.com
First off, thanks so much for joining me on today’s livestream here on Youtube. As always, at the conclusion of this livestream, if you’re looking to learn more about investing in tax defaulted real estate head to taxsaleacademy.com, that’s taxsaleacademy.com.
So, from time to time I get the question about holding title. Should you hold it in your personal name, in an LLC, Corporation, S Corp, LLP, trust or whatever else type of ownership method you can come up with.
Now, before I get started, I want to point out I’m not a CPA, financial planner, attorney or anything like that. I’m just a guy who invests in tax sales and helps others do the same. Before you do anything, consult your CPA, financial planner and attorney for confirmation.
Ok, now that that’s out of the way, you’re going to attend your first tax sale. And you feel strongly that you’ll buy your first property, but then what? What name do you put in it?
Well, there are a few different types of ways to title real estate and they all come with their own pros and cons. Today, I’m going to give you a quick lesson on two of the ways to hold title. Again, there are plenty of other ways, but we’ll be discussing the top two.
The first way to hold title is in your personal name.
It’s easy. Just buy it in your name. Nothing to file with the state for entity creation purposes, no attorneys, no extra tax returns, no tax id numbers, no business operational requirements, no corporate minutes or any of that aggravating stuff. And when you go to sell it, just sign your name, deposit that check into your personal account and move on about your day.
Pretty simple.
Of course, when you own something personally, you are also legally responsible and liable personally. Any problems become your problems and your problems alone. And this isn’t good. This means there is no buffer between you and a lawsuit.
So in a nutshell . . . if there is an issue with a property and you’re sued, everything you own personally is at stake with a few rare exceptions.
Likewise, if there is an issue outside of that property, perhaps you get sued because you run somebody over or something crazy like that, then the person doing the suing can go after that same property owned by you… personally. Since there is no separation, if your investment is the only real asset you own, you can consider it history if you lose the lawsuit.
And perhaps you’re thinking, “I don’t own anything, so who cares if they sue me.” Well, that judgement will be recorded against you and when you do finally own something, there’s a chance they could go after whatever you do own into the future. Not to mention wage garnishment and other options that the winning party could have.
It’s also important to note that when you add another name to the title, that person is exposed to the same liability too. So, if you think it would be cool to add your ex husbands name on the title just in case, you know, something happens and he could take the blame, it still wouldn’t relieve any of the responsibility from you. And owning in two or more personal names can also get a little more involved when you start determining which type of tenancy to use but that’s a subject for another video.
Now, obviously, you can get large umbrella insurance policy and protect yourself that way but they don’t come without a cost that must be factored in and they always have a limit of some sort, so keep that in mind.
With all this said, I bought properties in my personal name when I got started before I knew better. And there are still times I do to this day for very specific reasons. And I came out ok, but there is certainly a risk involved. If you’re gung ho on buying in your personal name, at least do yourself a favor and stick to the cheap vacant lots that have virtually no chance of making you liable for anything. Don’t go buying contaminated factories in your personal name, please!
The second way we’ll discuss owning investment real estate today is through an LLC or limited liability company. And this is the preferred method of ownership for many investors and is the way I own most of my real estate.
An LLC will limit your personal responsibility for issues related to a property. And this is big. So instead of you having the potential to lose your personal assets, should you lose a lawsuit, if the property is owned by an LLC the only thing you could lose are the assets of that specific LLC. Your personal assets are not in jeopardy when the LLC is sued.
You must look at it from the proper perspective: The LLC owns the property, not you. The LLC is laible for the property, not you. The LLC earns the money from the rent, use or sale of the property, not you personally or as a sole proprietor. The LLC is the business. Of course, for the last one, since YOU own the LLC that earns the money, then the money can be passed to you from the LLC. And it can be done so in a pass through manner, so you won’t have to pay taxes on it twice.
So from a liability standpoint, it can be more desirable than owning property personally. There are also a number of benefits over using an LLC instead of a C or S Corporation.
With all this said, there is still some aggravation. First, it costs money. It’s a business – you have to pay the state to file, then you have to file yearly tax returns and annual reports. Then you’ll also have to get a tax id number, open bank accounts and, perhaps most importantly, operate it like an actual business. Without risking your protection limitations, you can’t just use your LLC account like a personal checking account and you must take certain steps. Otherwise, you could end up being liable personally if sued, if the so called “corporate veil is pierced”.
So, there are two of the many ways to hold title to real estate, personally and through an LLC. As mentioned, there are plenty of other ways as well, but I wanted to do a little comparison on these two specifically. And as I stated at the beginning of this video, I’m not an attorney, CPA or financial planner so please contact the appropriate professional for more information.
That’s going to be it for today’s episode. If you want to learn the details about each of these methods, we go in depth inside the tax sale academy, which you can checkout at TaxSaleAcademy.com. Again, that’s TaxSaleAcademy.com.
Before I sign off, if you enjoy these videos, please be sure to hit that thumbs up button just so we know you’re finding out trainings useful so we’ll be able to produce more videos for you in the future.
Have a great afternoon! Take care, bye bye.