An Investor Profile: An Inside Look at Investor Josh Bauerle

Some of you may already be familiar with Josh Bauerle, also known as the CPA on Fire. As both a young investor and a CPA, Josh takes a logical investing approach informed by his professional experience. By day, he works hands-on providing other entrepreneurs and small business owners of every stripe with superior tax and financial planning advice.

Josh Bauerle’s Intertwined Investing and CPA Careers

Josh’s real estate investing has been highly informed by his career as a CPA, and vice versa. He began his career with two properties, but now boasts a more robust 15 property portfolio. Josh is from the Midwest and has also done his most lucrative investing there. No doubt, his nuanced understanding of his home region gives Josh unique insight that has proven extremely useful for  investing in this market.

Josh uses his online platform to host a vast amount of educational content. Tax subjects are famously difficult to write about in a clear, engaging way, yet Josh consistently produces clear and simple articles and videos. Whether you need to know how to record your investments on Schedule E or get advanced tax strategy questions answered, odds are good Josh has covered the topic you need in his materials.

Free Negotiation Tips From Josh’s Better Deals

When we asked Josh about one of his first and best investments, we quickly learned that how he pulled off his negotiations was perhaps the most impressive part of the story. He was generous enough to break down his strategy, which is built off of a fact-driven approach.

Josh shared that when he enters a negotiation, he tries to anticipate every possible counter-argument that the seller may have to his requests. For each potential point of contention, Josh develops the most effective response possible. But rather than beginning with rhetorical flourish or argument, he starts with the raw data and facts that serve as evidence for his position or will refute the seller’s concern.

Any investor can take a leaf out of Josh’s playbook in this regard. The next time you find yourself in even a minor negotiation, try practicing this technique. You can even give it a shot in a lower-stakes transaction, say at a flea market, and work on substantiating your position with facts and evidence in the less consequential contexts/environments before leveling up to real estate negotiations.

Tune In To Real Estate Nerds Episode #18 To Learn More About Josh Bauerle

Josh was kind enough to join our lead attorney and podcast host Scott Smith for an episode of The Real Estate Nerds Podcast. Tune in to hear the two investors and real estate professionals analyze the details of Josh’s best deal. Josh’s episode of the Real Estate Nerds Podcast features even more of his tips on negotiation, taking advantage of a motivated seller, taxes, and more.

Are you inspired by the successes and failures of other investors? Do you have ideas for what you’d like to see more of in our Investor Profiles? If you want to learn more about a particular investor in this section or determine what legal protections your own portfolio needs, contact the team at Royal Legal Solutions. Feel free to ask your questions to our experts or schedule your consultation.

Stigmatized Property: True Crime, Real Estate, and Why Psychic Damage Can Create Great Deals

It’s always sad to see stories of cult and popular figures alike passing away in their homes. In March of 2019 alone, legendary California tattoo artist Lyle Tuttle, former Alaskan governor Keith Miller, and many lesser-known humble heroes whose names won’t make papers died at home. But have you ever wondered what becomes of homes associated with famous deaths?

What is a Stigmatized Property?

The phenomenon of property stigmatization is also known as “psychic damage.” It has nothing to do with the actual physical condition of the property in question. Psychic damage and stigma refer to far more subjective issues that may relate to beliefs about energy and “bad vibes.”

A common example of this type of damage is a home where a violent crime or suicide has taken place in the past. The former home of O.J. Simpson, where the controversial murder of Nicole Brown and another innocent took place, was one of the most notable stigmatized properties of the 1990s. While such homes occasionally rise in value for their infamy, this beautiful scene of an unforgettably brutal crime ultimately sold for under market value. According to the property’s appraiser Andrew Bell, who has handled many stigmatized properties including the home of JonBenet Ramsey, a crime will typically decrease the value of a property by 15-20%.

Crime isn’t the only cause of property stigma. Homes that were the scenes of suicides, natural deaths, notable accidents, or even homes tenants insist are haunted may be stigmatized too.

Do Homeowners Have to Disclose if a Crime Has Taken Place on a Property?

The answer depends on your state. Some states require owners to disclose many situations that could be stigmatizing, while others don’t require a disclosure at all. A competent attorney can explain state and local laws that apply to you.

Non-criminal events tend to be less legislated. But some jurisdictions may require the seller of a home to disclose tenant reports of hauntings, for example. Fortunately, we cannot be held legally liable for the actions of spirits and otherworldly beings that may hypothetically inhabit our properties.

Stigmatized Property Can Be an Investment Opportunity

The misfortune of the seller of a stigmatized property can often be the smart investor’s gain. Some investors explicitly seek out stigmatized property. Frankly, many people simply don’t care about a sordid history. What makes a home unlivable for the family looking for their first property may not even faze the investor. The subjective nature of stigmatized property can absolutely be exploited if you are willing to be open-minded, proactive and creative.

You can often find incredible deals on property with psychic damage of some type. You might even be able to find a steal in a state that requires disclosure of these incidents. A little bit of common sense goes a long way. The severity of the event, how long ago it occurred, whether it’s ongoing, and the fact that time can lessen the impact of tragic situations are all factors to consider. You may be pleasantly surprised by how motivated the sellers of these properties can be, but be sure to treat them with empathy and kindness. These sellers may have experienced a traumatic event themselves, after all.

If you’re considering purchasing such a property, it’s a good idea to speak with a qualified real estate attorney. You’ll want a lawyer’s opinion about whether you’ll have to make disclosures in the future, the legal requirements in your jurisdiction, and any other questions you have. This is true whether you’re in the buying or selling position.

How a Government Shutdown Affects the Real Estate Industry

The last government shutdown was the longest in history (December 21, 2018 to January 25, 2019).  Those who recall previous shutdowns know that “nonessential” federal personnel are hit particularly hard by these events. But many people ask us: Is real estate affected by government shutdowns?

During the last shutdown, the media focused on the roughly 800,000 workers who missed paychecks. But the ripple effect of a shutdown goes far beyond the federal government and creates waves in the private sector. The spending gaps can affect the real estate industry in significant ways.

Wise investors will be observing these trends, and to keep you informed, we’ve made some observations about the impact of a government shutdown on land trusts, real estate investing and more. Let’s dive in to exactly who in American real estate is affected—and how—when the country’s government is closed for business.

real estate affected by government shutdown

The Government Shutdowns Hit Landlords with HUD/Section 8 Tenants

Multi-unit investors, particularly owners of apartment complexes that cater to Section 8 or otherwise federally assisted tenants, may encounter problems directly tied to the shutdown. Sales of these complexes are likely to slow dramatically, but their landlords face bigger issues. The Department of Housing and Urban Development (HUD) has two main ways of subsidizing housing, one of which is contracting with landlords. Landlords with expiring contracts will not be able to renew them during the shutdown. Some 1,050 of these contracts, which cover an average of 52 tenants each, will expire in February while active contracts will be paid for the first 30 days.

A prolonged shutdown complicates many issues related to real estate. If payments are not made on behalf of the millions of Section 8 and HUD-sponsored tenants, landlords may face difficult choices about evicting these tenants for unpaid rent. Evicting a Section 8 tenant is a more complex process for all involved (landlord, tenant, and court) than a standard eviction, and evicting many at once even moreso.

Owners of public housing may also experience delays with securing mortgages and loans.

Mortgage and Lending Difficulties

Investors and other homebuyers nationwide are already being affected by the shutdown’s impact on lending. Right now is a more difficult time to secure a mortgage in general. Certain small business loans are not available during a shutdown, which could be problematic for small business owners in any sector. Of these, the Small Business Administration has a substantial backlog already, with some experts noting that nearly $2 million in loans have yet to be approved. Fair Housing Act (FHA) loans are still being issued but may be delayed.

Some prospective lenders have already experienced delays. Many private lenders who rely on our friends at the IRS to verify potential borrowers’ income were stalled out. During the early weeks of the shutdown, the income verification service was unavailable.

Professionals Can Help Real Estate Investors

In a turbulent market, the opinion of a qualified real estate attorney can help clarify how broader market trends affect you personally. To learn more about what you can do to keep your real estate holdings defended in any climate,  schedule your personal consultation today.

An Investor Profile: An Inside Look at Gino Barbaro

Gino Barbaro is a realtor and investor who has become an authority on multifamily investing. Some of you may already know Gino from Jake and Gino Podcast, the incredibly popular podcast that Gino hosts with his business partner Jake Stenziano. The two educate fellow real estate investors via their real estate investment coaching company, JakeandGino.com.

A Multi-Faceted Real Estate Investor

Gino Barbaro is a New York based investor. Personally, Gino has 15 years of experience in the real estate industry. In just three of those investing years, he managed to expand his portfolio to include 675 units. In addition to being a successful investor, podcaster, and entrepreneur, Gino is also a life coach: a Certified Professional Coach educated by the Institute for Professional Excellence in Coaching, to be exact.

On top of that, Gino is also the author of two best-selling books. The first is most likely to be of interest to real estate investors— Wheelbarrow Profits: How to Create Passive Income,  Build Wealth, And Take Control of Your Destiny Through Multifamily Real Estate Investing.  Written in a clear, easy-to-follow, how-to format, the book takes new investors through the process of growing their portfolio beginning with their very first multifamily investment. If you’re an aspiring multifamily investor, it is definitely worth adding to your research list.

While you might expect Gino’s other best-selling book to be about investing, the subject matter is actually a radical departure. But many investors with cooking talents or curiosities may also be interested in Family, Food, and the Friars, Gino’s Italian cookbook and food-related cultural commentary collection.

When Gino isn’t investing, podcasting, or advising his fellow investors, he is a complete family man. He loves spending time with his wife Julia. Together, they have six children: Laura, Cecilia, Veronica, Sofia, Michael, and Gabriella.

Connecting with Gino is simple. If you’d like to learn more about his work or reach out to him directly, simply visit either of his websites:  www.jakeandgino.com.

Learn More About Gino’s Investing Strategy on The Real Estate Nerds Podcast

Gino Barbaro was kind enough to join our host and attorney Scott Smith for a Bad Beats episode of The Real Estate Nerds Podcast. Check out Episode 10: Real Estate Education - Be “In The Know” to Avoid Bad Deals With Gino Barbaro to hear all about Gino’s $170,000 lesson in the importance of due diligence and learn from the other mistakes he made in his all-time worst deal. He also shares some more advanced wisdom on entrepreneurship and the logical, tactical approach he takes to real estate investing today. He speaks to the importance of removing emotion from the judgments that are essential for finding good real estate deals.

Do you have suggestions about future content, podcast guests, or an investor you would like to hear more about in this segment? If so, reach out to us at Royal Legal Solutions. For personalized legal advice, consider  scheduling your consultation today

5 Reasons Why You Need a Qualified Registered Agent

If you own property using an out-of-state entity, you probably already know the importance of having a registered agent. If this term is news to you, get hip: most states make having a registered agent for your LLC a legal requirement for non-residents. While there are many good reasons to hire an effective and qualified registered agent, we have boiled down the top three you need to know below.

Reason #1: Easily Operate In Multiple States

If your business is considering operating in multiple states, the business must be registered in each of these states. Having a registered agent on your team streamlines this process when you pick a service or attorney that has a presence in each necessary state. You don’t have to worry about the headache of registering or finding agents for each state.

Reason #2: Quickly Manage Mountains of Paperwork for a Low Annual Fee

For the actual amount of work your registered agent will do, the fee you will pay is negligible--particularly if you compare it to the number of hours it would take you to manage your business’s legal correspondence yourself. The density of paperwork involved in serving as a registered agent is another good reason to go with a professional or attorney in this role, as well. A lawyer is more likely to know their duties and the legal requirements attached to them intimately, and is less likely to make foolish mistakes or oversights that a layperson might.

Reason #3: Maintain Your Anonymity

If you served as your own registered agent, your home address would likely end up on business correspondence, undermining your anonymity. Using a registered agent keeps your own name off of public records and away from prying eyes.

Reason #4: Never Worry About Business Hours

Some legal correspondence must be sent or received during “normal business hours.” Of course, not every investor or real estate business operates on “normal hours,” particularly if the real estate business exists for passive investment income. Fortunately, outsourcing your registered agent needs means this is yet another detail you won’t have to worry about. Most are aware of and easily able to meet time-sensitive obligations.

Reason #5: Save Your Own Time

If you were so moved, you could do all of the research to serve as your own registered agent. But would you be confident in your abilities, and is this the best use of your time? For most investors, the answer is simply no. Fortunately, registered agent services and legal professionals can help. At Royal Legal Solutions, we offer not only Registered Agent services, but subscription-based business compliance services so you can let us worry about the paperwork while you run your business. If you think you could benefit, contact us today to ask any questions you have or set up your consultation.

Best Locations for House Flipping in 2019

Those of you in the flipping industry know location can make or break your deal. Fortunately, we live in an age where getting our hands on predictive analytics is easier than ever. While predictions are never guarantees, they do form an important part of how we evaluate potential deals.

For your convenience, we’ve combed through some of the most recent research indicating which states—and even specific cities—may have the most healthy environments for house flippers. This information could form a useful basis for your research into your own next flipping transaction, or help inform other transactions in these areas. First we will look at the best and worst states for flipping, and then another source’s predicted top 10 cities for house flipping in 2019.

10 Best States for Flipping

CNBC gathered housing data for each State while producing a detailed breakdown of flipping information. According to the data, house flippers may be particularly interested in checking out markets inside of these ten States:

Which States are “best” among these really depends on your criteria. For example, Pennsylvania boasts the highest ROIs by percentage at 164%, while Maryland ranks higher in terms of profits in dollar value.

5 Worst States for Flipping

The same criteria used to determine the best states for flipping in the source above were also applied in reverse to determine the worst states for these transactions. These are projected to be the five worst states for flipping in 2019:

10 Best Cities for Flipping

WalletHub crunched the numbers on 150 housing markets to determine the cities flippers should look into for 2019. Items taken into account for placement on this list include health of the general market, average costs of housing and remodeling work, and even quality of life for renters. The ten cities the survey determined outlook was highest for are:

  1. Sioux Falls, SD
  2. Fort Wayne, IN
  3. Oklahoma City, OK
  4. Lincoln, NE
  5. El Paso, TX
  6. Lubbock, TX
  7. Laredo, TX
  8. New Orleans, LA
  9. Boise, ID
  10. Tampa, FL

Do Your Due Diligence and Get Professional Help With Any Investment

These items may be great starting point for your research, but savvy investors should note that due diligence is always their responsibility. Some of these factors could change for a variety of reasons at any time, so always conduct thorough research before buying an investment. Get as much information from as many sources as possible, and always have qualified professionals review any deals you engage in.

An Investor Profile: An Inside Look At Real Estate Investor Frank Rolfe

Frank Rolfe made a name for himself primarily in mobile home investing, though his portfolio also includes self-storage units. If you want to know about how he got his start investing in these oft-overlooked real estate niches, read on ...

The Dollar General of Housing: Frank Rolfe’s Mobile Home Beginnings

If you ask Frank Rolfe how he got his start in real estate, he will tell you his life today all traces back to his first mobile home park investment: Glenhaven. This Dallas-Fort Worth area park set the tone for Frank’s career.

Frank knew early on that he wanted to invest in affordable housing.When Frank first bought this property, he was new to both the asset class and real estate in general but decided to manage the park himself anyway.

Frank earned an economics degree from Stanford University, so he was no dummy. He got a quick and occasionally brutal crash course in the benefits, problems, and unique charms of managing a mobile home park.

Glenhaven had major cost issues, as well as plenty of characters straight out of Central Casting: prostitutes, drug dealers, carnies, and other tenants most landlords wouldn’t touch with a ten-foot pole. Nevertheless, he made some sweeping improvements to the park that transformed the neighborhood for all of its residents.

This first investment became one of Frank’s most important, not only for the high returns he later received, but for influencing him to stick with this asset class as an investor. He learned many lessons with his first investment that would inform his later career.

Frank RolfeFrank Rolfe’s Real Estate Career Today

Frank has continued investing in mobile home parks in the over 20 years since he bought Glenhaven. He and his partner, Dave Reynolds, are the 5th largest owners of mobile home parks in the United States. Frank and Dave are thought leaders in this industry niche and run a business, Mobile Home University, that educates fellow real estate investors about how to succeed with mobile home park investments. They each bring their years of experience, including both their tips for success and advice on how to avoid repeating their mistakes, to the aid of new investors.

Learn More About or Connect with Frank Rolfe via The Real Estate Nerds Podcast

To hear the full conversation Frank had with our lead attorney Scott Smith, check out Episode 10 of the Real Estate Nerds Podcast, all about mobile home park investing. Frank’s episode is a best deals episode that goes even deeper into the story about Glenhaven, his first mobile home park. Frank shares how he found his best deal, gives some tips on this asset class and investing in general, and offers some insight into how this deal transformed the path of his real estate career.

If you have questions about our podcast guests or suggestions for future investors to cover in this segment, contact us today. Start with our investor quiz and we'll help you take those first steps.

Your 5-Step Survival Guide to Recovering From Real Estate Asset Foreclosure

If you have had to handle a housing foreclosure since the Market Crash in 2008, you’re not alone. These events can be both stressful and financially devastating, and some parts of the country were certainly hit harder by subprime lending and the crash than others. Or you may have a problem reflecting a more recent trend. During the summer months of 2018, foreclosure rates were reported to have increased in 22 states and roughly half of the 450 major metropolitan markets one property tracking agency studied.  States including Delaware, Maryland, and New Jersey, where one of every 605 properties was engaged in the foreclosure process have been particularly affected. Certain cities including Chicago, Illinois, Houston, Texas, and Cleveland, Ohio, have also seen marked increases in foreclosures during 2018.

Regardless of where you live or when you experienced foreclosure, there’s no question that this is a difficult experience. If you were among the people affected, the situation may seem hopeless, but we are here to assure you that there is hope.

Fortunately, you can recover from this type of financial emergency with some dedication and time. We have broken down surviving housing foreclosure, picking up the pieces, and moving on to future home ownership into five basic steps.

1. Evaluate Your Situation and Options

You will likely be subjected to a waiting period of some kind following foreclosure before property ownership is an option again. The typical waiting period is 7 years. There, are, however, circumstances under which this time period may be shorter, even as short as only two years before you may be able to apply for a loan again. Examples of circumstances that may reduce the wait to two years include the following:

FHA loans may be reapplied for after only three years. But the following extenuating circumstances reduce your wait time for an FHA loan by one more year:

If more than one of these circumstances applies to you or you are otherwise unsure of your options, check with a trusted real estate attorney--or bankruptcy attorney if you are handling that process as well.

2. Build Healthier Financial Habits

Even when your loan money is flowing again, you will still have to come up with the funds to cover down payments, closing costs, and of course, the money to pay for help from the proper real estate and financial professionals. For most people who have experienced foreclosure, this will entail a nice close look at your spending habits.

Many of us have areas where we can trim some spending fat, or at the very least, save more effectively. Finding the best areas to cut down on expenses will require close scrutiny of your current spending habits and which “luxury” items you can live without, or lower the costs on. Similarly, it may benefit you to start making automatically savings deposits on a monthly basis--perhaps when you pay your bills so you don’t have to consciously think about it. Squirrelling away any extra money you receive, whether it’s your tax return, a Christmas bonus, or a gift from your dear old Aunt Ida, can also be useful for both emergency planning and saving towards a new home.

3. Begin Repairing Your Credit

Credit repair is possible, and it’s best to begin rebuilding your credit as quickly as you are able to. Foreclosures can do serious damage to your credit score, even if you have a lengthy history of good credit prior to the incident. The only way to get that credit back is the way you got it in the first place: step by step. Fair  Housing Act loans tend to require a minimum credit score of 580. Conventional lenders may have higher standards in the 640-650 range. Either way, it is likely that you will need to be consistent in your approach to repairing your credit.

Making regular payments is the first major step you can take. Approach your highest interest payments first and work your way down. While you’re at it, keep any records of your typical rent and utility payments so that you can show you also are reliable on these fronts. You may have to wait up to two years to see a substantial improvement in your credit score, but with consistent positive action, it will come.

Although there are some tactics that will help everyone regardless of their credit score, it may be helpful to have an expert take a look at your situation. He or she may be aware of some tools that you didn’t know about. One credit expert we interviewed recommended paying down to approximately 15% of one’s balance monthly to build credit faster in certain situations. Learn more free tips by listening to our complete interview with Wayne the Credit Guy over at The Real Estate Nerds Podcast. He has tips for you regardless of whether you’re trying to rebuild poor credit or improve good credit.

4. Resist the Siren’s Call of Predatory Lenders

Lenders with minimal qualifications may seem incredibly tempting during times of financial hardship. If you are struggling to make ends meet, it can be difficult to ignore offers of loans that would make your life more comfortable in the short term even if you know they are not in your best interest.

Whether a lender approaches you with instant approval for a payday loan or a “no money down” real estate offer, your response should be the same: be skeptical. Odds are high that the interest rates on such loans will be astronomical and overall not worth it in the long run. Any deal that sounds too good to be true most likely is. Remember, part of what created the market crash in 2008 was too many loans going out to those who could not be reasonably expected to repay them.

5. Reach Out For Help From The Appropriate Professionals

Housing counselors are one type of professional that may be helpful to you during this time. These professionals can connect you with resources and other professionals who can help you get back on the path to home ownership. Housing counselors may provide a range of services, including assisting you with making savings plans and rebuilding credit while acting as liaison to other professionals who may be helpful to you.Attorneys and CPAs may also be a valuable part of the process of getting your finances back into order. Some of the insights that our experts at Royal Legal Solutions can offer you include retirement planning tips, tax liability minimization--including pointing out areas where you can save, and which legal structures will offer you credit protection when you are ready to start investing again. If a loved one or spouse has investments that could benefit from asset protection, we are happy to assist them as well and ensure both of your estate plans are up to date.

Between our full range of services and the many professionals we maintain professional relationships with, such as CPAs, Royal Legal Solutions has advice that can help you repair your financial life and defend the capital and assets you do have from future threats. To learn what we can do for you, schedule your consultation today. 

Real Estate News: Demand for Furnished Rentals Soars Nationwide

By the summer months of 2018, real estate journalists in major metropolitan areas began noticing that demand for furnished rental property was up. The phenomenon was not a fluke to particular geographic area, but present in cities across America, particularly those experiencing substantial growth or economic development.

What is driving this trend? And most importantly, is offering a furnished rental a strategy you may want to consider? Read on to learn more about the furnished rental market’s possibilities.

Why Furnished Rentals Are Growing in Popularity

When many of us think of furnished rentals, we imagine short-term rental scenarios. While Airbnb and vacation rentals must be furnished to be functional, there is also demand for furnished long-term rentals.

While corporate housing has long been a source of tenants for furnished rentals, figures from July of 2018 suggest corporate tenants are responsible for only 13% of the demand increase. Some of the tenants responsible for this spike in demand include:

How to Make Your Furnished Rental Appealing and Profitable

If you decide to offer a furnished rental, there are some tips you can follow to justify higher rents, ensure your home appeals to high-quality tenants, and otherwise raise profitability. Keep these things in mind when you are getting a furnished rental ready:

Our asset protection professionals at Royal Legal Solutions can help you determine which tools will best defend your new and existing investments. The law favors the proactive, and in our experience it is best to take action long before you think a lawsuit is even a possibility. By the time you’re expecting a lawsuit, it may be too late. So don’t delay. Schedule your personalized asset protection consultation today.

Four Reasons to Consider Buying Real Estate During the Holidays

As the year draws to a close, most of us plan to do some extra spending for the holidays. But on top of the money we plan to spend on gifts for our loved ones, there are also compelling reasons to think about making real estate purchases during this time. Here are five reasons why you may want to make a real estate investment during the holiday season.

1. Home Sellers Are Highly Motivated

A motivated seller can be an early holiday gift for the real estate investor. There are a variety of reasons seller motivation rises during this holiday season. Some people are selling their homes and eager to move into the new one before festivities begin. Other sellers may be anxious if the year is drawing to a close and the home has been on the market for a long time. Whatever your buyer’s circumstances, you can use their motivation as leverage during negotiations or to gently request flexibility on pricing and other issues.

2. Market Forces Can Work in Your Favor

Real estate sales overall drop during the holidays. This is one of many reasons sellers are more highly motivated this time of year. Since business is slower in general, you will also be competing against fewer other buyers. With fewer offers being made on the home you are eyeing, your offer begins to look more attractive to an already motivated seller.

3. Closing On A Home Quickly is Easier During The Holidays

The end of the year doesn’t just motivate sellers. Lenders and real estate agents are also motivated to wrap up business as the year ends. Agents, after all, are humans with families who want their commissions for holiday spending. While you must still make time to do your due diligence, the fact that all parties are motivated can speed up the closing process.

4. Interest Rates Are Lower

As a buyer, you have a bit more leverage over the lenders who want to close up shop for the year during the holidays. Further, interest rates tend to be lower during this time of the year because business overall is lower. If you’re in need of financing, take advantage of the fact that lenders will lower their interest rates to keep business coming in while there is less market activity overall.

Protect Your Holiday Real Estate Investment

If you do decide to take advantage of these benefits and make an investment, don’t forget the importance of protecting your new investment from lawsuits. You’re already making a smart decision by taking advantages of the perks the holiday season offers investors. Continue the trend by making the smart choice to protect your real estate assets. If you already have an asset protection plan in place, make sure to incorporate each new purchase into your asset protection structure. The experts at Royal Legal Solutions are here to help you. Whether you need to create an entity for asset protection or execute a transfer into an existing structure, we can assist and advise you. The last thing you want to worry about during the holiday season is a lawsuit. So give yourself the gift of professional legal advice that will protect your real estate business. Schedule your consultation today.

 

Consider New Real Estate Investments During The Holidays

As the year draws to a close, most of us plan to do some extra spending for the holidays. But on top of the money we plan to spend on gifts for our loved ones, there are also compelling reasons to think about making real estate purchases during this time. Here are five reasons why you may want to make a real estate investment during the holiday season.

1. Sellers Are Highly Motivated

A motivated seller can be an early holiday gift for the real estate investor. There are a variety of reasons seller motivation rises during this holiday season. Some people are selling their homes and eager to move into the new one before festivities begin. Other sellers may be anxious if the year is drawing to a close and the home has been on the market for a long time. Whatever your buyer’s circumstances, you can use their motivation as leverage during negotiations or to gently request flexibility on pricing and other issues.

2. Market Forces Can Work in Your Favor

Real estate sales overall drop during the holidays. This is one of many reasons sellers are more highly motivated this time of year. Since business is slower in general, you will also be competing against fewer other buyers. With fewer offers being made on the home you are eyeing, your offer begins to look more attractive to an already motivated seller.

3. Closing Quickly is Easier During The Holidays

The end of the year doesn’t just motivate sellers. Lenders and real estate agents are also motivated to wrap up business as the year ends. Agents, after all, are humans with families who want their commissions for holiday spending. While you must still make time to do your due diligence, the fact that all parties are motivated can speed up the closing process.

4. Interest Rates Are Lower

As a buyer, you have a bit more leverage over the lenders who want to close up shop for the year during the holidays. Further, interest rates tend to be lower during this time of the year because business overall is lower. If you’re in need of financing, take advantage of the fact that lenders will lower their interest rates to keep business coming in while there is less market activity overall.

Protect Your Holiday Real Estate Investment

If you do decide to take advantage of these benefits and make an investment, don’t forget the importance of protecting your new investment from lawsuits. You’re already making a smart decision by taking advantages of the perks the holiday season offers investors. Continue the trend by making the smart choice to protect your real estate assets. If you already have an asset protection plan in place, make sure to incorporate each new purchase into your asset protection structure. The experts at Royal Legal Solutions are here to help you. Whether you need to create an entity for asset protection or execute a transfer into an existing structure, we can assist and advise you. The last thing you want to worry about during the holiday season is a lawsuit. So give yourself the gift of professional legal advice that will protect your real estate business. Schedule your consultation today.

An Investor Profile: An Inside Look at Real Estate Investor Clayton Morris

Those of you who listen to The Real Estate Nerds Podcast already know that the success or failure of any investment depends half on the investment itself, and half on the investor behind it. This is the first in our Inside Look at Real Estate Investor series, where we will dive deeper into the minds of great investors and how they operate. For our debut piece, we look at investor Clayton Morris.

Clayton Morris on Growing Up With Bad Ideas About Finances

Clayton Morris established himself in a traditional broadcasting career as a co-host of Fox and Friends. He took a traditional career in part because of family pressure. Growing up, Clayton was exposed to traditional beliefs about money--such as that a 9-5 job was the only meaningful path to financial security, and that money “doesn’t grow on trees.” Although he did well in his position, Clayton grew increasingly frustrated with depending on someone else for a paycheck. He made his first two real estate investments after losing his job at Good Day Philadelphia.

Clayton first realized the beliefs he grew up with around money were self-limiting upon reading Robert Kiyasaki’s Rich Dad Poor Dad.  For those unfamiliar with the book, Rich Dad Poor Dad reflects the author’s experience with his two father figures and the ways their beliefs around money influenced his own life. Kiyasaki’s own father was poor, while his best friend’s father was wealthy. The book chronicle’s how both men’s experiences influenced Kiyasaki’s own life, but the lessons from his “rich dad” were more beneficial.

Clayton was inspired after reading this book, and as he began to rethink his own beliefs about finance, made a series of successful real estate investments. He has done so well in the years since that he was able to quit his old job and now spends his time advising other investors, and attributes his success to developing himself as an asset and maintaining a healthy mindset.

Clayton Morris’s Real Estate Investment Career

Since experiencing real estate success and financial freedom for himself, Clayton now focuses his career on helping other investors do the same. Clayton runs the company MorrisInvest, which helps new investors get started in the real estate business, even pairing them with their first properties.

Clayton’s other efforts are even more purely educational. He is the host of the successful How to Invest in Real Estate Podcast. Clayton has also chronicled his real estate investing experiences and an extensive blog of advice for other investors on his other web site, ClaytonMorris.com. You can connect with Clayton on any of these channels or on Twitter @ClaytonMorris.

Hear More From Clayton on The Real Estate Nerds Podcast

Clayton was kind enough to share some of his experience with our lead attorney and podcast host, Scott Royal Smith. Tune in to Episode 31 of The Real Estate Nerds Podcast to learn more about Clayton. On top of telling more of his story, he shares one of his worst deals with listeners so that you can avoid repeating some of his mistakes.  If you have questions about the podcast, suggestions for future investors you want to learn more about, or need advice on defending your own real estate investments, contact Royal Legal Solutions  today.

4 Tips for Handling Real Estate Investing Realities as a New Investor

There is a lot to learn when you enter the real estate game. More importantly, there are many things that nobody bothers to tell you. Here are four of the most essential realities that new investors may not know. Read on to save yourself some headaches and set yourself up for success in the real estate game. Follow these tips, and you will likely fare better than if you had never read this article.

Tip #1: Overestimate Starting Investment Costs

The idea that entering real estate with no capital is easy is perpetrated in many places online. The reality is, having enough capital to sustain your business through unexpected startup costs is always a wise move.

Tip #2: Personal Investment Loans Will Serve You More Than Commercial Investment Loans

Personal loans tend to have far better terms than commercial loans. The same investor can walk into one bank for a personal loan and receive much more favorable terms than if they had walked into a bank and requested a commercial loan--or even mentioned using an LLC to manage real estate assets. Once your transaction is complete, we recommend transferring the property into an asset protection structure. These types of transfers can be executed using land trusts to avoid triggering the due-on-sale clause found in most loans.

Tip #3: Have Realistic Expectations About “Passive” Real Estate Investing

Some investors may be experienced in other asset classes, but new to real estate. If this describes you, understand that while the goal of real estate is passive income, it is not an effortless endeavor. You will either be pounding the pavement, securing a mortgage, sourcing tenants, and managing the property. Unless, of course, you choose to outsource these tasks to professionals, who naturally will need to be paid. While it’s great to have professionals on board, the cost of outsourcing property management can eat up to 10% of your income from the property. Don’t get us wrong: real estate is absolutely a rewarding and worthwhile type of investment. We are simply suggesting that you have realistic expectations about real estate investing and what “passive” income actually means. These assets are not like stocks or bonds. If you’re brand new to real estate, study the asset class in detail to understand what you are getting into and how to succeed.

Tip #4: Defend Your Real Estate Assets From Lawsuits with Asset Protection Planning

Your asset protection strategy is an investment to figure into your overall budget. If you have spent time and effort building a business, it makes sense to spend a relatively small amount of money to defend those assets from potential lawsuits. Remember, real estate investors only lose money in two ways: bad deals and lawsuits. Nobody can guarantee you won’t encounter a bad deal, but an effective asset protection plan can help prevent you from seeing the inside of a courtroom. Don’t skimp on asset protection, as it may be the component of your investing strategy that saves your backside if you are ever threatened with a lawsuit.

If you aren’t sure which asset protection strategies are best for you, that’s okay. That’s why professionals like the experts at Royal Legal Solutions exist. We are happy to evaluate your personal situation and make recommendations about the best asset protection plan for you so you can enjoy the peace of mind of knowing your real estate investments are defended.

What You Need to Know About Assigning Real Estate Contracts

If you haven’t assigned your first real estate contract yet, that’s okay. But if you’re going to be in the investing game for the long-haul, you will want to know how to get the job done right. Although wholesalers are most likely to use an assignment contract, the principles discussed below are true of any contract. Typically, contract assignment comes up when you find a property and secure a price, often well under market value, then turn around and “assign” purchasing rights to another investor or end-buyer. Learn how to assign contracts correctly with the tips below.

Be Clear With Your Real Estate Contract Terms

Specificity is vital for effective legal documents. One of the most common misconceptions about any type of legal writing is that legalese and verbosity come with the territory. This couldn’t be further from the truth. In fact, with assignment contracts, the simpler you keep matters, the better.

Our good asset protection students may already be wondering if it is better to use your entity or your personal name in these contracts. Ideally, both parties should be using entities like LLCs to protect their investments. This also happens to make assignment easier.

A good model to start with is simply: “[Your Entity Here] assigns XYZ Property to John Q. Public.” But if you have not covered your backside with an entity yet, you can still make the assignment in your own name--but we highly recommend that you get hip to protecting your assets with an LLC structure for lawsuit prevention regardless. If you are the one obtaining financing or do not yet have an entity, you may need to proceed with your own name. But you can still CYA with a simple provision in the contract.

Such a provision should include the fact that you (the buyer/assignor) are a real estate investor assigning interest in the property to a clearly-named third party. Get that clearly-named third party to initial this provision when signing the contract to reduce odds of a misunderstanding, or worse, down the line.

When in Doubt, Get it in Writing

This advice goes for any type of legal agreement. Always get any promises, offers, or commitments in writing. Never, ever just take a potential buyer’s word that they will follow through on matters discussed in negotiations. Here are some of the essential components of an assignment contract:

If any of the above are confusing to you, get a lawyer’s assistance with drafting an appropriate contract.

Don’t Attempt Assignment Contracts Alone: Get Professional Help

Finally, be aware that contracts are not good DIY projects. If you lack legal training, this article may be helpful in allowing you to identify if you have the relevant pieces of your assignment together, but is no substitute for personalized legal advice. Get help from experts like the legal professionals at Royal Legal Solutions for anything you need to stand up in court. We are happy to assist with basic legal documents and other transactional real estate matters as well as asset protection. Remember, we are a full-service firm for real estate investors--and real estate investors ourselves--so we have been in your shoes and are happy to help you with whatever you may need for your real estate business.

How To Assign A Real Estate Contract The Right Way

If you’re going to be in the investing game for the long-haul, you will want to know how to assign a real estate contract.

Typically, contract assignment comes up when you find a property and secure a price, often well under market value, then turn around and “assign” purchasing rights to another investor or end-buyer.

Learn how to assign contracts correctly with the tips below. Although wholesalers are most likely to use an assignment contract, the principles discussed below are true of any contract.

Be Clear With Your Real Estate Contract Terms

Specificity is vital for effective legal documents. One of the most common misconceptions about any type of legal writing is that legalese and verbosity come with the territory. This couldn’t be further from the truth. In fact, with assignment contracts, the simpler you keep matters, the better.

Our good asset protection students may already be wondering if it is better to use your entity or your personal name in these contracts. Ideally, both parties should be using entities like LLCs to protect their investments. This also happens to make assignment easier.

A good model to start with is simply: “[Your Entity Here] assigns XYZ Property to John Q. Public.” But if you have not covered your backside with an entity yet, you can still make the assignment in your own name--but we highly recommend that you get hip to protecting your assets with an LLC structure for lawsuit prevention regardless. If you are the one obtaining financing or do not yet have an entity, you may need to proceed with your own name. But you can still CYA with a simple provision in the contract.

Such a provision should include the fact that you (the buyer/assignor) are a real estate investor assigning interest in the property to a clearly-named third party. Get that clearly-named third party to initial this provision when signing the contract to reduce odds of a misunderstanding, or worse, down the line.

When in Doubt, Get it in Writing

This advice goes for any type of legal agreement. Always get any promises, offers, or commitments in writing. Never, ever just take a potential buyer’s word that they will follow through on matters discussed in negotiations. Here are some of the essential components of an assignment contract:

If any of the above are confusing to you, get a lawyer’s assistance with drafting an appropriate contract.

Don’t Attempt To Assign A Real Estate Contract Alone

Finally, be aware that real estate contracts are not good DIY projects. If you lack legal training, this article may be helpful in allowing you to identify if you have the relevant pieces of your assignment together, but is no substitute for personalized legal advice.

Get help from experts like the legal professionals at Royal Legal Solutions for anything you need to stand up in court. We are happy to assist with basic legal documents and other transactional real estate matters as well as asset protection. Remember, we are a full-service firm for real estate investors. We are also real estate investors ourselves, so we have been in your shoes and are happy to help you with whatever you may need for your real estate business.

 

4 Ways To Develop A Real Estate Investing Mindset

It’s completely natural to be anxious when you’re first starting anything, particularly when your hard earned money is on the line. But in the real estate game, your mindset affects everything. That is why it is critical to invest in yourself as your first asset before you spend your first dollar on property. If you’re new to real estate investing, follow these four ProTips to develop a mindset that will set you up for long-term real estate success.

ProTip #1: Treat Real Estate Investing Like a Job

This may seem overwhelming if you already work a day job, but hear us out. If you want to have a “paycheck” from your real estate business, you can’t afford to treat real estate as a hobby. Taking your new business seriously will help you build a strong vehicle towards financial freedom. Even if you begin with a modest goal, such as a few hundred dollars of passive income monthly, treating your business exactly like a job will serve you immensely if you continue expanding your portfolio and set more ambitious goals.

Thinking of yourself as a professional, even when you’re brand new, can help turn you into one. If you approach your real estate business with seriousness, dedication, and a willingness to always learn new things, your odds of success will be higher.

ProTip #2: Be Patient and Consistent

This one is so much easier said than done. Real estate is not a get-rich-quick scheme. You can definitely get rich, even filthy stinking rich. But most of the time this will not come in the form of a windfall. Real estate offers many opportunities for creating wealth, but often your gains will be steadily incremental.

Just as you should be patient about building wealth, you should be patient with yourself. You will fail from time to time. After all, you’re new to this job. But failure is simply an artifact of trying. So when you do fail in ways big or small, don’t beat yourself up. Instead, learn from it. Many seasoned investors have had to fail their way into success, and they do so by simply resolving to fail forward. Operate with a mindset that failure is not truly failure if you learn from it, and your resilience will serve you throughout your career. In real estate, we either win or we learn. We only lose when we give up entirely.

ProTip #3: Create a Solid REI Business Structure

Building a business may sound intimidating, but anyone can do it and you’re not alone. Start simple. The next time you’re out running errands, pick up a dedicated notebook for your real estate business. You can even write it off later if you like.

The first thing to do is establish your metrics for success. Consider what your original motivations for creating your business were. Every business needs targets, so if you haven’t already, create a clear goal for revenue or returns. Write it down. And we mean actually write, with a pen or pencil. Research has demonstrated that the action of physically writing down a task or goal helps you remember the information and can strengthen your commitment. Creating a daily discipline of writing, setting, and achieving smaller goals has additional benefits. First, you are reinforcing that you are treating your business like a real job. You will also have a record of measurable progress to refer back to. Finally, you can reverse engineer the small steps you will need to take to proceed towards your larger goals. You can also make use of a tactic we use at Royal Legal Solutions: create three daily priorities that serve your greater goals. These priorities may be simple things like researching types of LLCs, reading a book, or analyzing certain details of your market.

Your notebook can also be a great place to jot down questions you have, information you want to learn about, and which pieces of your business to assemble next. For instance, you will need to think about how you are going to handle your taxes and legal structures. Unless you happen to be a CPA, attorney, realtor, and underwriter, you’re going to need some support. That’s where our next tip comes in.

ProTip #4: Know That You Don’t Know Everything and Ask For Help

If you learn nothing else from this article, learn that it’s okay to ask questions and to avoid triny to do everything on your own. No matter how smart or talented you are, you will need help from more experienced investors. Fortunately, help getting started in real estate comes in two forms: from mentors and professionals.  

Get a Investment Mentor

When athletes climb Mount Everest, they need a sherpa: a local who has climbed the mountain before and knows the territory well. The same is true of new investors. Your best chance of building a business that will lead to lasting success is to operate with the guidance of someone who has done what you want to do.

It is best to find a mentor who has already achieved what you seek to accomplish. One thing to consider when looking for a mentor is asset class. If you want to strike out in multi-family, someone who focuses on self-storage may not be as helpful to you as an established multi-family investor. Your mentor can be an invaluable resource for navigating your first deals and checking your blind spots. Even if you invest a great deal of time in your education now, you may not know every city ordinance of your market, or the nuances of how to project costs, screen tenants, or perform any of the other of hundreds of small tasks an investor must get comfortable with.

A mentor with a substantial amount of time in the real estate industry also offers you the wealth of their experience. You can learn from their successes as well as their past mistakes. Learning from your own failures is expensive. The best investors learn from the mistakes of others. If you are still seeking your mentor out, check out The Real Estate Nerds Podcast to learn what kind of investors are out there and how they have benefitted from their mentors.

Have Trusted Investment & Legal Professionals By Your Side

Going into real estate without professional assistance is an easy way to lose money. At a bare minimum, we recommend having an attorney and CPA on your team. When you use a full-service real estate firm like Royal Legal Solutions, we can help you with structuring your business, protecting yourself from lawsuits and their enormous costs, and understanding which legal structures will support you now and in the long run. Remember, we don’t just know the law: we are also investors ourselves. You will get to benefit from both areas of expertise.

The experts at Royal Legal Solutions are happy to help you. You have a lot to do for your business, and that’s what you should stick to. Whether you need help with forming an entity to protect your real estate assets, or simply a second look at your deal from a legally trained, experienced investor, we can assist you. Contact us today to get your real estate business started on the right foot.

When to File Taxes Separately if a Married Real Estate Investor

Many married couples elect to file their taxes jointly because it is genuinely cheaper. Well, most of the time. If you're a real estate investor, you likely already know that the typical rules don't always apply to you. Filing jointly may end up costing you more depending on your situation and a variety of other factors. Let's look at three common situations where filing separately is typically cheaper for married real estate investors.

When Both Spouses Have High Incomes

Being a high earner is something most investors aspire to. But there are some drawbacks to both spouses being professionally successful. If you and your spouse are earning $309,900 or more annually, filing jointly could disqualify you from certain deductions that would otherwise save you money. This income level is not unusual if both spouses are real estate investors.
In these cases, it's best to work together by filing apart. You will each be eligible for more deductions by filing separately. You will still need to work as a team to ensure you aren't both itemizing the same deductions. But ultimately, taking the time to review your separate filings will preserve your collective wealth.

When Your Spouse Already Owes The IRS

If your spouse owes the IRS, filing together could cost you your refund. If you file jointly, the IRS will seize your refund to satisfy your spouse's debt. If you're relying on that refund for something essential like making a real estate investment, it is best to file separately until your spouse's tax issues are resolved.

When You're Getting a Divorce

If you are in the process of getting divorce or have a reason to suspect your spouse is dishonest when it comes to taxes, filing separately isn't cruel. It's the smart move. Even though you may want be to trust your spouse, if there is any love lost or trouble in paradise, filing separately will protect you. Liability attaches once you both sign and file the return. Essentially, you're treated as a unit for tax purposes. Divorcing partners have been known to shuffle around debt or attempt to hide assets. If you are experiencing any of these problems, filing on your own is actually a form of asset protection.

When in Doubt, Contact a Professional

If any of this information or the filing process is confusing, know that there are professionals here to help you save on your taxes, our tax attorneys Royal Legal Solutions can assist you with making the judgment call about filing jointly or separately. We work exclusively with real estate investors and know these issues well, and have assisted many married professionals in the past. When you work with us, you also have access to the CPAs we have personally vetted. Get professional help to avoid giving your hard-earned money to Uncle Sam.

Section 280A: Home Office Deduction Rules

Many people who have office jobs envy those who can work from home. If you're a small business owner, freelancer, or kick-ass entrepreneur who uses a home office, you probably know that the truth is a little bit more complex. Sure, you can sometimes get away with working in your pajamas, but working from home also takes a lot of discipline and incurs many costs. Fortunately, there is an entire section of the Tax Code that allows for home office deductions that can add up to significant savings. Meet Section 280A, the birthplace of those sweet, sweet write-offs. Read on to learn how to make the most of your Home Office Deductions while staying compliant with the IRS's rules.

Rule #1: You Must Have an Actual Home Office

You can take advantage of the benefits of Section 280A if you have a dedicated office space in your home. Uncle Sam calls this the "regular and exclusive use" requirement. Now, Uncle Sam is reasonable about this. Your entire home does not have to be business-only, but you must have a space in it that is solely for business purposes.
In theory, you could convert your neglected TV room or basement for this, but you have to use it only to manage your business. We have many real estate investor clients who do exactly this and are still acting within the lines of the law. This rule is designed to keep unscrupulous taxpayers from writing off personal expenses as business expense. Of course, we know you wouldn't do that. Just be sure you can prove your case if anyone looks into the use of your home office space.

Rule #2: Your Home Office Must Be Your Business's Base of Operations

The IRS calls this rule the "principle business location" requirement. In plain English, this means your home office must be where the majority of your business is conducted. Let's say you are running a real estate business from a home office. If you are using it for most of your business activities (phone calls, meetings, computer-based work), you can still use another location for other purposes. But only to a point. Having a separate office for meeting high-profile clients or completing shipping duties, for instance, would still qualify you for Home Office Deductions.
One caveat of this rule to understand is that the IRS takes the literal amount of space in your home devoted to business only into consideration. The more physical space in your home that you devote to your business, the better.

Get Professional Help With Your Home Office Deductions

Most people with reasonably stable mental health don't enjoy spending their free time deciphering the tax Code. While this article has explained the basics, these issues are complex. Fortunately, you don't have to slave over the time-consuming process of understanding every detail of Section 280A. That's why the smart move is to get advice from the tax professionals at Royal Legal Solutions. Our tax attorneys already know the Internal Revenue Code inside and out. After all, many of our clients are take-charge entrepreneurs who work from home. In fact, so many of our investors are self-employed individuals that we also offer retirement planning advice for self-employed individuals. Don't torture yourself too much trying to understand the regulations: get professional help today.
 

How to Make a Lien Friendly & Protect Your Real Estate

Yes, there is such a thing as a “Friendly Lien." This is a lien against your property held by a party who is friendly to you. Ideally the “friendly party” is an LLC or corporation created in a jurisdiction (like Wyoming or Nevada) that allows you to use a nominee to make your involvement with the business anonymous.

The friendly lien will prevent potential litigants and creditors from pursuing the property since it’s "encumbered."  No sane lawyer will dive into a lawsuit before crunching the numbers. After all, why waste time trying to get a favorable judgment if you can’t get paid? This is why a friendly lien is a great addition to your asset protection toolbox. The lien will help make your property less attractive to predators.

But here’s the rub. It’s not foolproof and it can also end up being a quick lesson in how to lose money in real estate.

Friendly Liens Can Go Bad

You need to file a friendly lien the right way to avoid running afoul of the law. Offering a counterfeit lien or false instrument for recording can land you in the slammer in many states. Civil courts refer to it as “slander of title” and issue hefty fines for such actions.

So, what exactly is a bad lien? This is a lien that lacks economic substance. For instance, you shouldn’t claim that your LLC loaned you some money when it, in fact, did not.  The IRS and the court system won’t be forgiving. And you’d better hope you look good in black and white stripes if you go this route. Criminal penalties can include jail sentences of two to three years.

Using Friendly Liens the Right Way

You need to get a few things right to keep your property safe when using friendly liens. Unless, of course, your intention is to use the lien to obfuscate or defraud, in which case nothing will protect you from the law.

It’s Only an Asset Protection Smokescreen

The friendly lien only acts as a smokescreen. It will definitely not protect you from creditors coming to collect. If you have not actually borrowed any money from the LLC, then a friendly lien becomes a meaningless document. This is why we recommend a multi-pronged approach to asset protection for rental property owners.

Top 3 Types of Tax Professionals Real Estate Investors Should Be Aware Of

When dealing with life's only two certainties, it's hard to tell which is more painful: death or taxes. Death is painful no matter what. But fortunately, there are ways to actually minimize the misery involved with dealing with Uncle Sam. As a real estate investor, you already know how important it is to maintain adequate tax records.

Fortunately, you do not have to go it alone with only Quickbooks and TurboTax by your side. There are professionals who deal with this all day long that you can outsource your tax issues to while you focus on your investments. Here are the top three tax professionals you should know about, and what they can do to ease your pain come Tax Season.

1. Certified Public Accountant (CPA)

Accountants are a special breed of people. They commit their working lives to running numbers, and a good CPA will know the Tax Code inside and out. Accountants must be accredited by the state, take continuing education courses annually, and pass a difficult exam to verify their credentials. While many CPAs are knowledgeable about taxes because of their education, smart investors pick an accountant who specializes in tax issues. You want someone who deals with Uncle Sam and his rules on a daily basis to worry about your books so you don't have to. Our firm partners with such CPAs for this exact purpose.

2. Enrolled Agent

An Enrolled Agent (EA) is a professional who must pass a rigorous exam exclusively about IRS regulations and tax matters. Once they have passed this notoriously exam, they hold the distinction of being licensed to practice in every state in the Union. These professionals are also the only people who can represent you in IRS hearings without any type of limitations.

3. Attorney

We promise this isn't just our bias because we are attorneys ourselves. Here's a fact you may not know about being a practicing attorney: becoming an attorney is hard. We must not only attend law school, pass the State Bar, but also participate in continuing education so that we are up to date on state and federal laws. This includes tax matters.

The value of an attorney is in their knowledge and ability to advocate for you. In fact, any attorney can represent you for tax purposes. That said, you are best off selecting an attorney who specializes or has experience in tax law. Our tax professionals at Royal Legal Solutions are licensed attorneys who routinely assist investors like you with filing appropriately, understanding your tax obligations, and ensuring compliance with IRS regulations. Regardless of who you pick, a good lawyer is worth their weight in platinum. We can save your backside in a dispute with the IRS, but more importantly, we can prevent this situation from happening in the first place.

Bottom Line: The Pros Make Your Life Easier

You may use any of these professionals to assist you in preparing your taxes, if only to relieve the stress involved. Do your research on any person you add to your real estate dream team to verify their qualifications. This little bit of proactivity will ensure you are better protected as a real estate investor.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

Real Estate Flipping: LLC Taxation Issues To Know About

Are you an investor engaged in real estate flipping? Do you deal in tax liens or deeds or engage in investment activities in which you never hold on to property for longer than a year? 

You’re probably wondering what sort of entity I recommend for such transactions. If you guessed an LLC, you’re right. But it's not as simple as it sounds.

One of the issues flippers will struggle with is how these LLCs are taxed.   

Why?

This is an issue that can make or break your business. So you need to consider your needs as a whole to come up with the right entity for you.

Let's get down to the meat and bones of setting up the right entity for flipping properties.

Strategy 1: The Legal Beagle’s Take

Your attorney will, more often than not, focus on liability and how to avoid it. Most attorneys aren't savvy real estate investors themselves (although we at Royal Legal Solutions are). But an "average" lawyer will likely advise you to set up the LLC as a partnership for federal tax purposes.

But there’s a problem with this approach: You’re left exposed to the IRS. If they decide your real estate investment is actually an “active business,” you’re toast. You’ll be subject to self-employment tax. Even worse, this judgment about whether your investment is actually business is at the discretion of the Tax Court.

Strategy 2: In Comes The CPA

At this point, you’re probably thinking a CPA will solve all the problems you’re likely to face with the Taxman. After all, they’re the number cruncher.  

Your CPA may suggest that you can dodge the issue with Uncle Sam by setting up the LLC as an S-Corporation. The IRS treats S-corporations the same as partnerships. They’re both pass-through entities where income passes through to the 1040 of the owner. This way, his or her income is not subject to self-employment tax.

I’m sure you’ll agree this is a much better prospect. But we still have a problem.

On the surface, everything looks hunky-dory. But upon closer inspection, you will realize that the advice from the CPA only protects you if taxes were your only problem. Unfortunately, this is not the case with most real estate investors. You will need to raise money at some point.  

And here’s where both the lawyer’s and CPA’s approach will fail. When applying for a loan via a disregarded LLC or an S-Corporation, the bank will treat you as a high-risk borrower if you’re self-employed.

Strategy 3: The C-Corporation

Talk to someone with entity and tax chops (like us!), and they’ll know about this third alternative. It involves setting up a C-Corporation to handle your active real estate business while receiving your profits as W-2 income. This way, you won’t be considered self-employed or a business owner since your ownership is not part of your individual 1040.  

So ... What’s the Best Strategy For Real Estate Flipping?

There’s really no one-size-fits-all approach for flippers. Every investor has to pick what works best for their unique situation. Your choice will be based on whether you’re more concerned with funding your retirement, borrowing, or minimizing your taxes.

 

Interested in getting more details? Check out our article Selecting the Best Entity for Real Estate Flipping.

Joint Venture Liabilities Likely to Get You Sued

Freddy Stein is an active real estate flipper making big moves in the Atlanta market. He currently has four properties he’s rehabilitating, all held under his corporation.  

Bad idea! We always recommend that our clients hold each property in a separate LLC to insulate them from each other. The way Freddy’s business was set up, a lawsuit could wipe out all his investments in one fell swoop.

Apparently, his quack of an attorney had advised him not to complicate his business structure. The attorney argued that:

It was bad enough that the attorney did not understand the basics of asset protection for real estate investors. Worse yet, he did not understand investing.

Freddy was using money from private investors to finance his deals. This meant that if Freddy’s business got involved in a lawsuit and lost, there was a chance of losing all his property and the investors' money. This would then lead to each of his investors suing him for the lost money. Common situations like this are why any real estate should consider using separate LLCs when dealing with Joint Ventures. And yes, there's more.

There are even greater Joint Venture liabilities lying in wait for Freddy and other investors.

Liability Risks Associated with Joint Ventures

When you enter into any type of Joint Venture in real estate investing, you are basically in a partnership. For this reason, you have duties regarding how you treat your JV partner(s). A breach of any of these duties can result in liability for you and your business.

Good Faith and Fair Dealing

This obligation begins with the Joint Venture offer to third parties. It continues throughout the agreement until the property is sold.

Loyalty to Joint Venture Partners

You must always place the business or personal interests of your Joint Venture partners above your own. You must steer clear of situations that might cause a conflict of interest or self-dealing for your personal gain. In a business such as Freddy’s, it is very easy to fall into conflict of interest traps.  One of the partners could claim Freddy never devoted his best efforts to their deal because other Joint Venture deals under the same company were more lucrative. While he could argue that he’d never do such a thing, the investor's perception alone can motivate a lawsuit.

Freddy could point out that he did not disclose his other Joint Venture arrangements with his investors. This is a breach in itself because he did not disclose relevant information to the other partners.

Duty of Care

This requires that you act reasonably, in good faith, and without conflict of interest when making decisions for the business. For Freddy, there is a glaring conflict of interest when he’s trying to manage three Joint Ventures concurrently. In his current arrangement, he is managing all his joint venture contributions, income from the sale of property, and property expenses via one bank account.

Joint Venture liabilities may arise regarding the use of the joint venture funds for other investors and personal benefit to Freddy.

The truth is, lawsuits are not exclusively centered around issues related to business assets. They can also  be fueled by how a business is run. Freddy’s business is currently a legal disaster waiting to happen. Joint venture investors like Freddy should structure their businesses inside LLCs instead. Doing this can limit these liability risks and prevent potentially ruinous lawsuits.

On-Site Property Management: The Good, The Bad, and The Ugly

Do you own a multi-unit complex of any kind? Do you have a property manager on site?

If you answered "yes" to both of these questions, then you probably offer them some kind of lodging/accommodation in addition to their base salary. Normally, you’ll pay your property manager an amount commensurate with the number of units they’re managing and the nature and amount of work involved.

This “free rent” you’re offering your property manager can cause tax problems if mismanaged. For you to be in the clear, you must fulfill the following conditions:

Should one of these conditions not be met, then you’ll be forced to include the lodging’s net value on the manager’s W-2 form. They will be required to report the free lodging as income on their tax return.
You probably have all the three requirements checked off your list by now. But are you out of the woods yet? Well, not really. Here’s the thing: you’re covered when it comes to federal tax liabilities. But that’s as far as it goes. State tax laws are a different issue altogether.
Here’s what Barbara Klein, one of our clients, experienced.

The Good

Barbara acquired a multi-unit apartment complex. She held it in a newly-created Limited Partnership and managed it with  a corporation to protect her assets.  She then decided to give an existing tenant free rent (a $600 value) as payment for being the on-site property manager. The duties assigned to the manager included addressing tenant complaints and concerns and making minor repairs. Because of the fairly small size of the property, no other compensation was included.
Two months into owning the property, Barbara decided to redo the entire roof of the building.  Two tenants happened to be professional roofers and offered to do the job. In return, Barbara agreed to give them six months of free rent. The roofing was completed in a month.

The Bad

Three years later, a rookie state auditor out to prove a point performed an audit on Barbara’s Limited Partnership. He did not understand the terms of the roofing job or the duties of the on-site manager. Consequently, he made a labor and industries assessment of $90,000. He assumed that Barbara had hired three people full-time for three years.

The Ugly

It gets worse! Barbara’s apartments earned her a gross of $100,000 every year. Labor and industries assessments were about $30,000. But she did not pay Workers Compensation, so the figure was bumped up to $200,000. This was 25% of the value of her property. Ouch!  

What to Do to Protect Your Assets

Here’s the thing: this soul-crushing turn of events is not even the worst part. It’s that she could have done something to prevent it, but did not. You don’t want to be taken to the cleaners for careless mistakes like Barbara was.
Here's how to keep your assets protected:

Royal Legal Solutions has the reliable experts you need to help you prevent property management issues.