Deal Structuring Secrets

Unlocking deal structuring secrets can make or break an investment, and these powerful insights often hide within the pages of a Private Placement Memorandum (PPM). 

Watch Episode 59: Deal Structuring Secrets with Seth Bradley, Esq.

Get ready to dive into the captivating world of deal structuring secrets within a PPM! Discover how these hidden gems can unlock tremendous benefits for you as a savvy real estate investor. 

Deal Structuring Secrets In A Private Placement Memorandum

A Private Placement Memorandum (PPM) is a document that provides detailed information about a company's business, finances, and investment offering. Its primary purpose is to inform potential investors for private offerings, especially in real estate, about associated risks that vary depending on project specifics.

Summary Of The Offering

The Executive Summary of a Private Placement Memorandum (PPM) is a concise overview of the investment offering and the company:

  1. Company Overview
  2. Offering Overview
  3. Business Model and Strategy
  4. Market Opportunity
  5. Key Personnel

Offering

The Offering section details the specifics of the investment opportunity in detail:

  1. Securities Offered
  2. Offering Amount
  3. Price Per Security
  4. Minimum Investment
  5. Use of Proceeds
  6. Risk Factors
  7. Exit Strategy
  8. Subscription Procedures

Rule 506(b) vs. Rule 506(c) 

While similar, these rules differ in who they allow to invest and how advertising occurs.

Rule 506(b)

Rule 506(b) allows a company to raise unlimited capital from accredited investors and up to 35 non-accredited investors. 

Rule 506(c)

Rule 506(c) was introduced through the JOBS Act of 2012 to make it easier for companies to raise capital. Under this rule, a company can advertise its offering and solicit investments publicly, a significant departure from the limitations of 506(b).

The choice between Rule 506(b) and Rule 506(c) depends on the company's fundraising strategy:

Use of Funds

The Use of Funds section outlines how the company will allocate the capital raised from the offering across different areas.

  1. Debt Repayment
  2. Operational Expenses
  3. Capital Expenditures
  4. Acquisitions
  5. Reserves

Misuse of funds can lead to legal repercussions and damage the company's reputation. 

Company 

The Company section gives potential investors comprehensive information about the company's history, operations, and products or services. Here are some key elements that are typically included in the Company section:

  1. History and Background
  2. Business Model
  3. Market Overview
  4. Management Team
  5. Corporate Structure
  6. Financial Information
  7. Legal Proceedings

Management

The Management section is crucial for potential investors to evaluate the qualifications, experience, and track record of the company's leaders and their investment:

  1. Biographies
  2. Track Record
  3. Ownership
  4. Compensation
  5. Board of Directors or Advisors

A competent, experienced management team can often be a significant factor in an investor's decision to invest in a company. 

Business Plan

The business plan section overviews the company's strategy to achieve its objectives. Key elements typically included in a PPM's business plan section are:

  1. Company Overview
  2. Products or Services
  3. Market Analysis
  4. Marketing and Sales Strategy
  5. Operations
  6. Financial Projections
  7. Risk Factors
  8. Exit Strategy

Fees

These fees are usually subtracted from the capital raised, greatly affecting the net proceeds and overall return on investment (ROI). Here are some common types of expenses in a PPM:

  1. Management Fees
  2. Performance Fees or Carried Interest
  3. Placement Agent Fees or Underwriting Fees
  4. Legal and Accounting Fees
  5. Organizational and Offering Costs
  6. Broker-Dealer Fees
  7. Exit Fees

Distributions

The Distributions section outlines how and when investment profits or returns go back to investors. It usually covers aspects like:

  1. Distribution Policy
  2. Distribution Method
  3. Distribution Priority
  4. Reinvestment Options
  5. Tax Implications

Risk Factors

The Risk Factors section assists investors in making informed decisions based on their risk tolerance, investment objectives, and personal circumstances. It discloses common types of risks in a PPM.

  1. Business Risks
  2. Financial Risks
  3. Market Risks
  4. Investment Risks
  5. Legal Risks

Investor Suitability and Qualifications

Accredited investors meet specific financial criteria set by the SEC, like having a net worth over $1 million (excluding their primary residence) or an annual income above $200,000 for the past two years (or $300,000 combined income if married).

Non-accredited investors in a 506(b) offering must be 'sophisticated' - possessing enough financial and business knowledge to evaluate the investment.

Instructions To Invest And Subscription Agreement

Instructions to Invest 

This section provides potential investors with step-by-step instructions on how to invest: 

Subscription Agreement

A contract between a company and an investor that outlines the terms of the stock sale:

Operating Agreement

The operating agreement establishes rules and procedures for managing the company or investment fund. It's a contract between partners or members outlining their rights, responsibilities, and financial interests. Includes:

  1. Company Structure
  2. Roles and Responsibilities
  3. Capital Contributions
  4. Profit and Loss Allocation
  5. Voting Rights and Decision-Making Procedures
  6. Transfer of Ownership
  7. Dissolution Procedures

Key Takeaways

Mastering key aspects like management and performance fees, distribution policies, and exit strategies is crucial for a successful PPM. These elements significantly impact net proceeds and ROI, necessitating careful assessment and negotiation to protect investor interests. Diligent due diligence and skillful deal structuring are essential for successful private placements.

Master due diligence & deal structuring with our Royal Investing Group Mentoring Session. Learn from experienced investors, gain insights into their strategies, & get real-time answers to your questions. Maximize your investment potential. Sign up for our free group mentoring & become a more savvy investor.

Unlocking The Secrets Of Self-Directed Tax-Sheltered Profits

Are you looking to take control of your financial future? Self-directed IRAS are a popular option for investors who want to diversify their portfolios. Amanda Holbrook with Specialized Trust Company joined us and explained how to maximize sef-directed tax-sheltered profits. 

The current financial climate is unpredictable, making it more critical than ever to make smart investments that will protect your wealth and help you reach your retirement goals. A self-directed IRA offers the potential for higher returns on investment (ROI) than traditional IRAs while also providing diversification opportunities that can help reduce risk.

Read on to learn more about the advantages of investing in a self-directed IRA.

Characteristics Of A Self Directed IRA

Unlike traditional IRAs and Roth IRAs, which limit investments to stocks, bonds, mutual funds, and other securities approved by the IRS, SDIRAs allow investors to invest in alternative assets.

Types of Investments Available

SDIRAs offer investors many investment opportunities beyond those available with traditional IRAs or Roth IRAs. These include:

Tax Benefits of Self-Directed IRAs

A self-directed IRA gives you more flexibility and control over where you invest your money. 

In addition to increased flexibility and control over investments, self-directed IRAs offer more significant potential for higher returns than other retirement accounts due to their ability to invest in real estate or private businesses.

Investors can use funds from their self-directed IRA to purchase properties or start businesses without paying taxes if they follow IRS rules and regulations regarding prohibited transactions.

If you're interested in taking advantage of the potential benefits offered by a self-directed IRA, there are several steps you should take:

  1. Choose an administrator who specializes in self-directed IRAs;
  2. Open an account with your chosen administrator;
  3. Fund your account with cash or rollover funds from another retirement plan;
  4. Select investments that meet IRS guidelines; and
  5. Monitor your investments regularly and comply with all applicable laws and regulations related to investing with a self-directed IRA.

The bottom line on SDIRA tax benefits:

Investing in Real Estate with Tax-Sheltered Capital

Investing in real estate with a self-directed IRA is attractive for diversifying your retirement portfolio. It allows you to invest in real estate without paying taxes on the profits until you withdraw them from your account. But certain restrictions and requirements apply when investing in real estate with a self-directed IRA.

Basic Requirements and Restrictions

To invest in real estate with a self-directed IRA, you must have an existing traditional or Roth IRA account. You must also set up a qualified custodian to oversee the transactions and ensure you follow IRS rules. The custodian will also handle the paperwork associated with the investment, such as filing tax forms and other documents.

The IRS dictates the types of investments that are allowed. Generally, you must invest in "real property," including the following: 

Transitioning to a Self-Directed IRA

There are several accounts that you may transition to an SDIRA. The following are among the most common.

Traditional and Roth IRA

Both Traditional and Roth IRAs can be transitioned into self-directed IRAs. The process is relatively simple:

Employer-Sponsored Accounts

401(k)s and other employer-sponsored accounts can also roll into a self-directed IRA. The process is similar to transitioning from a traditional or Roth IRA. 

Brokerage Accounts

While brokerage accounts offer a wide array of stocks, bonds, and mutual funds, they typically do not provide the alternative investment options of a self-directed IRA. Converting a brokerage account involves:

Key Takeaways

The key points to understand when investing through a self-directed IRA are the range of investment options, the IRS restrictions, and the responsibility and risk that come with a self-directed IRA. 

If you're looking to take advantage of the unique benefits offered by a self-directed IRA, Royal Investing can help you on your journey. Sign up for group mentoring to learn how to maximize your investment opportunities and capitalize on the potential benefits of a self-directed IRA.

Ultimate Estate Planning Starter Guide

Who needs an estate plan? You do. That's why we've put together this estate planning starter guide!

According to Richard Bechtol, Esq., an RLS staff attorney and estate planning expert, “anyone owning any assets needs an estate plan, this is especially true for business owners.” In other words, as a real estate investor, you need an estate plan to protect your assets and your family's financial future. 

Bechtol goes in-depth with his video presentation of the ultimate estate planning starter guide. In this article, we'll discuss the key points of how an estate plan works and how it can help protect your assets in the future.

Estate Planning Uncomfortable Truths

Most people don't bother with an estate plan for various reasons. Those reasons include the following: 

If you don't have a plan, your property goes to probate, which eats away at your estate's value. In the long run, your traumatized heirs will be more burdened, spend more time dealing with legal entanglements and receive less. 

What Should I Do To Start Estate Planning? 

Before you get an attorney, you can start the process of estate planning by determining the following essential items:

What Assets Do I Include In Estate Planning?

The following assets go into your estate planning:

The people involved with your estate will be dealing with your death, and having a clean, well-prepared inventory will make their job much more manageable. 

You wouldn't want a devastated loved one to endure going over your every asset when they are vulnerable. That's when mistakes happen or bad actors swoop in like vultures.

How Do I Find Fiduciaries For Estate Planning?

A fiduciary is a person required by law to manage a person's estate to benefit the beneficiaries. When determining a fiduciary for your estate plan, use the following questions as a guide: 

Beneficiaries And Estate Planning

A beneficiary is the person, persons, or entity receiving your assets. When estate planning, you should consider some critical concepts:

Will-Based Vs. Trust-Based Estate Planning

Does will-based or trust-based estate planning work for you? Check out the table below for more information about each type of estate planning.

Will-Based Estate PlanningTrust-Based Estate Planning
Instructions for Probate Court
Court created trust for children under 18
No additional control
Public record
Time-consuming
Creditors have access to you and heirs
Can be time-consuming  and expensive		No probate Court
Trust is already created
Additional control
Not public
Protection against creditors
Protection for disabled heirs
Quick and inexpensive

Ultimately, with will-based estate planning, your beneficiaries are at the court's mercy, and your assets are in full view of the public. That means more people can claim your assets. 

On the other hand, a trust-based estate plan gives you control of the assets and how they are designated, anonymity, and protection from creditors. 

Estate Planning Starter Guide For Real Estate Investors

In most cases, trust-based real estate planning is ideal for real estate investors because of the protections it provides. For instance, with trust-based estate planning, you will receive the following: 

Key Takeaways 

Death and taxes--the only two guarantees in life. You can mitigate the impact of both with careful estate planning. 

No one likes to think about their death, but it happens. There is no doubt that your loved ones will miss you when you're gone. They will be devastated, and dealing with a messy and expensive probate process will crush them even more.  

Protect yourself and your future with an estate plan. Do you have questions about estate planning or real estate investment? Join us for our Royal Investing Group Mentoring to get the answers you seek.

Solo 401k Custodian Duties

You’ve decided to save for the future using a solo 401k, and you’ve named yourself the solo 401k custodian. But what does that mean? 

A solo 401k, also called a self-employed 401k, or an individual 401k, is a unique savings vehicle for small business owners without employees except for their spouses. 

That makes a self-employed 401k a solid choice for real estate investors searching for a retirement plan similar to that in a larger corporation. 

An individual 401k is similar to a standard 401k in that a person would contribute pre-tax earnings, and those contributions would be invested in other investment opportunities to grow. Those investments enjoy tax deferment until you retire and withdraw the funds. 

A critical difference between a solo 401k and a traditional 401k is the role of a solo 401k custodian. This post will explain who can be a solo 401k custodian and their duties.

Who Can Be A Solo 401K Custodian? 

You can be the custodian of your solo 401k. Section 401 of the IRS Code controls your ability to be the custodian. 

A custodian is a person or entity with fiduciary responsibility or authority over the assets in the account. 

The required custodian does not have to be a third party in a self-directed 401k plan. The requirement allows you more freedom to invest your money on your terms without a third party's permission. 

The Employee Retirement Income Act of 1974 (ERISA) and the Pension Protection Act of 2006 provide the legal basis for small business owners to start and act as custodians of their solo 401k 

You can be the trustee for a solo 401k; the tax code refers to where the assets are held rather than a third party in charge of funds. 

For instance, you can have your solo 401k in cash in a bank, precious metals in a safety deposit box, real estate, or assets in a brokerage account. As the trustee of the solo 401k, you're the controlling party and decide where the money goes. 

What Are The Duties Of A Solo 401K Custodian?

A trust must hold all your 401k assets in a trust, and the plan must name a trustee. The trustee can be you, and you'll be responsible for the following items: 

Crucial Events In A Solo 401K

As the trustee, you'll be responsible for the maintenance of the individual 401k. As the solo 401k custodian, you'll need to pay attention to specific benchmarks, including: 

Exceeding $250,000 

Your solo 401k custodian duties revolve mostly around keeping good records. Typically, you won't even have to file taxes on your plan. 

The few administrative duties change when your plan hits the $250,000 benchmark. You must file a tax return when you hit that amount in the plan. For the tax return, remember these essential items: 

When Your Real Estate Business Grows

The solo 401k is crafted explicitly for self-employed people (like yourself) and their spouses. To qualify for this type of 401k, your business must:

If your business scales to the point you need to hire a full-time employee (outside of your spouse), you no longer qualify for the solo 401k. 

If you hire a full-time employee (other than your spouse), you have two options:

Should you close the account, you must inform the IRS via your final 5500-EZ form. 

When You Hit The Age Limit

When you reach 72 years old, the solo 401k triggers a minimum required distribution. Even if you work well into your golden years, you'll be required to start making withdrawals from your solo 401k. 

As the custodian, you'll need to ensure that you do the following: 

Key Takeaways

A solo 401k is designed for small business owners to save using a 401k. Unlike most retirement plans, you can act as a solo 401k custodian. 

As a custodian, you're responsible for the following: 

You'll also need to be aware of crucial benchmarks in the plan, including: 

Ready to take the next step in securing your financial future? Book a free discovery call to see how we can customize a tax savings strategy for your real estate investment empire. 

Tax Filing with Partners Using an LLC or Series LLC

While having a partner may make business sense, tax filing with partners can be complex and confusing. Paying taxes is painful. It’s tough to part ways with your hard-earned money when you have business expenses and maintenance to handle. 

This article doesn’t include every tax break or loophole available. But it provides helpful, clarifying information about tax filing with partners in an LLC or Series LLC. 

Tax Benefits Of An LLC Or Series LLC

There are several advantages of selecting a series LLC as your business structure. It provides you with asset protection and anonymity, but there are also tax implications. Let’s check out some things you need to know about how tax filing with partners works with an LLC. 

Remember, a series LLC is unique because it has a parent LLC and a series of children LLCs under it. Each entity in the structure provides its own layer of asset protection and anonymity and is protected against risk from other series. As a real estate investor, this allows you to segregate risk and hold several different properties without incurring the cost of setting up new business structures for them. 

First, the IRS treats a series LLC as a single entity. Since it’s a pass-through entity, you can choose how you want to be taxed by the federal government. You have the option to choose between being taxed as a: 

We will focus on the partnership or filing taxes with partners. 

What Options Do I Have For Filing Taxes With Partners?

Filing taxes with partners depends on a few factors. But first, let’s talk about what it means to be a partner. The IRS considers any individual who owns an asset with another individual to be partners.

In most cases, partners must file a Form 1065 to report their income, gains, losses, deductions, and credits. An exception to that is if you are married to your partner. In the case of marriage, you can file Form 1065 and then do your taxes as you normally would. 

There are some benefits of filing taxes with partners using Form 1065. 

Cash In On These Tax Tips 

Filing taxes with partners using Form 1065 can benefit you and your partner. Recall that if you’re in a partnership, you’ll have to file a Form 1065 (unless you’re married to your partner). The 1065 (and Schedule K1) may be beneficial. 

For instance, Form 1065 allows you to: 

Protect your assets

When you file Form 1065, you can move the tax liability of your business entity to the partners who have an interest in it. The form tracks your and your partner’s financial participation in the business on Schedule K1. 

The 1065 and K1 protect your assets because the total income and expenses are a single line item. There aren’t separate spaces for your properties, just for your overall income and expenses. 

Simplify your expenses

Through the ordinary course of business operations, you may encounter expenses that do not directly tie to one of your properties. When you file with Form 1065, it’s easier to specify those expenses and claim them on your taxes. 

Some examples of typical expenses you may claim on Form 1065 include the following:

Using Form 1065, you can enter the whole number as an expense, preventing messy records and bookkeeping. 

Secure loans

Banks sometimes favor Schedule K1 income over Schedule E income when you apply for a loan. The bank may look at your Schedule K1 income and accept the number of expenses you claim. 

On the other hand, if you supply your Schedule E income, banks will have predetermined vacancy credits, repairs, and maintenance that may lower your income. This may be especially harmful if you have new houses in your portfolio where you can get dinged for nonexistent expenses. 

There are some considerations when filing Form 1065. For instance, it takes a long time to get a K1, so your taxes are due on March 15. If you need to file for an extension, you must submit it by September 15. Another issue is that a 1065 and K1 can be complicated, so you may need a professional to help you prepare the forms. 

Key Takeaways

Filing taxes with partners through an LLC requires you to complete Form 1065 and Schedule K1. That rule applies to all partnerships unless you’re married to your partner. In that case, you can file a 1065 or in a different way. 

There are some benefits to filing using Form 1065, including, but not limited to, its ability to: 

It takes a long time, and it may be complicated to file taxes with partners using Form 1065, but we’re here to help. Book a free discovery call to find out how we can best solve your tax needs.

Costly Mistakes to Avoid in Creating a DIY Estate Plan

It's tempting to save money with a DIY estate plan. For real estate investors, doing your estate planning yourself is not ideal. Your estate is likely more extensive and complex than an online DIY estate plan covers. 

There are tons of tiny details and places to trip you up in estate planning. The number of elements and potential pitfalls make it a near-requirement for real estate investors to get professional help from an attorney. 

You wouldn't want to jeopardize your assets from a missed signature, would you? 

Below you'll find a definition of a DIY estate plan, problems specific to real estate investors, and some common issues plaguing people who plan without expert advice. 

What Is A DIY Estate Plan? 

Typically, a DIY estate plan is when a person completes their estate planning documents. 

Some examples of a DIY estate plan include: 

A DIY estate plan is a bit like Googling open-heart surgery and then performing it on yourself. Possible? Maybe, but unlikely. 

It's complex and needs a person with the expertise to conduct the transaction.

DIY Estate Plan: Unique Problems For Real Estate Investors 

The primary issue with a DIY Estate plan is that it's too general. The forms are boilerplate and meant to address as many situations as possible. The problem is that this approach is too broad. Your situation is specific and needs specific solutions. 

Suppose you own rental property in California, New York, and Texas. It happens; you die. You used a DIY estate plan, but maybe you didn't set up an LLC, a Series LLC, or a trust. 

When you die, your beneficiaries will likely go to probate:

Each of those probate courts will cost money in court costs and attorney fees. Fees can run as high as 5% to 10% of the estate's value.  

DIY Estate Plan: Costly Mistakes

It might be cheaper to plan your estate without an attorney, but you will have to pay in the long run. Some common issues that arise from planning your estate by yourself include: 

  1. Failure to execute 
  2. Witnesses
  3. Failure to fund a trust
  4. Forgetting to include a contingent beneficiary

Failure to execute

Failing to execute a will might come from mistakes or an overlooked detail in the will. An estate plan is not one document but a variety of strategies and legal procedures you want to be executed when you die. 

There are plenty of websites and mobile apps that let you create a will or a revocable living trust. An online document you do for yourself might sometimes work, but a real estate investor has a more significant estate. That larger estate is more complex to protect and probably exceeds the scope of a DIY estate plan.

Every state has laws that govern the execution of wills. Typically, a will and other documents need to be signed in the presence of two people who don't have an interest in the estate. Failure to sign the will properly means it will be unenforceable, and the state decides how to divvy up your property via probate. 

Witness Issues

It happens all the time. A person dies, and long-distant family members come pouring out of the woodwork. Or families argue about the decedent's estate. Those family members may say that you, the deceased, were unduly influenced during the creation of the will. 

A DIY estate plan provides no witnesses on your beneficiaries' behalf that can attest to your state of mind when you created your will. It becomes a matter of "he said-she said" in the courtroom, and a judge might invalidate the will and let the court decide how to split up your estate. 

If you have an attorney who drafted the will, you have a better chance of winning. The lawyer can speak to your state of mind, and that testimony has weight because the attorney is an officer of the court. 

Revocable Living Trust

You've set a revocable living trust, and you think everything is all set. Then the day comes when you pass away. If you didn't adequately fund your trust, your family's nightmare is just beginning. 

A living trust is just a document that says the trust exists. For the document to matter, you have to fund the trust properly. That means you must retitle or transfer ownership of the assets you own to the trust. If you fail to fund your trust correctly, your family will be on the hook for hefty fees (up to 15% of the estate) because they will have to go through probate to execute the trust. 

This is a costly and time-consuming mistake.  

Importance Of A Contingent Beneficiary

Imagine that you've planned your estate and have named your wife as the primary beneficiary. You have all the paperwork lined up and ready to go if you die suddenly. That's a great start. 

What happens to your estate if you and your wife die in a car accident? 

The estate goes to probate, and the court determines how to split your assets. That might not follow the plan you have set forth. To combat this issue, you should name a contingent beneficiary. 

A contingent beneficiary is a person or entity next in line if your primary beneficiary dies or is incapacitated. You can name a contingent beneficiary on: 

Our list is not a comprehensive list of items that can have a contingent beneficiary, but it's an excellent place to get started. Almost anything you can name a beneficiary for, you can also name a contingent beneficiary. 

Key Takeaways

DIY estate planning is detailed and requires a professional touch, especially for real estate investors. You'll want to work with a knowledgeable estate planning attorney to 1make sure your estate doesn't end in probate. 

In the long run, it'll cost much less. 

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom, reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

The Cost of Probate on an Estate

Dying isn't fun. What's worse than dying is the emotional, financial, and legal mess that you've left your family to navigate. That mess is the actual cost of probate. 

As a real estate investor, you've planned and prepared all your life. Don't drop the ball in death.

Do you want to leave your family in a stable financial situation when you kick the bucket? Do you want to care for your spouse and kids after you shed loose your mortal coil? 

Taking care of your heirs, sound like you? You're exactly in the right place.

What I'll show you is the cost of probate on an estate. I'll also reveal how to avoid probate's legal and financial pitfalls. 

That's important for a real estate investor because your estate may be larger than average. With that larger estate comes the potential for a larger legal and financial headache. 

Keep reading to learn more about the cost of probate. You'll also see some practical and actionable steps that you can take to protect your estate.  

What Is Probate?

Probate is the legal process to prove the validity of your will. When you die, the court-appointed executor of the will executes the probate process. 

The executor will collect all the dead person's assets, pay debts, and divide the estate between the beneficiaries. The executor and the court ultimately determine the final verdict on how to distribute your assets. Not you. Not your loved ones. 

The Startling Cost Of Probate

The true cost of probate is both time and money. For instance, probate potentially lasts up to a year. 

Additional time costs of probate include:

That's the best cast scenario where you have a will and named beneficiaries. 

If you don't have a valid will, you're in a state of intestacy. In other words, you're dead, and there is no will. Having no will virtually guarantees a lengthy and costly probate process. 

Even with a will, probate may still take a few months. In some cases, there will be legal wrangling for up to a year. That costs a lot of money.

Additional financial costs of probate include: 

All in all, probate can cost up to 10% of your total estate. 

Here is an illustration for probate’s potential costs. Suppose your estate is worth $400,000. In some cases, probate can cost as much as 10% of $400,000. 

That's $40,000 that doesn't go to paying your kid's college tuition. Or money not there for your wife's life-saving surgery. 

Probate is expensive, but there is a safe and legal way for you to avoid it altogether. 

Beat The Cost Of Probate, Guaranteed

A guaranteed way to beat the cost of probate is with a living trust. A living trust enables your family to skip the probate process. When you use a will, your estate becomes probated. In a living trust, there is a probate process. 

That means your estate passes promptly to your beneficiaries. All you have to do is create a trust document. Then, you transfer ownership of your estate to the trust and name a trustee. Typically, you'll name yourself the trustee to control the trust's estate. 

A nice benefit of a living trust is that it gives you operational anonymity. For a real estate investor, anonymity is critical because it can help avoid being sued.  

The other benefit of a living trust is that your heirs don't have to wait to get the estate. Also, people with ill intentions will find it difficult to challenge a living trust in court. 

One way you can add another layer of protection to a living trust is with a pour-over will. A pour-over will stipulates any property not put into the living trust is "poured" into the trust. Then, the trust divides and distributes the property among your beneficiaries.

All in all, probate can be an expensive process, but a living trust eliminates that cost. You are the ultimate decision maker with how you distribute your estate. Not the attorneys. Not the courts. It's impossible to overstate the value of the peace of mind that comes with a living trust.  

Key Takeaways 

If you don't have an estate plan, it might be time to get one now. The cost of probate can be substantial, especially for real estate investors. Lucky for you, it's easy to avoid probate. Our favorite option is setting up a living trust. 

A living trust makes it easier for you to pass on your wealth to your family. It also provides a layer of protection by giving operational anonymity. In our litigious society, that is a huge advantage.  

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom, reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

Avoid Probate and Spare Loved Ones Pain: Why a Will Isn't Enough

No one likes thinking about their death. But the only thing worse than your death is leaving behind a complicated legal mess for your family. As a responsible real estate investor, you should commit to estate planning to avoid probate court; and the headache probate brings.

This article doesn't cover all the myriad aspects of estate planning.

Instead, I'll show you a strategy that works—an approach that enables you and your family to avoid probate and protect your assets.

This article will delve into the definition of probate, how to avoid it, and describe a living trust and its advantages in estate planning.

What Is Probate?

Probate is the legal process governed by state law, in which a court evaluates a will. If the will is valid, then the court splits the deceased person's assets according to the terms of the will.

Probate is not a simple process. It's time-consuming, expensive, and can get incredibly messy for those involved. Like vultures, people suddenly want to snatch a piece of your assets for themselves once you're gone.

If you don't have a will or a power of attorney, the government decides how to split your assets after you die. Even if you do have a will, you can't avoid probate. Your grieving family will have to go through a court proceeding where:

Your assets get snarled in the tangled mess of court proceedings. Those court dates and lawyer fees eat up even more of your estate. Ultimately, if you want to leave your family in the best financial position, it's better to avoid probate altogether.

How Do I Avoid Probate?

You avoid probate through clever estate planning and using a living trust. A living trust provides you ultimate privacy and control in the event of your untimely demise.

Think of a living trust as your corporate shield that sits atop your estate planning structure. Here's how it works–the trust document holds all your assets including, but not limited to:

The living trust is at the top of the structure, and it owns the LLC(s). The LLC(s) own all your assets and provides a convenient, anonymous, and lawsuit-resistant way to hold your assets when you're alive.

Dying is scary, and thinking about your death is an existential crisis that no one wants to experience. To achieve peace of mind, consider a living trust as an investment in your family's future.

What Is a Living Trust?

A living trust is a legal strategy that enables you to avoid probate. A living trust is a legal protection mechanism for your property and investments. You create a trust agreement, and that trust takes control of your properties and assets.

You designate a trustee to control the assets. In virtually all scenarios, the trustee is the person funding the trust (you).

Why should you do this? Simple, a living trust completely negates the stickiness of probate court proceedings.

How Does a Living Trust Help Me Avoid Probate?

An enormously valuable benefit of the living trust is the ability for you to name the beneficiaries of your assets when you die. That benefit helps your heirs avoid probate.

Also–when you kick the bucket–your living trust still controls your assets. The trust is the legal vehicle you will use to pass your assets on to your heirs. Your assets stay within the structure, and the living trust and LLC prevent your assets from entering probate.

Your living trust enables your family or heirs to:

Since your assets are still anonymous, your heirs and beneficiaries are lawsuit-resistant. They can enjoy the assets immediately upon the transfer.

You can support your living trust with a will that directs your trustee to place anything not in the living trust into the trust so that it can distribute the assets. These are things like:

With the combination of a living trust, LLCs, and careful estate planning, you can enable your family to avoid probate and its expensive obstacles. Remember, you won't be there to protect them, so you should make their grieving process as clean and organized as possible.

Key Takeaways

To avoid probate, create a living trust. Probate courts can result in unnecessary hardship while eating up your assets. Those assets don't belong to the government or lawyers but to your heirs and beneficiaries.

An estate planning strategy prevents your family from having to make tough decisions after you die. A living trust gives you the control and privacy that you need to keep providing for your family once you shed loose this mortal coil.

Are you ready to take control of your financial future and ensure your family is taken care of when you die? Check out our FREE Estate Planning Masterclass and Estate Planning: Know More than Your Attorney in 15 Minutes.

Buy Real Estate through a Solo 401K to Achieve Total ROI

Your Return on Investment (ROI) is the most vital metric to measure success. When you invest in real estate, you may be able to achieve total ROI with a Solo 401K.

Do strategic investments with high returns interest you? Then you're in precisely the right place. This article will cover investing in real estate using a Solo 401K.

What Is A Solo 401K?

Unlike a traditional 401K, a Solo 401K (or self-directed 401K) is designed specifically for self-employed individuals. To qualify for a Solo 401K, you must be the sole owner or operator of a business with no employees other than your spouse.

What Are Some Advantages of Investing Through My Solo 401K?

Your Solo 401K offers unique advantages that make it an efficient and powerful investing tool. For a real estate investor, those advantages include:

Another key advantage of using your Solo 401K to invest in real estate is avoiding the Unrelated Debt-Financed Income (UDFI) tax. For a real estate investor, you do not have to pay the 40% UDFI tax on income or gains on your investment paid for by your Solo 401K.

Here are two scenarios that illustrate the advantages of investing through your Solo 401K.

Scenario 1: Bob uses a Solo 401k and invests $100,000 of Solo 401k funds to acquire a real estate property. Bob also secures a nonrecourse loan from a bank for $100,000 and purchases the property for $200,000.

Assume the property generated $10,000 of net income in a year after calculating all eligible deductions. The UBTI tax would not apply to any of the income or gains generated by the real estate investment!

Scenario 2: Bob uses a Solo 401k and purchases a property for $200,000. Bob then sells the property three years later for $400,000. The $200,000 earnings Bob captured are tax-free!

How Can I Achieve Total ROI with a Solo 401K?

Typically you cannot use a traditional 401K to invest in real estate. However, the Internal Revenue Service (IRS) allows Solo 401K holders to invest in:

The Solo 401K is a powerful investment strategy that you can use for total ROI. Here is how you would go about using your Solo 401K to invest:

Step 1: Open Your Solo 401K Connected To Your Business Entity

The process entails making sure that your Solo 401K account is the only entity associated with:

Step 2: Fund The Solo 401K

You can fund the Solo 401K and make contributions using:

Step 3: Choose How You Want To Purchase The Property

Typically, you have three options when you invest with a solo 401K:

  1. Cash purchases: are the most straightforward options in which you use funds from your account to purchase a property
  2. Tenants-in-common: allow you to use both personal money and Solo 401K funds to invest in a property
  3. Nonrecourse business loans: protect your assets from lawsuits, bankruptcy, and other potential risks

Step 4: Conduct The Transaction With Your Solo 401K

Your Solo 401K must be the purchaser of any investment property. If you use your name on any documents on the purchase, the IRS will prohibit the purchase. Conduct the transaction by having your Solo 401K:

You are the trustee on the Solo 401K. As a real estate investor, you need to submit the purchase documents to your escrow agent. Store all the documents in a secure place.

How Can I Get Cash From My Solo 401K?

You can lend to yourself from the retirement plan, and the funds have no restrictions. You can take out half of your retirement account, or $50,000, whichever is lower.

For instance, if your retirement account had $75,000, you would be able to take out half of that amount, or $37,500. On the other hand, if your retirement account had $150,000, you would only be able to take out $50,000.

The loan money comes out of the fund as cash, but you must pay the retirement account back with interest. As long as you pay the market interest rate, you have the option to pay your loan back quarterly over five years.

For unique investing opportunities, check out our additional resources: Buy Tax Liens With Your Self-Directed IRA LLC OR Solo 401K.

Is A Solo 401K Plan Safe From Creditors?

Solo 401K plans do not automatically include protection from creditors. However, you do have protections under federal bankruptcy laws.

For non-bankruptcy creditors, protections fall at the state level. Solo 401K plans do not receive protection from the Employee Retirement Income Security Act (ERISA). State laws protect you in most cases subject to certain exceptions, such as child support.

Total ROI with a Solo 401K IS Possible

Investing in real estate may result in a total ROI with a Solo 401K.

There are some distinct and attractive advantages of investing with a Solo 401K:

We covered four critical steps to investing with a Solo 401K:

  1. connecting your 401K to your business
  2. funding the retirement account with your contributions
  3. choosing how to acquire the property
  4. using your 401K for all transactions

Are you interested in learning more? Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Complete Guide to Selling an Inherited House As-Is with Siblings

Are you considering selling an inherited house with your siblings? Dealing with the death of a parent or guardian is an emotional period, complicated by the administrative and legal tasks that go hand-in-hand with death. If you're inheriting a house with siblings, there are also financial and sentimental challenges to navigate.

Many families opt for selling an inherited home as-is to minimize the timeline and see the financial returns as soon as possible. However, what's intended to be a gift can become a burden if this process isn't handled properly.

Types of Home Inheritances

Inheriting a home may seem pretty straightforward. However, different types of inheritances can impact how you handle the sale of the property: deed inheritance, will inheritance, and trust inheritance.

A deed inheritance works similarly to a life insurance policy. Also known as a "Title by Contract," this applies to mortgages that have a beneficiary or beneficiaries listed to receive the property in the event of the contract holder's death. The beneficiary is listed as a "Remainderman."

A will inheritance is a bit more complicated to manage. This type of home inheritance is what most people envision when they consider an inheritance. The property owner leaves the house to you and your siblings in the will. However, as the will is not a part of the original ownership contract, you must use the will to go through probate proceedings to secure the property. This process delays the sale of the home by months.

Finally, a trust inheritance indicates that you and your siblings are entitled to the home after a certain age. This type of inheritance typically doesn't apply to adult children or siblings.

Determining the type of inheritance you've received will help you understand the timelines and legalities involved. It's worth hiring an attorney to navigate these processes.

Selling an Inherited House? Understanding Inherited Ownership

When you inherit a house with your siblings, state law dictates that you share ownership equally. In addition to sharing the asset, you're also equally responsible for any outstanding liabilities and debts (i.e., the mortgage and property taxes) and for claiming income from the property.

This means that you and your siblings will be equally responsible for paying debts— especially if there's no life insurance to cover the outstanding mortgage— even if you have different income levels. Additionally, you'll all have taxable income from the sale to navigate with the IRS. It's worth getting professional legal and accounting advice as individuals when navigating the process.

It's also important to note that selling an inherited house can't take place without agreement from all of the listed beneficiaries. If a sibling is pushing back, you may require legal intervention before listing the home.

It should be no surprise that handling the administration of dividing debts and income and listing the home is a significant undertaking. If one sibling handles the majority of the work, they are legally entitled to additional compensation for their time from the estate. Again, having legal counsel in place to assist is beneficial.

Dealing with an Outstanding Mortgage

Getting mortgage insurance is one of the best things a homeowner can do to protect their family should death occur— unfortunately, many opt out of this coverage. When mortgage protection is in place, the costs are covered, and the beneficiaries don't have to worry about paying it off.

So what about those cases when the parent didn't have mortgage insurance or life insurance, and a mortgage is still outstanding?

Rest assured that under federal law, a mortgage lender cannot demand the entire mortgage in a lump sum from the beneficiaries of inheritance. In some states, there are even protections in place to give beneficiaries the right to walk away from an inheritance with a mortgage without the bank being able to go after their personal assets.

The process of transferring a mortgage after death is contingent on each lender's policies and procedures. Generally, it's a lot of tedious paperwork, but not too difficult. Inheriting a mortgage does mean you'll be required to make those payments until the house is sold. When the home sells, the profits will be applied to paying off the mortgage before being divided between the beneficiaries.

Home Inheritance Taxes

When you inherit a home, a policy called "stepped-up basis" comes into effect. This policy ensures you only pay gains on the selling profit versus the home's value today rather than the original value. Suppose your parents bought the home for $50,000, and it's now worth $200,000. You sell it as-is for $220,000. You and your siblings would be taxed on the gains of $20,000 rather than $170,000.

It's important to understand this concept, as many parents mistakenly "gift" the home to their children before their death. In that case, you would be taxed for the $170,000 gain.

Selling a House As-Is

Selling an inherited house as-is means that you're listing the property in its current state with the understanding among buyers that you won't be making any repairs. Buyers still retain the right to have an inspection completed, negotiate the price, and access a full property disclosure from the sellers.

The advantage of selling a house as-is is that you won't have to put any time and money into the property before selling. This streamlines the process of paying off the mortgage, potentially getting extra money, and moving on with your lives.

As inheriting a home with siblings can be complex, it's important to hire a professional attorney and consult with a skilled accountant.

Key Takeaway

Spare loved ones the pain of probate and ensure that your assets are distributed exactly according to your wishes by having a professional estate plan put in place. This can be accomplished through a 3-part strategy that involves a Living Trust, Pour Over Will, and power of attornies for making medical, financial, and managerial decisions. By not having a proper estate plan, you are at extreme risk of losing up to 1/3 or more of your estate to probate court and attorney fees. To learn more about Royal Legal Solution's rock-solid estate plan service, visit Estate Planning for Real Estate Investors.

Roth Conversions to a Solo 401K to Offset Losses

Are you a self-employed real estate investor? If so, the solo 401K may be the best option for you. The solo 401K is an IRS-approved retirement plan that enables you to minimize your tax burden. Read on to learn more about how this tax strategy works and how you can offset losses with a solo 401K and Roth conversions.

What is a Solo 401k?

As mentioned, a solo 401K is an IRS-approved retirement plan. Also, the solo 401K is ideal for self-employed business owners or business owners with one other employee, usually their spouse.

This retirement plan allows contributions of up to $60,000 each year.

If you want to learn more about the solo 401K and its many benefits, read our informative guide: Solo 401K vs. Self-Directed IRA: Which Is Better For You?

What is a Roth IRA conversion?

A conversion is a taxable movement of cash, real estate, or other assets from a Roth IRA to a Solo 401K.

When you convert from a Roth IRA to a solo 401K, there's a tradeoff. You will face a tax bill, possibly a big one, due to the conversion. If you decide to convert a portion of your Roth IRA conversions into a Solo 401K, you will pay taxes on the money you convert.

However, you'll be able to secure tax-free withdrawals as well as several other benefits, including no required minimum distributions, in the future. With proper tax planning, you may even be able to mitigate the tax bill from the conversion.

All in all, you pay taxes on the money you convert to secure tax-free withdrawals and several other benefits. One of the most significant benefits is that you will no longer have the required minimum distributions in the future.

Why are Roth conversions a popular tax strategy?

Roth conversions remain popular as many taxpayers fear that tax rates will only increase in the next few years. A Roth conversion enables you to convert now at lower tax rates, let your account grow, and let you make a tax-free withdrawal over the life of your retirement!

How is a solo 401K different from a traditional IRA or 401(k)?

Remember, if you have a traditional IRA or 401K, that money grows tax-deferred, but you pay tax on the distributions as you withdraw the funds at retirement.

The tax rate might be much higher when you retire. That means you would potentially lose more money to taxes each time you make a withdrawal.

Another thing to remember is that once you reach age 72, you must withdraw a certain amount of money each year, or the "required minimum distribution."

How can I offset losses with a Roth conversion?

One of the ways to mitigate the tax impact of the conversion is for a business owner to offset net operating losses (NOL). The income generated by a Roth conversion may offset the NOL, and the business owner may not incur any additional tax liability. Additionally, there is no limit to the amount of income that an NOL can offset.

What is a net operating loss?

Generally, a net operating loss (NOL) is an excess of deductions over income from the operation of a business. These deductions are expenses from the operation of a business.

For individuals, an NOL may also be attributable to casualty losses. A casualty loss occurs from the destruction or loss of your (taxpayer's) personal property. The casualty loss is a single, sudden event.

For instances of theft, you will need to prove that someone stole the property.

Example of how you would offset losses with a solo 401k

First, a disclaimer: these calculations can be complex, and investors should consult with a tax professional or financial advisor to decide the best strategy for them.

The following example illustrates the calculation.

INCOME

Spouse’s wages
$75,000

Interest and dividends
5,000

Total income
80,000

DEDUCTIONS

Net business losses
(itemized deduction and personal exemptions not allowed in net operating calculation)
(170,000)

NOL for tax year
(90,000)

Income from Roth IRA conversion
90,000

Net taxable income
0

This example is for illustrative purposes only.

In this case, the couple may decide to convert $90,000 from the IRA. Then they can use that $90,000 to offset the loss and possibly avoid generating any tax consequences.

If you want to learn more about how the solo 401K lowers your tax burden, read Self-Directed Solo 401K: How to Avoid Tax Penalties.

Here's The Bottom Line

The solo 401K is probably right for you if you are self-employed. You need to decide if it's the right time for you to convert money in your Roth IRA to a Solo 401K.

If you do decide on a conversion, remember the tax bill upfront secures your freedom from "required minimum distributions." Also, you may be able to offset your losses with a solo 401K.

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Tax Savings Strategy to Achieve Financial Freedom

Are you ready to grow your real estate business? To do that, you need a solid tax savings strategy.

You already know that there are considerable advantages to investing in real estate. The passive income, substantial tax savings, and long-term security most likely drew you to real estate investing.

Real estate investing is the first step in your plan for financial freedom. The first thing you need to focus on is finding good real estate deals.

The next step is to maximize how your money works for you. Read our list of six tax savings strategies to achieve financial freedom and build wealth.

#1: Start with the children, house, and vehicle

#2: Maximize your deductions

This tax strategy is primarily for single-family home investors and the available deductions.

You have a multitude of deductions available to you as a real estate investor.

Deductions that do not impact financing Deductions that do impact financing
- Amortization
- Auto
- Depreciation
- 529 Plan
- Home office
- HSA
- SDIRA
- SOLO 401K		 - Business expenses
- Credit card processing fees
- Legal fees
- Office furniture
- Office supplies
- Repairs and maintenance
- Tax prep fees
- Travel expenses

As a sharp real estate investor, you need to know which deductions impact financing because it affects your ability to get loans, secure more properties, and generate wealth.

#3: Start a SOLO 401K

With a SOLO 401K, you can save $58,000 a year in taxes. If you're married, the tax savings increase to $116,000.

How a SOLO 401K works as a tax savings strategy:

Do you want to know more about this powerful tax vehicle? Visit our SOLO 401K Hub to learn more!

#4: Create a Self Directed IRA (SDIRA)

You can add a Self Directed IRA on top of your SOLO 401K.

This SDIRA enables you to manage everything as long as you set up an LLC owned by the IRA. Then, you can invest through the LLC and shelter about $7,000 more per year from taxes.

#5: Use the DB(K) Tax Savings Strategy

The official name of this plan is the Eligible Combined Plan which Congress created as part of the Pension Protection Act of 2006 under Section 414(x) of the Internal Revenue Code.

You can combine the SOLO 401K and SDIRA with the DB(K) strategy. You gain an additional shelter which allows you to grow your wealth with a deferred tax, more capital in play, and higher returns.

#6: Get a Real Estate Professional Designation

If real estate is the primary source of your income or you are a "stay at home" husband or wife, use this strategy.

You can use your depreciation and other losses from real estate to offset other income.

If you are a high self-employed or 1099 income earner, you should consider investing in commercial and multifamily investments. You can use cost segregation, accelerated, and bonus depreciation to avoid taxes.

Even if you are a W2 employee, you have to document your time thoroughly and may be able to secure the designation.

Learn more about the requirements it takes to earn a real estate professional designation.

Tax Savings Strategy Key Takeaways

We went over six tax strategies you need to take to grow your real estate business. These six strategies will help you achieve financial freedom and grow your wealth.

Remember to:

  1. Start with the children, house, and vehicle
  2. Maximize your deductions
  3. Start a SOLO 401K
  4. Create a Self Directed IRA (SDIRA)
  5. DB(K) strategy
  6. Get a Real Estate Professional Designation

We've covered a lot of information that may include concepts that are new to you. To hear this content presented by Scott Smith check out Royal Investing: Episode #1 Tax Savings Strategies on our Wistia channel.

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Wyoming Statutory Trust vs. Delaware Statutory Trust

Asset protection isn't easy, especially if you are a California-based real estate investor. The good news for you is that LLCs aren't your only option. A Wyoming Statutory Trust, for example.

Using LLCs is a last resort for the California investor when looking for comprehensive asset protection. The $800 per year franchise taxes probably make a non-starter for you as you seek to compartmentalize every asset you own.

Does this sound like you?

The truth is that you don't need LLCs for protection in California. Also, you can use trusts that function just like traditional LLCs and Series LLCs. That's important as a real estate investor because these trusts provide:

To protect real estate investors like yourself, you might consider reliable and proven options, like the Wyoming Statutory Trust and the Delaware Statutory Trust.

Read on so you can evaluate the Wyoming vs. Delaware Statutory Trust, then decide which one is right for you.

Wyoming Statutory Trust: A Unique Tool for Savvy Investors

The Wyoming Statutory Trust and Missouri Statutory Trust function like LLCs, but they are trusts.

If you use the Wyoming Statutory trust for protection, you can:

Since you create these trusts with anonymity through the use of a nominee trustee, you can anonymously own both:

We recommend using an attorney to create the Wyoming Statutory Trust. Your attorney should also serve as the nominee trustee to ensure your anonymity. Your attorney protects you and your trust with attorney/client privilege as a trustee.

Valuable Evaluation of Pros and Cons

The Wyoming Trust may be the right trust for you if you have fewer properties or have no plans to grow.

The upsides to the Wyoming Statutory Trust include:

Wyoming privacy laws do not require the registration of trust agreements. That means privacy about you, your family, assets, and your estate plan.

You should be aware of the limitations of the Wyoming Statutory Trust. The main issue with the Wyoming trust is the complexity it adds to scalability. It may turn out that this trust proves too complex and expensive to provide the proper protection for you.

The first is management. Management of each trust requires:

You would have a multitude of entities that may each require their tax reporting and filing. The amount of reporting on the entities can be an operational nightmare as you grow.

The second limitation deals with scalability. As you scale, you will be financially responsible for:

What follows is more information to help you decide on the merits of the Wyoming Statutory Trust vs. Delaware Statutory Trust.

Delaware Statutory Trust: Proven Asset Protection

The Delaware Statutory Trust functions like a Series LLC, but it is a trust. That means the Delaware Trust might be for you if you have multiple properties to protect and you have plans to grow your business.

The Delaware Trust allows you to:

An attorney is acting as nominee trustee and masks the actual ownership.

Promising Security from Delaware's Trust

The upside to the Delaware Statutory Trust includes:

The trust allows you to scale freely without additional operational complexity or tax filings.

Everything in your life should stay precisely the same as if you managed everything through a single entity that you wholly owned.

The primary downside is that the Delaware Statutory Trust cannot hold any active businesses such as typical commercial businesses, and you cannot "flip" your investments.

The limit on commercial businesses and the inability to "flip" properties may not fit your specific situation. Still, the Delaware Trust is a solid option in many investing cases.

We know the decision is an important one for you to make. Read our "Step-By-Step Statutory Trust Beginner's Guide" for more information.

The Bottom Line: Wyoming Statutory Trust vs. Delaware Statutory Trust

The Wyoming Statutory Trust is an excellent option if you have a single asset and don't plan on acquiring more.

If you are an investor with intentions to scale, then the additional upfront costs of a Delaware Statutory Trust will pay dividends in the long run.

You want to protect your assets and ensure your financial freedom. Let us help you! Register for FREE Royal Investing Group Mentoring on Wednesdays at 12:30 pm EST to learn more.

The Ultimate Estate Management Guide for Savvy REIs

Here is your ultimate guide to estate management and a list of things you should do to get started.

As a savvy real estate investor, you know that you don't have to be ultra-wealthy to need estate planning. Your estate includes everything you all own. Protecting your assets for future generations makes estate planning worthwhile.

Keep reading to learn how to protect your assets!

Basic Overview

Estate management, also called estate planning, is the action of picking who receives your estate and manages your responsibilities if you are dead or incapacitated. The process ensures your beneficiaries enjoy your estate with less tax burden.

Estate planning establishes a procedure that can align with your personal and financial goals. How do you want your assets divided if you die or are incapacitated?

If you want to learn more about estate planning benefits, check out our guide, Estate Planning for Real Estate Investors.

Here are three estate management tips to protect your financial future.

Estate Management Tip #1: Inventory All Your Assets

You have enough stuff to start estate planning. Once you take a closer look, you will realize how many assets you have. In general, you can have tangible assets and intangible assets.

Tangible assets include:

Intangible assets include:

Once you know how large your estate is, you need to estimate its worth. You have options for assessing the price of your assets:

Either way, you choose to estimate the value of your assets, you will ensure that your heirs inherit your possessions equitably.

Estate Management Tip #2: Establish Your Legal Plan

Once you know what's in your estate and how much it's worth, you need to think about how to protect your family and assets once you're not in the picture.

As a real estate investor, you have more things to consider, and your estate management plan needs to include legal directives. A wise option for carrying out your directions is establishing a living trust.

A living trust might be right for you. A living trust allows you to designate which portion of your estate goes where. If you're incapacitated, your trustee takes over. But, how do you find a trustee for your living trust?

Finding a trustee can be tricky. At a minimum, you want your trustee to be someone who:

Read our article Finding A Trustee For Your Estate Plan to learn more about selecting the right trustee for you.

If you die, your trust assets transfer to your beneficiaries, and you get to skip the probate process.

Probate is a time-consuming and expensive court process that determines how to divvy up your estate. It's best to avoid court in these matters, so you might consider using a pour-over will in addition to a trust for the best protection.

A pour-over will is a standard will form stating that the assets not included in your trust should be moved into the trust and distributed via the living trust terms.

Read more about the benefits of establishing a living trust in our article Living Trust Versus A Will: What's The Benefits For Rei?

Estate Management Tip #3: Determine Your Beneficiaries

Whether you choose a will or trust to carry out your wishes, you will need to determine who receives your estate.

Follow these steps to ensure that your assets go to the right people:

Key Takeaways

Change is the only constant in life. As a result, your estate management plan needs to be flexible. To keep your assets protected, make sure to revisit your plan regularly and if you have a life circumstance change.

We went over the importance of inventorying your assets, estimating their value, establishing a legal plan, and determining your beneficiaries. If you follow our ultimate estate management guide, you will take a huge step toward protecting your assets.

To learn more, check out our Estate Planning hub. This page serves as a knowledge base on all things related to leaving your legacy.

Asset Protection for Financial Freedom

Whether you are an experienced real estate investor or building a new real estate business, asset protection & financial freedom have to be on your mind. Scott Smith, Royal Legal’s founder, and lead attorney, recently sat down with real estate investor Whitney Sewell to discuss Asset Protection for Financial Freedom.

This informative discussion covered the importance of protecting your assets and why a real estate investor should not solely rely on insurance policies for protection against lawsuits.

#1 Insurance doesn’t provide asset protection from lawsuits

As a real estate investor, you have to know that you can’t hold assets in your name and rely on insurance to protect you. The amount of coverage insurance is insufficient, and you may find yourself on the wrong end of a lawsuit.

Scott provides a personal anecdote about a friend who got sued for breach of contract and lost. Because his friend relied only on insurance and held his assets in his name, he lost $3 million in real estate.

That’s not to say that you shouldn’t have insurance. It would be best to get insured, but you must realize that insurance does not completely protect your assets. Insurance covers you from things like negligence. However, it does not protect you from things like breach of contract, fraud, and gross negligence claims.

Breach of contract, fraud and gross negligence claims have the potential to derail your real estate investment business. To get 100% bullet-proof protection, you have to think and conduct business like a wealthy person.

#2 Think like a wealthy person

We live in a litigious society, and having assets may make you a target for lawsuits. To protect yourself, adopt the same strategies that wealthy people use. That means:

Think about it like this: Wealthy people don’t own things. Instead, they have companies that own stuff for them. When someone sues a wealthy person, there isn’t anything to get. The asset holding company protects wealth and ensures privacy from litigation. That’s why asset protection for financial freedom is such a critical step in wealth generation.

#3 What is the most cost-effective way to achieve asset protection for financial freedom?

The Series LLC is the most cost-effective way to protect your assets. With a Series LLC, you can isolate your investments from one another.

If the worst happens and you get hit with a lawsuit, the plaintiff cannot get to your other investments, nor can they get to your assets. The Series LLC helps you think and do business like a wealthy person because:

These layers of a Series LLC work together for maximum protection of your assets and investments. Savvy investors use the anonymity of the LLC to prevent people from locking onto them as a target to sue, and it allows them to keep their investing strategy private from competitors.

#4 How does the Series LLC provide asset protection?

The Series LLC efficiently and affordably protects your assets from lawsuits by using a “parent-child” structure. The process goes like this:

Each of the “child” LLCs protects assets and isolates them from the rest. If you did not have a Series LLC, you would have to pay to establish an individual LLC for each of your assets to create separation.

The best protection from lawsuits is anonymity. When people think that you have nothing of value, they have no motivation to sue you. A Series LLC shields your assets from the public and makes it an unprofitable decision to sue you.

If a plaintiff sues you, the Series LLC “parent-child” structure makes it so that only one of your assets is at risk.

Do you have a plan in place already? If not, let us show you how to achieve asset protection for financial freedom and build generational wealth through the use of a Series LLC.

Read this article to decide if it is the right way to get bullet-proof protection for your assets, Series LLC For Real Estate Investors.

Asset Protection for Financial Freedom Wrap-Up

And there you have it! An explanation about how to achieve asset protection for financial freedom.

We started by discussing the shortcomings of focusing solely on insurance for liability protection, noting that insurance provides some, but not all, of the asset protection you need.

We’ve also talked about the tips and tricks that wealthy people use to protect their wealth. Then, we went over what a Series LLC is and how it provides the most cost-effective way to protect your investments.

Ready to take your education to the next level? Get FREE Access to the Asset Protection Vault. This contains access to our top 5 video Masterclasses and ebooks for real estate investors.

Successfully Investing in Real Estate as a Married Couple

You've chosen a life partner and are married. You may be asking yourself, is it wise to make my spouse my business partner? The answer could be yes. You would want to be sure to have a game plan in place. Good communication would also be necessary to balance the commitments of your marriage and business. Real estate investing as a married couple can be a very rewarding and lucrative endeavor.

In this article, we discuss:

Keep reading to develop a solid plan that safeguards your marriage and business.

Benefits of Real Estate Investing as a Married Couple

First, let's talk about why operating a business that involves real estate investing as a married couple is a good idea:

You and your spouse will share financial goals in your business. For instance, there will not be interoffice politics to navigate, and you will both work to secure your financial freedom.

Working with someone you trust, like your spouse, there is also peace of mind. Since you trust your spouse, the business will benefit from your stability and commitment to your marriage and the company.

Before You Start Real Estate Investing as a Married Couple

Before you dive into a real estate business with your spouse, you should discuss:

After you answer these questions with your spouse, make sure to write your decisions down. Having these agreements in writing protects both of you in the event of:

No one wants to think about the bad things that can happen in a marriage, but those adverse events have ramifications for your business. That's why it's essential to have plans "just in case" different types of scenarios occur.

Options for Running Your Real Estate Investing Business as a Married Couple

In general, the IRS allows for four different types of business structures:

Did you decide that only one spouse will be an owner? You might choose to create a sole proprietorship or a single-member LLC.

Are both you and your spouse going to be owners? You will most likely choose either a partnership, LLC, or a corporation.

Sole proprietorship

The following conditions must be met to be a sole proprietorship:

Taxes on a sole proprietorship, each spouse must file:

Considerations for running your business as a sole proprietorship:

If you want more detailed information about this business structure, check out our article, "Can My Husband And I Own Our Business Together As A Sole Proprietorship?"

Partnership

Typically a partnership:

Taxes on a partnership:

Considerations for running your business as a partnership:

Read up on how a Limited Partnership can structure your real estate and other business deals in "Limited Partnership for Real Estate Investors" to see if this structure will work for you.

Limited Liability Corporation (LLC)

You will want to check your Secretary of State web page for more details, but in general, to form an LLC:

Taxes on an LLC:

Considerations for running your business as an LLC:

If you want to learn more about how LLCs protect you, your spouse, and your assets, read "What Are The Different LLC Types USe By Real Estate Investors?"

Corporation

This business structure is a separate entity from either your or your spouse. In general, a corporation:

Taxes on a corporation:

Considerations for running your business as a corporation:

Final Thoughts

Real estate investing as a married couple can be a massive advantage for both of you. You can secure your financial future together and reduce your tax burden. However, it's essential to know how to maximize your savings as a real estate investor.

For more information about how to keep more of your hard-earned money, read the following articles:

Consider attending our FREE weekly group mentoring calls if you are just starting with real estate investing as a married couple. During these calls, we discuss topics such as: how to best structure your business, how to protect your assets, what tax savings you can take advantage of, and more. Join us for Royal Investing, Wednesdays at 12:30 p.m. EST by Registering Today.

The Rental Property Asset Protection Checklist

Keep potential lawsuits at bay by viewing the rental property asset protection checklist we have prepared for you. By doing so, you’ll be able to protect your assets without worry or distraction.

The following checklist recommends some protective measures you can take for your real estate investments, cash, other assets, and financial future:

The bottom line is that the best asset protection strategies stop lawsuits from happening. This list will help you decide how best to protect your assets.

Anonymous Land Trust for Rental Property Asset Protection

Anonymous Land Trusts are highly effective but lesser-known instruments that protect your privacy as a real estate investor.

One vital benefit that anonymous land trusts provide is that unknown ownership makes it harder to file a lawsuit against you.

Here are some frequently asked questions about a Land Trust:

What are the parts of a land trust?
They are vehicles to help savvy investors hold properties anonymously. An anonymous land trust has three components: a grantor, a trustee, and a beneficiary.

How does a land trust work?
When you decide to form a land trust with Royal Legal Solutions, we serve as your trustee and manage the trust. You are the beneficiary which means you (1) are not publicly identified and (2) can enjoy the profits from your property.

Read “Anonymous Land Trust for Real Estate Investors” and get more details to help you decide if this sound legal strategy is the right solution.

Setting Up a Traditional LLC

Limited Liability Companies (LLCs) legally separate you from your business.

Benefits of an LLC:

We want to provide accurate information so you can make a sound decision. To that end, here are the most common drawbacks to using a Limited Liability Company:

Read “Texas LLC for Real Estate Investors” for more information. Ultimately, LLCs are okay for one asset, but a Series LLC is better for multiple assets.

Benefits of Setting Up a Series LLC for Rental Property Asset Protection

Series LLCs, a “parent-child” structure that ensures protection for your assets. Here are the steps of the structure:

Benefits of a Series LLC:

You might be having questions about a Series LLC. Here are the most common questions we encounter about this legal structure.

How does the Series LLC protect my assets?
Each asset is isolated from others.

How can I minimize my losses in a critical case?
The Series LLC structures your business in such a way that only one asset is at risk in any given lawsuit.

Why would I need anonymity?
If people think you own nothing, they have no motivation to sue you. Thus, the anonymity of the Series LLC shields you from lawsuits.

Read “Series LLC for Real Estate investors” to get a detailed account of how a Series LLC might benefit you. Overall, Series LLCs primarily help real estate investors with multiple properties or types of assets.

Avoid These Common Situations to Stay Out of Court

When you sign a lease with a tenant, you begin a legally enforceable contract that covers the terms of their tenancy.

Your tenant pays rent, and you conduct repairs and maintenance in exchange. When your tenant feels like they have no options, they might seek to sue you.

You don’t want to end up in a lawsuit, so make sure to:

Use this checklist as a guide to help you decide what type of asset protection is right for you. No matter what level of real estate investor you are, you need to protect your assets. Make sure to apply the lessons from this checklist today.

Bottom Line: Protect Your Assets

As you continue along your real estate investing journey, ensure that you protect your assets with the right financial strategies and business structures in place. Learn how to get bullet-proof asset protection with our FREE, 5-part educational series for savvy real estate investors.

Request your access to the Royal Academy Asset Protection Vault today!

Starting Your Real Estate Investing Journey

Are you currently considering starting a real estate investing journey?

Real estate investing makes people wealthy. Of the 400 richest Americans, 24 made their money on real estate investments. At one time, they were like you--starting as a novice real estate investing professional. Below we have compiled some of the opportunities and challenges you may encounter so that you can hit the ground running.

Here are the things that you should know as a beginner on your real estate investing journey.

The First Step Is Forming A Series LLC

Real estate investing is not without risk. As a result, before you take this monumental step towards securing your financial freedom, you need to have rock-solid legal and financial structures in place. One way to ensure that you have the proper legal and economic systems is to create a Series LLC.

Take a moment to discover how Royal Legal Solutions can protect you with a Series LLC. This business structure will safeguard your investment and livelihood.

Real Estate Investing Journey Fundamentals

You must be financially prepared to start investing in real estate. Read on for six tips to start on a solid foundation.

1. Reduce Your Debt for Maximum Advantage

As a new real estate investor, carrying debt is not ideal. Adding to your current expenses such as student loans, medical bills, or paying for essentials may put you in a challenging position. Ideally, you will want to have some money in savings to use as a safety net.

2. How to Use a Simple Method For Increased Profit

Depending on your investing goals, you will have to decide whether it would be better to purchase with cash or finance your real estate investment.

One benefit of a cash purchase is that you start accruing positive monthly cash flow. On the other hand, financing may generate a higher return on your investment.

For instance, you use cash to buy a property for $100,000. After collecting rent, deducting taxes, and other operating costs, you might see about a 10% return on your investment. A 10% return equates to a cash flow of $10,000 per year.

Another option is to finance the property with a 20% ($20,000) down payment and an annual 3.5% mortgage rate. After paying taxes, operating costs, and additional interest, your earnings will be about $6500 per year.

The cash flow is lower with financing, but the return on investment is much higher at 32.5%

3. The Bottom Line on Mortgages

Primary residence mortgages and rental property mortgages are similar. However, there are some critical differences.

First, people default much more often on rental property loans. That makes sense because a borrower who runs into financial trouble is more likely to focus on their primary home mortgage first.

In general, the additional risk associated with rental property loans results in lenders charging higher interest rates.

Second, rental property mortgages come with more stringent underwriting standards. The lenders closely inspect your credit score, down payment, debt-to-income ratio, and cash on hand.

4. Beware High-Interest Rates

In 2021, the interest rate is relatively low for a conventional mortgage. You should know that the interest rate on investment properties is higher than a traditional loan.

When you decide to become a professional real estate investor, you need to secure a low monthly mortgage payment so that your monthly payment does not disproportionately eat into your profits.

5. Seek Real Opportunities to Generate Wealth

You should set a goal of a 10% return on your investment. When developing your expectations, you need to consider the following factors:

An easy way to estimate your monthly operating expenses is to follow the 50% rule. Simply put, you need to figure that about 50% of your operating income will go to operating expenses.

For instance, if you charge $1500 rent, you should expect to pay $750 in total expenses.

6. Landlord Insurance: Important and Useful Security

It would be best if you protected yourself with landlord insurance. Landlord insurance covers property damage, lost rental income, and liability protection from a tenant or visitor injury on your property.

Profitable Tips to Give You the Edge

Surging Locations Are Key To Success

You will want to avoid making a real estate investment in a dying area that may become a burden to you.

Instead, find a city or location where the population is growing or where a community revitalization plan is in place. A revitalization plan in a community increases the likelihood of employment, living wage jobs, and tenants.

Here are some things to look out for in profitable rental properties:

Each of these factors will likely contribute to a healthy set of potential renters.

Be Shrewd With Rental Properties

Remember, the more expensive the home means higher operating expenses. An excellent place to start your real estate investing is finding a $150,000 to $200,000 home in a growing neighborhood.

You want to follow the Goldilocks Rule, "You are looking for something just right." Don't buy the best house in the neighborhood for sale, nor should you invest in the worst.

Beginners Should Avoid Distressed Properties

Part of finding a home that is just right is avoiding a fixer-upper. You might think you are getting a bargain and can flip a distressed property into a cash cow. If you are only beginning your real estate investing journey, that's a monumentally bad idea.

The price of building materials and a labor shortage make the house flipping industry an expensive and dangerous endeavor--ask Zillow.

The Hidden Benefits of Property Managers

Should you hire a manager or go at it alone?

Using a property manager is a significant consideration for you as an investor. As a landlord, you would be involved with vetting tenants, coordinating maintenance, collecting rents, and resolving disputes. You may prefer to offload those duties to someone else so you can focus on activities that grow your business.

Hiring a property manager can be a tough decision because it will cost a portion of your operating income. The cost can be a considerable chunk of your profits, typically between 8% and 12%.

That said, an experienced property manager might still be worth it to you. Realistically, a property manager eases the burden of being a landlord and brings lots of experience and expertise to the table.

Most property managers:

Consider the following to determine if a property manager is worth the cost: 

Pros v. Cons of Starting a Real Estate Investing Journey

As with any financial decision, you must decide if the benefits outweigh the costs. Real estate investing is a great way to increase your wealth, but it is not without risk.

See the table below to help you decide whether starting a real estate investing journey is right for you.

Real Estate Investing Journey Recap

First, one way to mitigate some of the risks you will encounter in real estate investing involves forming an LLC. Read more to learn about the benefits of using a Series LLC to protect your assets.

Second, make sure your finances are in order before you embark on your real estate investing journey. You can reduce your debt which will help lower your debt-to-income ratio and improve your credit score. A higher credit score means better rates and terms and more cash in your pocket.

Third, find affordable housing in growing areas. Remember, the key is to get affordable housing without buying a money pit that needs a lot of work.

Fourth, consider hiring a property manager--the hassle and time saved might be worth it to you!

Before you decide to begin real estate investing, ensure that you have the appropriate asset protection and business structures in place. To discover how you can achieve bulletproof asset protection, check out our FREE, 5-part educational series for real estate investors. Request your access to the Royal Academy Asset Protection Vault today!

8 Creative Ways to Fund a Real Estate Investing Startup

If you're considering a real estate investing startup, you may be wondering where you can get the capital to fund your first deal. Read below to find out about some of the many options available to you.

1. Conventional Loan

The most frequent type of mortgage is a conventional loan. You make a down payment, and the bank gives you the rest of the money in exchange for a lien on the property secured by a mortgage.

Investors who put down at least a 20% payment are not required to carry private mortgage insurance (PMI). PMI is a form of mortgage insurance that you may be required to pay for if you have a regular loan. PMI protects the lender if you stop making payments on your loan.

Not every real estate investing startup has the capital to go this route for their first deal.

2. Federal Housing Authority Loans

The Federal Housing Authority loan is a government-sponsored loan that encourages individuals to buy houses by allowing borrowers to make a down payment of 3.5%.

Because the FHA assumes some of the financial risks by ensuring the cost of the loan if the borrower fails to make payments, more borrowers can qualify for an FHA loan than a standard loan, and the lender can offer a competitive interest rate.

FHA loans come with some drawbacks for funding your real estate investing startup:

3. Private Lenders

A private lender is a person or entity that uses its own money to finance investments such as real estate and earns interest payments on the loan. Private lenders operate independently of banks or other financial institutions, and they deal directly with the borrower.

Here are some tips for finding private money lenders:

4. Venture Capital

Look for venture capital, aka angel investors. A real estate angel investor may help you finance the purchase of a property.

If an angel investor has faith in the proposed investment property's chances of success, they will supply the money required to finalize the transaction. Sometimes, angel investors will join forces to form angel groups to participate in more significant transactions.

Where can you find real estate angel investors?

Most people who have secured private investor angel capital claim that networking is the most effective method for locating real estate angel investors.

You'll need a polished presentation to approach potential investors. It doesn't matter how excellent you are or how helpful your services are if you can't communicate them effectively through a good pitch. A successful and effective sales pitch demonstrates your enthusiasm, proves that you know what you're doing, and answers questions. Practice your presentation to improve your public speaking and sales skills so that when the opportunity arises, you're prepared.

5. Crowdfunding A Real Estate Investing Startup

Real estate crowdfunding is a relatively new approach to investing in real estate.

Real estate investment platforms (also known as crowdfunding sites) link individual investors with real estate developers and other real estate professionals who want exposure to the sector without dealing with buying, funding, and managing properties.

Here is a list of real estate crowdfunding sites that may be suitable for your needs:

6. Hard Money

Hard money is similar to private capital, but it comes from a hard-money lender instead of a person. The term "hard money" is appropriate because the lenders secure the loan using the hard asset (the property).

Individuals use hard-money, short-term loans to purchase a property they intend on renovating and re-selling.

Typically, you'll get hard money to cover 70–80% of the property's purchase price before rehabilitation. So the lenders must be confident that the property is worth more than the loan and their cost to sell it if you default.

Hard-money lenders usually charge high-interest rates and include other expenses such as loan origination fees.

7. Home Equity Line of Credit (HELOC)

If you already own a house and have some equity tied up in it, you may use a home equity line of credit or HELOC.

Let's assume that you've spent ten years in your primary home paying down the mortgage and reaping the benefits of appreciation.

Your home appraises for $300,000, and your mortgage payoff amount is $150,000. Your equity in the property is $150,00 ($300,00 appraisal - $150,000 mortgage payoff).

You may use a HELOC to borrow against the equity in your home and use the $150,000 to purchase an investment property.

8. Fund Your Real Estate Investing Startup With a Self-Directed IRA

Many of our clients invest in real estate through their Self-Directed IRAs because there are several advantages, tax perks, and little-known secrets that only real estate investors with a Self-Directed IRA can utilize.

Do you want to learn more about Self-Directed IRAs and how they help you earn more from your real estate investment? Read our comprehensive guide on Self-Directed IRAs.

Critical Takeaways For Funding Your Real Estate Investing Startup

Royal Legal Solutions is here to help you along your real estate investing journey.

Preserve Anonymity by Using a Land Trust to Buy and Sell Real Estate

Do you want to buy or sell real estate properties? Using a land trust is a good idea because it protects your interests. A land trust is a legal entity that holds a title to real property in a name other than its own.

Owning real estate is an excellent way to make money. But the taxes and the fees you have to pay for it are often high. You can avoid these costs by using something called title insurance. When you own more than one property, you may have to pay these fees repeatedly as time goes on. But there is a tool that can help you reduce that cost. Read more here to find out when the best time is to set up a land trust.

There are three primary kinds of land trusts, each with its structure and way of working. These include a real estate investment trust, a conservation trust, and a community trust.

  1. A real estate investment trust is an organization that buys the property. The trustee, in this case, is a legal entity that works on behalf of the beneficiaries.
  2. A conservation trust is a private, nonprofit organization that buys the property and builds easements to stop people from developing certain areas.
  3. A community trust is a group of people who want to acquire low-cost housing. They buy the land and build the home, then sell it for a lower price.

Do you want to learn more about the hows and why of a land trust? Check out "The How, The Why, and The Basics of Land Trusts."

Remaining Anonymous Is One Of The Many Advantages

You might be worried about other people coming to your door to sell you something, or you don't want real estate investors contacting you--leveraging the anonymity of a land trust is ideal. You can put your property in someone else's hands.

In real estate, it can be hard to avoid sales calls from companies. To prevent this, you might want to remain anonymous so people won't find you. The trustee is not allowed to tell people your name unless a court says that they can. The anonymity will help you avoid people who might disrupt your day.

Your Property Is Protected From Liability

Being a real estate investor makes you an attractive target for lawsuits. People who want to litigate will know how much you paid for your properties and use that information to gauge your wealth. It may be that those people will use that publicly available information to take money from you by filing a lawsuit against you.

A land trust is an excellent way to keep people from finding out how much money you have. It is important to remember that a land trust will not protect you from every person, but it will help.

Prevent The Due-on-Sale Clause

When the lender chooses to sell the property, they can use the due-on-sale clause to collect the entire outstanding debt of a property holder. This clause might prevent you from making investments with the flexibility you require as a real estate investor. A land trust prevents you from having to pay the total amount due on sale.

However, this is not a rule for everyone. There are limits to it:

It's Simple To Transfer Property Ownership With A Land Trust

A land trust is when you give someone else your property. When both the grantor and beneficiary are still alive, then it is simpler to transfer. Some jurisdictions might use a land trust for tax reasons.

Should you need to change your company or break it down, it will be easier to put the land in the hands of a trust.

You Can Use A Land Trust To Sell Real Estate

There may come a time when you need to sell land held in a trust; the procedure will be the same as when selling a non-trust property. The only difference is that people will see the name of your trust instead of your given name.

When the time comes to sell your property, you need to study the trust agreement. You can sell assets of a trust if the trust agreement allows for the sale.

You will want to answer the following questions before selling with a land trust:

Do You Have The Legal Right To Sell This Property?

Sometimes there are many titleholders in a land trust, so it might be hard to sell all assets. The trustee will negotiate with other people in the trust, sometimes buying out someone else's share for an acceptable price.

However, people can't buy your property if they don't know who you are. In the case where the trust is only one person's property, then it doesn't matter, and you can sell off all your assets without anyone stopping you.

What Happens When A Land Trust Sells Real Estate?

Like any other real estate investor, a seller strives to achieve the highest possible price on each transaction.

The money is converted into a personal property trust when a transaction is completed. Then, the land is transferred from the trust to the new owner. It protects the funds for the beneficiaries while maintaining everything as it was before.

Final Thoughts

We hope this post has helped you to learn more about investing your money in land trusts. You have worked hard, and it is essential to keep your money safe. You can make sure that you keep your money safe and make a profit by investing in real estate through intelligent use of land trusts.

When you decide the time is right to use a land trust for your property investment, talk to a lawyer with experience with this kind of agreement. Finally, if you still have questions about land trusts, check out our detailed Land Trust FAQs.

Five Commonly Believed Land Trust Myths Dispelled

A land trust is a legal entity that is designed to protect the land from creditors. It does this by keeping land out of the owner's name and placing it in the land trust's name. Real estate investors have used these structures since the late 1800s when investors bought the land up left and right.

Savvy real estate investors created land trusts as an asset protection tool for wealthy landowners who were worried about losing their land due to lawsuits or other factors that could lead to bankruptcy. There are many misconceptions about these entities that people believe are true because they have repeatedly heard them—even though they aren't based on any facts!

In this article, we will explore five myths about land trusts and dispel them once and for all.

Myth #1: Land trusts are too expensive for real estate investors to use.

This is entirely false. While wealthy landowners have used land trusts in the past, there is no reason why real estate investors can't use land trusts today. Land trust registration fees are much lower than you might think!

People fail to understand that these trusts are not only for the wealthy landowner—this couldn't be further from the truth. Anyone can use a land trust to protect their land, no matter how much money they have in assets.

Do you have questions about setting up a land trust? Check out our article about the basics of land trusts. We answer the "how" and "why" of what you need to set one up to protect your assets.

Myth #2: Land trusts are a scam.

Land trusts have been around for over 100 years, and there is no evidence that they are a scam. They cannot be used for fraud or land grabs when land is being purchased. In addition, land trusts work if you buy with a spouse/partner.

Land trusts involving real estate are not always used by landowners alone. Many land trusts involve more than one landowner or even spouses/partners who must own the land together. The belief that only a single person can buy into a land trust is a persistent misconception that stems from the fact that some land trust providers don't allow multiple names on their forms.

This is easy to get around—write an addendum! Addendums are additional documents that can be used to modify an existing document such as a land trust. For instance, you could add information that would protect against tax liens or judgments in the land trust agreement itself.

There are multiple benefits to leveraging a land trust. We invite you to research those value-added benefits further here.

Myth #3: Land trusts are too tricky to set up.

Many land trust providers have excellent customer service, making it easy to get the land in your name, out of your name, and into a land trust.

An associated misunderstanding is that land trusts must be a specific size—some people believe that if your land doesn't meet a minimum requirement, land trusts won't shield it from creditors. That is not true either!

Maybe you have heard that land trust documents require a lot of paperwork and filings—false again! While it does take some time every year or two to update land trust documents, it's not nearly as strenuous or time-consuming as you might imagine.

Myth #4: Land trusts are only for large land purchases.

This isn't true! Many land trust providers have an option to choose which parcel of land you want to protect, so it's possible to register one  on land parcels that range in size from one acre up to thousands of acres.

The misconception is that land trusts are only helpful for wealthy landowners—while the upper class initially created land trusts, anyone can use them today! They offer asset protection to real estate investors who want to keep their land protected from

Moreover, some people think that land trusts don't protect real estate assets from lawsuits or creditors—this myth stems from the fact that land trusts are not always public knowledge.

As a real estate investor, you can structure land trusts to ensure the landowner's name is never publicly available. This doesn't mean land trusts don't protect the land from lawsuits or creditors—they do!

Do you think that you may need to set up a land trust? Find out if you are eligible and can benefit from setting up a land trust.

Myth #5: Land trusts are only for land.

Another common misconception about land trusts is that they can only protect the land. This isn't the case at all! You can own almost anything under a land trust today. These structures have become more common in recent years, so the costs have gone down significantly.

Conclusion

In conclusion, land trusts are not scams or land grabs—they're fundamental, valuable tools that can be used to asset protect your land.  They are not only for the ultra-wealthy but also for real estate investors.

They can help investors to protect the land from creditors, lawsuits, and other land problems. There are many myths about land trusts that can be dispelled with simple research!

Still, have questions? Check out our land trust FAQs for your answers.

How to Choose Which State to Register Your LLC In

You are taking the first step to financial freedom–you have started your own real estate investment business. After researching the next step, you've decided to form a Limited Liability Company (LLC). That's a good idea because an LLC provides some personal liability protection if your business is sued.

You care about protecting your assets. Do you want to make sure your real estate investing business is protected? Start with our investor quiz, and we'll help you find ways to protect your assets.

Your home state is the state in which you conduct your business. For example, if your real estate investment business is in Texas, you should form your LLC in Texas.

How do you know if you are "conducting business" in a state? Here is a list of things that characterize "conducting business" in a state and should influence your decision about where to form your LLC:

You can choose to form an LLC in another state, but then you have to register your LLC in your home state. This is problematic because you will:

In most cases, your home state offers the cheapest and safest route for registering your LLC.

What's The Best State For A Single-Member LLC?

A single-member LLC is a type of incorporation that recognizes the LLC as having one owner. It has all the same benefits and drawbacks as a multiple-owner LLC.

The best state for forming a single-member LLC is Nevada. Nevada is the top choice for a single-member LLC because:

The importance of anonymity for your LLC cannot be overstated, so Nevada (which provides total anonymity) might be the right choice for you.

One downside to incorporating in Nevada is the negative perception associated with the state. Nevada is stigmatized by the persistent belief that a business incorporated in the state but conducting business elsewhere is a front for organized crime.

What's The Best State For LLC Asset Protection?

Negative perceptions notwithstanding, Nevada is also the best state for LLC asset protection. The state's heightened asset protection dictates that your business liability is kept with the corporation.

In most other states, your LLC will protect against liability. These protections are not complete–some states provide avenues for liability to affect your assets if your corporation causes damages. Nevada does not.

However, Nevada does not require you to list your company's assets for the state. Coupled with the robust privacy laws, incorporating in Nevada provides the best protection to your privacy and assets.

What's The Best State To Start a Business For Tax Purposes?

Delaware, Nevada, and Wyoming are business-friendly states. If you decide to incorporate in one of those three states, you have the opportunity to benefit from the states' tax benefits. You don't have to live nor operate your business in Delaware, Nevada, or Wyoming to reap the rewards.

Here are some reasons why you may want to incorporate in one of the three business-friendly states:

You may wish to have the optimal tax situation but loathe the idea of relocation. It might be a good idea to incorporate in Delaware, Nevada, or Wyoming if that's you.

Why Do Some People Say Delaware Is The Best State To Form An LLC?

A little more than half of all Fortune 500 and publicly traded companies are incorporated in Delaware. They can't all be wrong!

There are myriad benefits to incorporating in Delaware, especially if you are a large organization.

Delaware offers lots of flexibility. That flexibility makes it easier for larger companies to set up shop. For example, if your business is large enough to need a board of directors and officers, those officers do not need to live in Delaware to work for your business.

Delaware has strong privacy laws. As an LLC, you don't need to provide many details about the members of your business for incorporation.

Delaware has efficient courts. Judges, not juries, decide corporate legal issues. Your judge will be an expert in corporate law, and the process is fair, objective, and efficient.

Delaware has attractive tax benefits. For instance, you do not have to pay state income tax if you incorporate in Delaware, but your business is physically located elsewhere.

Delaware is fantastic for big businesses, but smaller corporations might not get the same mileage out of those benefits. The cost and hassle of incorporating in Delaware might not be worth it for smaller companies.

What's The Cheapest LLC State?

Wyoming is the cheapest state to form an LLC. The benefits include:

Key Takeaways

An LLC provides some but not complete asset protection.

In general, it is best to incorporate it in your home state.

If certain conditions apply, Delaware, Nevada, or Wyoming may be your best bet for incorporation.

How to Avoid Getting Sued When You’re a Real Estate Investor

Getting sued is every real estate investor’s worst nightmare.

Running your own real estate business can be rewarding, but it’s also inherently risky. You put your money, time, and dreams on the line to make it a success, but sometimes things don’t go as planned.

Any number of things can happen, and it’s nearly impossible to prepare for all of them. Still, if your portfolio isn’t protected from some of the most common pitfalls, everything from your real estate assets to your personal belongings could be on the line. 

Getting sued can wipe out everything you’ve worked hard to create. So what can you do to protect your business from the inevitable lawsuit?

In this article, we lay out some basic asset protection tips: from getting flood insurance to setting up Series LLCs to more advanced incorporation strategies. It’s important to plan for the worst before it happens because almost every experienced real estate investor will -- at some point in their careers -- deal with some sort of legal issue.

Key Points About Basic Asset Protection

In this podcast with BiggerPockets, Royal Legal Solutions’ own Scott Smith outlined some of the most important steps you need to take in order to avoid getting sued.

Talk to Your Lawyer

This one may seem obvious, but one of the first and most important things that Scott says in the show is this: There’s “no one blanket piece of advice that applies to everybody… Everybody’s business is different. Everybody’s situation is different.” If you don’t invest your time and money into some sort of individual asset protection -- beyond reading an article on the internet -- you’re definitely not doing all you could to avoid a lawsuit. While we might be able to give you some tips that likely apply to your business, it’s still important to get a more personal look.

It’s Just Like Flood and Fire Insurance (If You Don’t Have Those, Get Them)

Obviously, floods don’t happen all the time. There’s no guarantee that your property will have a flood, even if it’s in a flood zone. Still, that danger exists -- and you likely have some form of insurance to protect against it (if you don’t, get it). The same thing is true for fire insurance: fires might happen, but there’s no guarantee. In case that they do, you know you want to be protected. Finally, lawsuits work the same way. A lawsuit might happen—or it might not—but you still want to be protected in the off-chance that it does.

When You Get Sued, You’re on Your Own

What happens if someone sues your LLC?

“You don’t really have any friends once you start getting sued,” Scott says in the podcast. When your friends and associates hear that you’re getting sued, it’s very likely that they’ll consult their attorneys for advice on what to do, and it’s very likely their attorneys will tell them to distance themselves from the situation as much as possible to avoid any additional scrutiny. 

More Strategies and Tips on How to Protect Your Assets

Avoid putting your properties in your own name. When it comes to asset protection, this is a big deal. In fact, Scott said it’s one of the first things he’ll ask real estate investors at conferences and business events. He puts it this way: “what rich people do is rich people don’t own things. What rich people do is they control things.” You don’t have to keep the property in your name, because that indicates ownership to any outsider who might be interested in pursuing a lawsuit just because they know that you have a lot of money.

Use a Series LLC to isolate your assets. This falls under a similar category as the point above. It’s possible to separate your real estate assets from your personal assets, creating an additional layer of security and making lawsuits very difficult. One way you can do this is by holding the properties in individual LLCs and then setting up those LLCs in one legal entity. This strategy is only specific to certain states, however, like Texas. You’ll have to do your due diligence to find out if it’s an option where you live. If it is, it offers an additional layer of protection and makes doing your taxes that much easier.

Use advanced strategies. When you’re setting up an LLC, you can actually put the name of a trust as the registered manager. Since the trust doesn’t have to be publicly filed with the state, every aspect of your business is essentially anonymous as long as you don’t attach your name to any of your properties or LLCs. 

Conclusion: How to Avoid Getting Sued When You’re a Real Estate Investor

Getting sued is probably one of the scariest things that can happen to a real estate investor. In this article, we laid out some basic strategies on how to avoid it.

One of the first things you should do is consult with your lawyer. While some of the strategies in this article are nearly universal, laws do vary from state to state, so it’s important to make sure the advice that you receive is personalized and actually applicable for your specific situation.

Beyond that, make sure that you have more than an umbrella insurance policy, don’t put your real estate assets under your own name, use a Series LLC to isolate your assets, and possibly even utilize some advanced strategies.

Want to make sure your real estate investing business is protected? Start with our investor quiz and we'll help you find ways to protect your assets.