How To Buy Your Retirement Home Ahead Of Time Using A Self Directed IRA

Chances are you've been steadily growing your IRA for quite some time. Did you know that you can buy a retirement home with a Self Directed IRA (SDIRA)?

Yep, it's true. But there are a few things you need to know first.

If you have any other IRA besides a SDIRA, you can only hold investments. You can't just go buy a home with your IRA and live there. However, with a SDIRA, you can buy an "investment property", which you can later distribute and use personally.

Let's break this strategy down.

Steps To Using a Self-Directed IRA to Buy a Retirement Home

If you are seriously interested in using your SDIRA to purchase a retirement home, then know that it works in two phases.

First, your IRA purchases the property and owns it as an investment until you decide to retire. (You need an SDIRA for this.) Second, upon your retirement (after age 59 ½), you can distribute the property via a title transfer from your SDIRA a regular IRA. This allows you to personally use the home and benefit from it personally. Before you go out and buy your future retirement home, you should consider a couple of factors.

Avoid Prohibited Transactions

Be careful to avoid those dreadful "prohibited transactions". The rules in place currently do not allow you, the IRA owner, or certain family members to have any use or benefit from the property while it is owned by the IRA.

The IRA must hold the property strictly for investment. The property may be leased to unrelated third parties, but it cannot be leased or used by the IRA owner or prohibited family members (kids, siblings, parents, etc). Only after the property has been distributed from the self-directed IRA to the IRA owner may the IRA owner or family members reside at or benefit from the property.

You Must Distribute The Property Fully Before Personal Use

The property must be distributed from the IRA to the IRA owner before the IRA owner or his/her family may use the property. Distribution of the property from the IRA to the IRA owner is called an “in kind” distribution, and results in taxes due for traditional IRAs.

For traditional IRAs, the custodian of the IRA will require a professional appraisal of the property before allowing the property to be distributed to the IRA owner. The fair market value of the property is then used to set the value of the distribution.

For example, if your IRA owned a future retirement home that was appraised at $250,000, upon distribution of this property from your IRA (after age 59 ½) You would receive a 1099-R for $250,000 issued from your IRA custodian to you.

One of the drawbacks of this strategy is that distribution taxes can be high. You might prefer to take partial distributions of the property over time, holding a portion of the property personally and a portion still in the IRA to spread out the tax consequences of distribution.

However, that would be a tiresome process, as you would have to appraisals each year to set the fair market valuation. While this can lessen the tax burden by keeping you in lower tax brackets, you and your family still cannot personally use or benefit from the property until it is entirely distributed from your IRA.

Bottom Line: Play By The Rules With Your Self-Directed IRA

Remember that you should wait until after you turn 59 ½ before taking the property as a distribution, as there is an early withdrawal penalty of 10% for distributions before age 59 ½.

While this strategy is possible, it is not for everyone and certainly is not easy to accomplish. Few things worth doing in life are. SDIRA investments come with rules, and self-directed IRA investors should make sure they understand those rules. Remember, you can't use your retirement home for personal use until after its been distributed and you may or may not end up paying lots of taxes.

How To Get Out Of The Annuity You Bought With Your IRA

Did your adviser tell you how great annuities are, and how they can guarantee a life time of income for you and your spouse? Yep, they tell everyone that. But the truth is, most people eventually want to learn how to get out of an annuity.

Ways to Get Out of an Annuity

After you've retired and decided your annuity isn't as great as you thought it would be, there is a good chance you will ask these three questions:

  1. What's an annuity? (It's okay, most people don't know.)
  2. Can I cancel it and get my money back to invest in something else?
  3. Are there any penalties if I cancel? If so, how do I get around them?

Most people who own an annuity with an IRA are seeking to use those retirement plan dollars in a new investment opportunity with the goal of increasing returns. However, getting rid of an annuity owned by your IRA isn’t as easy as selling a mutual fund or stock investment.
Let's begin with the big questions here, the ones you already asked by being interested in this article. But first thing's first. Let's define annuities.

What is an Annuity?

The annuity you own is a contract with an insurance company. By signing this contract you agreed to either invest a lump sum or a series of payments with an insurance company.
In doing so, the insurance company agrees to pay a specific amount of money to you over your life. There are many variations of annuities. But the simple explanation is you give up money now to an insurance company and they promise to pay you money later. The longer you wait to get paid the more they will pay you later.

Can I Cancel My Annuity and Get My Money Back?

You can cancel your annuity, but you may be subject to a surrender penalty. Unfortunately there is usually no way around this penalty. Most annuities have a surrender penalty where you, the owner of the annuity, get penalized for requesting a return of the investment within a certain period of years of the initial investment.
This time period is known as the "surrender period". The surrender penalty on a 10 year surrender time period is usually 10% and decreases by 1% each year thereafter until it goes to zero after 10 years.
For example, if you invested a lump sum of $150,000 into an annuity and one year later (in year 2) you wanted to get your entire $150,000 back, you would be subject to a 9% surrender penalty of $13,500.
You would get back $136,500, but would forfeit the rest. Some penalty schedules are worse than others and they all vary. The surrender schedule is in your annuity contract documents and can also be requested at any time from the company holding your annuity.

How Do I Avoid Paying Taxes When Cancelling My Annuity?

Once you cancel an annuity owned by your IRA, the funds need to stay within your IRA in order to avoid taxes and penalties from your friends at the IRS. You can request the annuity company to transfer the IRA annuity cash balance over to a new IRA custodian of your choosing. Most investors find self-directed IRA the best method for this.
Once you’ve taken these steps, you’re retirement plan funds will be in an IRA and available to invest in stock, cryptocurrency, (link to cryptocurrency article here, "internal" links improve SEO) real estate, mutual funds, bonds and all other investments available to IRA holders.
If you have any questions about your annuity, please don't hesitate to ask me personally. You can reach out in the comments or contact me directly. I'd love to help! If you're ready to get out of your annuity, learn more about your retirement planning options, or take your retirement investments to the next level, schedule your consultation today.
 
 
 

Joint Venture Agreements For Real Estate Investors

If you've been in the real estate business for awhile now, the chances are extremely high that you've entered a Joint Venture Agreement at least once.
Right after the recession hit, Joint Venture Agreements became all the rage. Mainly because lenders began imposing loan-to-value ratios as high as 70%. Not many real estate investors are willing to put that much on the line, not by themselves anyway!
But maybe you don't know what a Joint Venture Agreement is? Whether you do or don't this article might can teach you something new. Let's begin.

What Is a Joint Venture Agreement?

A JV Agreement is a contract between two or more parties. It outlines who is providing what. (Money, services, credit, etc.). It also outlines what the parties responsibility and authority are, how decisions will be made, how profits/losses are to be shared, and other venture-specific terms.
A joint venture agreement is typically used by companies or individuals (like real estate investors) who are entering into a onetime project, investment, or business opportunity.
Usually the two parties will form a new company such as an LLC to conduct operations or to own the investment. This is usually the recommended path if the parties intend to cooperate over the long term.
However, if the opportunity between the parties is a one-time venture where the parties intend to cease working together once the agreement or deal is completed, a joint venture agreement may be an excellent option.

Typical Joint Venture Scenario For Investors

For example, consider a common joint venture agreement scenario used by real estate investors, and let's say you're the real estate investor. You purchase a property in your LLC or s-corporation and intend to rehab and then sell the property for a profit.
Then you, the real estate investor, finds a contractor to conduct the rehab. Your arrangement with the contractor is that the contractor will be reimbursed their expenses and costs and is then paid a share of the profits from the sale of the property following the rehab.
In this scenario, the joint venture agreement works well as both you and the contractor can outline the responsibilities and how profits/losses will be shared following the sale of the property.
It is possible to have the contractor added to your s-corporation or LLC in order to share in profits. But that could be bad for you.
If you did add the contractor to your s-corporation or LLC, that contractor would permanently be an owner of your company. Which is bad because you will likely use that company for other properties and investments where the contractor is not involved.
As a result, a JV Agreement  between your company that owns the property and the contractors construction company that will complete the construction work is preferred.
A JV agreement lets each party keep control and ownership of their own company while they divide profits and responsibility on the project being completed together.

Why You Should Use a Joint Venture Specific LLC For My Assets

While a new company is not required when entering into a joint venture agreement, many joint venture Agreements benefit from having a joint venture-specific LLC that is created just for the purpose of the joint venture agreement.
This venture-specific LLC is great in situations such as:

A $1M deal or venture could be done with a joint venture Agreement alone, however, you would be well advised to create a new entity as part of the JV Agreement. On the other hand, if the venture is only a matter of tens of thousands of dollars, the costs of a new entity may outweigh the benefits of a separate LLC for the venture.

Enter Agreements With Joint Ventures Wisely

Joint venture Agreements are great when you need cash now or can't qualify for financing. They also enable you to work with someone who can bring something to the table you can't. But in any case, always make sure you carefully consider everything before entering into one.
As always, if you have any questions about this article please do not hesitate to ask. If you're wondering whether a joint venture arrangement is right for you or have questions about setting up a venture-specific LLC, contact us today.

7 Benefits Of The Self-Directed IRA

The benefits of the self-directed IRA include absolute freedom & control to decide how you invest and what you invest in. When you think about it, this is a privilege the average investor lacks.

IRA stands for Individual Retirement Account, and it's a great way to save for your retirement. A lot of people think an IRA itself is an investment - but it's just the vehicle in which you keep stocks, bonds, mutual funds and other assets. A self-directed individual retirement account (SDIRA) is a special IRA that can hold a variety of investments types normally prohibited from regular IRAs.

While there are many advantages to this powerful investment tool, we've taken the time to list some of our favorites. Below you can read about the top seven exclusive & cost effective benefits of the self-directed IRA LLC.

Benefit #1: Tax Advantages

With a self-directed IRA LLC, you have all the tax advantages of traditional IRAs, as well as tax deferral and tax free gains. All income and gains generated by your IRA investment will flow back to your IRA tax free.
What this means is that you'll experience tax free growth.

Instead of paying tax on the returns from your investments, tax is paid only at a later date when a distribution is taken, leaving your investment to grow tax free.

Benefit #2: Investment & Diversification Benefits

What about self-directed IRA real estate? Your choices include real estate & private business entities. Once again, you can do this tax free.This will also enable you to build a solid portfolio that'll generate beefy returns in both good times and bad times.

Benefit #3: Access

The benefits of the self-directed IRA LLC include having direct access to your IRA funds. This  allows you to make an investment quickly and efficiently. There is no need to obtain approvals or send money to an IRA custodian.

Benefit #4: Speed 

With a self-directed IRA LLC, whenever you find an investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your LLC bank account to make the investment. Other retirement accounts usually have to talk with their custodian first, which can cause a delay.

Benefit #5: Lower Fees

Another advantage to a self-directed IRA LLC account is that you can save a lot of money on custodian fees.
You will not be required to pay custodian transaction fees and account valuation fees. (Which can add up to be thousands of dollars over the years.)

Benefit #6: Limited Liability

By using a self-directed IRA LLC, your IRA will benefit from the limited liability protection afforded by using an LLC. With an LLC, all your IRA assets held outside the LLC will be "shielded" from attack.

This is especially important in the case of IRA real estate investments. This is an area where many state statutes impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.

Benefit #7: Asset & Creditor Protection

By using this distinct category of retirement account, you will be protected for up to $1 million in the case of personal bankruptcy. Most states will also protect a SDIRA from creditors.

The Bottom Line: The Self-Directed IRA Makes Sense

The self-directed IRA LLC is like an IRA on steroids. If you want to take control of your finances, consider this legal entity for your real estate investments (or other assets).
 

Are You Interested In Flipping Homes Tax Free?

The world of real estate contains many profitable business opportunities. But it also comes with taxes. You know, those things your friends at the IRS keep misplacing every year.

If you're flipping homes, you know the bottom line is dollar signs. So how do you increase your bottom line?By decreasing your expenses, AKA the taxes you pay. The easiest way to do this is by employing a Self-Directed IRA LLC.

Let's talk about how exactly this is done and what advantages this method offers.

Flip Houses With a Self-Directed IRA LLC

Flipping homes and other real estate transactions are made easy with a Self-Directed IRA.  With your Self-Directed IRA LLC you will have the authority to make real estate investment decisions on behalf of your IRA.

You can  pay for the improvements, sell or flip the property on your own without needing the consent of an IRA custodian.

Another benefit of purchasing real estate with a Self-Directed IRA is that all income and gains are tax deferred until a distribution is taken. In the case of a Self-Directed Roth IRA LLC, all gains are tax free.

Control Your Destiny and Your Investments

Unlike a conventional IRA which requires custodian fees and consent, a Self-Directed IRA LLC will allow you to buy real estate by simply writing a check.

Since all your IRA funds will be held at a local bank in the name of the Self-Directed IRA LLC,  transactions are simple. All you will need to do to engage in a house flipping transaction is write a check straight from the IRA LLC account or wire the funds from the IRA LLC bank account.

There's no need to ask an IRA custodian for permission or have an IRA custodian sign the real estate transaction documents.

Recap: Use Your Self-Directed IRA LLC and Save

Remember, when you're flipping homes with a Self-Directed IRA all gains are tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all gains are tax free.Royal Legal Solutions can set up your entire Self-Directed IRA LLC. The whole process can be handled by phone, online or even through the mail. It usually takes a week or two. Contact us about establishing yours today.

Note: The timing largely depending on the state you want your Self-Directed IRA LLC in and the current custodian holding your retirement funds.

Start flipping homes the smart way.

 

The New Real Estate IRA LLC

You can invest your money using a variety of cost effective methods. But if you already invest or are considering investing heavily in real estate, it's in your best interest to get a Real Estate IRA LLC.

What Is a Real Estate IRA LLC?

A Real Estate IRA LLC, AKA a Self-Directed IRA LLC, is an IRS and tax court approved structure that allows you to use your IRA funds to purchase real estate, or make almost any other type of investment, tax free.

With a Real Estate IRA LLC you will never have to seek the consent of a custodian to make a real estate investment or be subject to costly custodian account fees.

To establish a Real Estate IRA LLC, first you need to have an IRA. Then you establish an LLC which is owned by the IRA, which is in turn owned by you. The passive custodian then transfers your funds to the new IRA LLC bank account.

How Do I Buy Real Estate With My Real Estate IRA LLC?

When you find a real estate investment that you want to make with your IRA funds, simply write a check or wire the funds straight from your Self-Directed IRA LLC bank account to make the investment.

The Self Directed IRA LLC allows you to eliminate the delays associated with an IRA custodian, enabling you to act quickly when the right real estate investment opportunity presents itself.

This setup also gives you a great advantage when it comes to making real estate or tax liens investments, since custodian delays could cause you to lose an investment opportunity.

Real Estate Is an IRS-Approved Investment

 Investments with a Real Estate IRA are allowed under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, except from any investment involving a disqualified person.

Note: Disqualified persons are usually limited to your close family members, such as your parents and children.

What Types of Real Estate Investments Can I Make With a Real Estate IRA LLC?

With a Self-Directed IRA LLC you will have the ability to invest in almost any type of real estate investment, such as:

  1. Foreclosure property
  2. Condos or coops
  3. Mortgages
  4. Mortgage pools
  5. Deeds
  6. Farm land
  7. Tax liens
  8. Residential or commercial real estate
  9. Domestic real estate
  10. Foreign real estate
  11. Raw land
  12. Vacation homes
  13. Rental units

A Real Estate IRA LLC Offers You Growth Potential

A Self-Directed Real Estate IRA LLC offers you the opportunity to greatly accelerate the growth of your retirement portfolio. With a Real Estate IRA LLC you can take advantage of the high growth real estate investment sector while benefitting from the tax free IRA benefits.
Investing in real estate is a formidable alternative to the stock market. Why? Because real estate properties can provide steady income as well as long term gains through appreciation.  There are no limitations on the types of properties that can be held by a Real Estate IRA LLC.

Establish Your Real Estate IRA LLC While The Market is Investor-Friendly

You're no doubt well aware of how the residential and commercial real estate market has taken a dramatic downturn due to the subprime mortgage meltdown.

While it’s a bad real estate market for current owners and landlords, on the flip side it's a great investment market for real estate investors with capital. Also, the Real Estate IRA LLC is perfect for any person looking to diversify their retirement funds by investing in the high growth real estate market.

You Have Leverage With Your Real Estate IRA LLC

The Real Estate IRA LLC can be used when making a real estate investment using cash, or may be used when using a non-recourse loan to fund an investment. A non-recourse loan is the only type of loan allowed for a Self-Directed IRA.

A nonrecourse loan is a secured loan which is secured by a pledge of collateral, but for which the borrower is not personally liable. Whereas, a recourse loan is a loan for which the borrower is personally liable. Recourse loans are no permitted when using IRA funds.
 

Note: If non-recourse funds are used as leverage, the debt-financed portion of your investment will likely trigger the UDFI tax.

Opening a Real Estate IRA LLC Is Quick and Easy.

Royal Legal Solutions will take care of setting up your entire Real Estate IRA LLC structure. The whole process can be handled by phone, email, or mail, typically taking 2 weeks or less. The amount of time it takes to setup largely depends on the state you choose to form the IRA in and your current custodian.

Setting Up Your Real Estate IRA LLC: A Step By Step Guide

 

Step 1: Establish Your Account

Your Self-Directed IRA account is established with an IRS approved and FDIC backed passive custodian.

Step 2: Transfer Your Funds

Your retirement funds are transferred to the new Self-Directed IRA account tax free.

Step 3: Form Your LLC

A Limited Liability Company (LLC) is formed with you as the owner.

Step 4: Fund Your LLC

You decide what to invest in, and the passive custodian invests the IRA funds into the newly formed IRA LLC.
Note: One or more IRAs can be used to fund the IRA LLC, including Traditional, Roth, and SEP IRAs.

Step 5: Take Control

You direct the IRA funds held in the new LLC bank account for investment as you see fit.

Step 6: Invest

 Your LLC makes a real estate investment using IRA funds and all income and gains generally flow back to the LLC tax-free!

Learn More About Royal Legal Solutions' Real Estate IRA LLC 

If you still have questions about the Real Estate IRA LLC, contact us today. We're happy to help.
 

How To Buy Real Estate With A Self-Directed IRA LLC

Remembering these tips will not only help you make more money, but they'll also keep your friends at the IRS happy!
So I realize you might be wondering...

Why buy real estate investments with a Self-Directed IRA LLC?

A self-directed IRA LLC offers you the ability to use your retirement funds to make almost any type of investment. The IRS permits using this legal entity to purchase real estate or raw land. Making a real estate investment is as simple as writing a check from your Self-Directed IRA bank account.

The advantage of purchasing real estate with your self-directed IRA LLC is that all gains are tax-deferred until a distribution is taken (pre-tax 401k distributions are not required until you turn 70 1/2). In the case of a Roth Self-Directed IRA, all gains are tax-free.

For example, if you purchased real estate with your self-directed IRA LLC for $500,000 and you later sold the property for $800,000, the $300,000 of gain appreciation would generally be tax-deferred.

If you purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income tax and probably state income tax as well. (Which obviously sucks.)

Tips For Self-Directed IRA LLC Investing

If you have any questions about investing in real estate with a self-directed IRA LLC, Royal Legal Solutions is here to help you.

Top 10 Features Of The Solo 401k Plan: Empower Your Business

Are you an independent contractor or the only employee of a business you own? If so, you may want to learn about the Solo 401k.

A Solo 401k is a dream come true for small businesses, independent contractors and sole proprietors, such as consultants or freelance writers. A Solo 401k Plan can be adopted by any business with no employees other than the owner(s).

The business can be a sole proprietorship, LLC, corporation, or partnership. The Solo 401k is a tax efficient and cost effective plan offering all the benefits of a Self-Directed IRA, plus additional features.

Solo 401k Features and Benefits

1. Easy to maintain.

There is no annual filing requirement unless your solo 401k plan exceeds $250,000 in assets. If it does you will need to file a short information return with the IRS (Form 5500-EZ).

2. Freedom of choice and tax-free investing.

With a Solo 401K Plan, you will be able to invest in almost any type of investment opportunity, including:

Your only limit is your imagination.
Note: The income and gains from these investments will flow back into your Solo 401K Plan tax-free.

3.You can get a loan.

The Solo 401k allows you to borrow up to $50,000 or 50% of your account value, whichever is less. The interest rate will be the current prime rate. You can use the money for anything you want.

4. No Custodian fees.

A Solo 401k plan allows you to eliminate the expense and delays that come with an IRA custodian. This enables you to act quickly when the right investment opportunity presents itself.

Also, because you can open a Solo 401k at any local bank or credit union you won't have to pay custodian fees for the account as you would in the case of an IRA.

Another benefit of the Solo 401k plan is that it doesn't require you to hire a bank or trust company to serve as trustee. This flexibility allows you to serve in the trustee role. This means all assets of the 401k trust are under your direct control.

5. High contribution limits.

While an IRA only allows a $5,500 contribution limit (with a $1,000 additional “catch up” contribution for those over age 50), the solo 401(k) contribution limits are $54,000.  (With an additional $6,000 catch up contribution if you're over age 50.)

Under the 2017 Solo 401k contribution rules, if you're under the age of 50 you can make a maximum employee deferral contribution in the amount of $18,000. That amount can be made in pre-tax or after tax. The after-tax method is known as the Roth account.

On the profit sharing side, your business can make a 25% (20% in the case of a sole proprietorship or single member LLC) profit sharing contribution up to a combined maximum, including your employee deferral, of $54,000.

If you're over the age of 50, you can make a maximum employee deferral contribution in the amount of $24,000. That amount can be made in pre tax or after tax (Roth). (Up to a combined maximum of $60,000.)

6. Contribution options.

You always have the option to contribute as much as legally possible, as well as the option of reducing or even suspending plan contributions if necessary.

7. Roth contributions.

The Solo 401k plan contains a built-in Roth sub-account you can contribute to without any income restrictions. With a Roth sub-account, you can make Roth type contributions while having the ability to make significantly greater contributions than with an IRA.

8. Tax deductions can offset the cost of your plan.

By paying for your Solo 401k with business funds, you would be eligible to claim a deduction for the cost of the plan, including annual maintenance fees.

9. Exemption from UDFI tax.

When an IRA buys real estate that is leveraged with mortgage financing, it creates Unrelated Debt Financed Income (UDFI). This means you're going to be paying a lot of money in taxes!

How much is a lot you ask? The UBTI tax is approximately 40% for 2017-2018! Learn more details about this whopping tax penalty from our previous UBTI breakdown.

But, with a Solo 401k plan, you can use leverage without being subject to the UDFI rules and UBTI tax. This exemption provides significant tax advantages for using a Solo 401k Plan over an IRA for real estate purchases.

10. Rollover options.

A Solo 401k plan can accept rollovers of funds from another retirement savings vehicle, such as an IRA, a SEP, or a previous employer's 401k plan. Which means you can directly rollover your IRA or qualified plan funds to your new 401k Plan for investment or loan purposes.
Note: Roth IRA funds can't be rolled into a Solo 401k Plan.

Still Using an IRA?

While the IRA is nice and all, it just can't compete. With a solo 401k plan, your business will pay less in tax, and you won't have to deal with the typical IRA restrictions.

Are you interested in learning more about Solo 401ks? Call Royal Legal Solutions at (512) 757–3994 to schedule your retirement consultation today.

Build Your Real Estate Empire & Asset Protection Plan With the Pros

Welcome to our blog. I congratulate you on taking the time to become the best real estate investor you can be. You've come to the right place to do it! The Royal Legal Solutions blog contains a huge amount of information related to real estate investing and maximizing your profits.

At Royal Legal Solutions, we're here to make sure you have the best tax and legal information to make the most money you can. Not only are we tax and legal professionals, but we're also real estate investors ourselves.

Our specialty is asset protection. We make sure people can't sue you and force you to liquidate your properties. We devise a unique asset protection strategy for your assets to mask your ownership and build an impenetrable legal wall to protect you from lawsuits.

An Asset Protection Strategy Is Essential

You can't expect to last long in the real estate industry without some form of asset protection. And by the way, insurance doesn't count. Insurance won't protect you from lawsuits.

The only way you can protect yourself from lawsuits is with an asset protection strategy. By using a combination of legal structures, such as an LLC, people will think twice about filing a lawsuit against you.
As a lawyer myself, you can trust me when I tell you that few lawyers are willing to try and "pierce" an asset protection strategy without being given a large down payment by a client. And why? Because an asset protection strategy makes you extremely difficult to sue.

It takes time and effort to sue someone with an asset protection strategy. And that's just to be able to file a lawsuit. Winning a lawsuit against someone with an asset protection strategy is a whole different story.
Then even if they do win, they'll get next to nothing in the first place. That's the power of an asset protection strategy, and that's why so few lawyers will be willing to try and sue you if you have one.

Start Winning Today With Royal Legal Solutions.

If you're new to asset protection, we're here to help you learn about it with our many free articles and posts on the subject. For instance, did you know that a good asset protection plan saves your money?

My name is Scott Smith, and I'm the founder of Royal Legal Solutions. I'd like to personally thank you for visiting our website. If you have any questions feel free to comment below, or call us to schedule your personal asset protection consultation.

What is the Self-Directed IRA?

Do you have an IRA? If yes, you've probably only invested in mutual funds and other types of stock investments. But did you know lot of people that are in the know are now using their IRAs to invest in real estate and other more productive assets? All thanks to the self-directed IRA.

The Self-Directed IRA Basics

As its name suggest, the self directed IRA is an IRA you self-direct, or control. You might think that you control your IRA already. The truth is you don't. Your IRA is controlled by a custodian, and you have a limited choice of investments. You can only invest in things like stocks, bonds and mutual funds.
But by using a self-directed IRA, you'll be able to take complete control of your IRA. You'll be able to streamline the investment process and cut out the custodian, which means no more custodian fees or undue delays. And the best part? You can invest in real estate using a self directed IRA!

The Self-Directed IRA Rules

However, there are certain restrictions that apply to self directed IRA investors. You don't want to violate the IRA rules. (If you do, there are several consequences, including a fine.)
For example, one of these IRA rules is you can't loan money to a disqualified person. Also, there are certain assets that you can't invest in such as artwork, life insurance or collectibles.
Yet despite all these IRA rules, the self-directed IRA is the most powerful investment tool available for an IRA owner. Once you have a self directed IRA, you'll be able to use to invest your IRA funds into highly profitable asset classes with the ease of not having to involve a custodian.
If you have any questions about the self directed IRA, I've written several blog post that should be able to answer all of your questions. To learn more about the self-directed IRA (including how to fund and create one), check out our answers to top self-directed IRA questions. You may also be interested in learning how to buy real estate with your self-directed IRA.
If you have more questions or want to establish your self-directed IRA, Royal Legal Solutions is here to help. Contact us today.

What Makes a Series LLC Different from an LLC?

Have you heard about the Series LLC? It's basically a newer and better version of the normal LLC. Now you might be wondering, what makes the Series LLC different from a normal LLC? Hint: if you have children, you'll catch on fast.

The Series LLC works as if it's a parent-child structure. At the top you have the parent, the Series LLC. It'll have an EIN number and an official formation document stating what state you formed the Series LLC in.

Below the Series LLC you have the series themselves. You'll have series A, series B, etc. The series are what I refer to as the children because they all come from the original Series LLC parent. In this way the Series LLC looks like a family tree.

A Series LLC Can Grow Forever

A Series LLC is just like a parent, it can have as many children as it wants, unlike a normal LLC. And this might surprise you, but just like in real life, these children don't cost any extra money to create. That's true before AND after they're born.

Whereas, if you want to put 10 properties in 10 normal LLCs, you'd have to pay state filing fees for each LLC you form.

Each series in a Series LLC is going to be treated for liability purposes as if it were its own LLC. You can take advantage of this by putting one property in each series/child.

This means if you ever have a lawsuit resulting in some type of action against a house belonging to series A, it won't affect the houses held in series B or C, etc.

I forgot to mention, do you like doing joint ventures? The Series LLC is perfect for doing joint ventures!

For example, series C could be a joint venture agreement with as many people as you would like without involving the other series. It'll have its own EIN number, tax return and its own operating agreement to conduct the business of your JV agreement.

The Series LLC Is More Efficient Than a Traditional LLC

The Series LLC is the next evolution of the normal LLC. Compared to a normal LLC, A Series LLC is:

And best of all, you'll be able to file each one of your series (no matter how many you have) on the same tax return. This means thousands of dollars a year in tax preparation savings for you.

If you have any questions about forming a Series LLC I'd be happy to answer them in the comments below. Learn more about how a Series LLC can help you expand your business. If you're ready to form yours, contact us today.

💸 2 Ways Real Estate Investors Lose Money

Believe it or not, as a real estate investor you can only lose money in two ways.

Think about it. Either you make a bad investment, or someone sues you and takes your hard-earned money. Other then that, you've got nothing to worry about!

As an attorney, and someone who used to sue people, I can honestly say that lawsuits are basically just legalized stealing. Although, sometimes lawsuits are for a good purpose. But usually they're not, especially in the real estate industry.

How Do I Protect my Money & Real Estate?

So remember, getting sued is one of two ways you can lose money as a real estate investor. This means one of the key things we have to do to guard against half of the way we can lose our money in real estate investing is to protect ourselves specifically from lawsuits.

You're able to protect yourself from lawsuits by using an asset protection strategy. An asset protection strategy protects you from lawsuits and anybody looking to try to sue you. It makes suing you a gamble.

But here's a question. Why do real estate investors, or anyone else for that matter, get sued?

Real Estate Investors Are Sued for Their Success

Basically, you get sued because you have money. Someone else will always want your money. If you didn't have any money (or real estate assets that represent money), nobody would waste their time trying to sue you. So the question becomes, "how do I make it look as if I own nothing?"

You do that by using an LLC structure. You put your assets in an LLC, which is then owned by an anonymous trust. Nobody will be able to trace your assets back to you, meaning nobody will be able to sue you.

Another way to protect your money from lawsuits is by creating a series of fortresses (LLC's) to put your assets in. What we do is make each LLC appear low value and difficult to penetrate during a lawsuit. So even if they do penetrate it, they'll get nothing.

Suing you will be seen a gamble. And guess what?

Attorneys Don't Like Gambling on Protected Real Estate Investors

What an asset protection strategy does is make an attorney feel like suing you is the equivalent of going to Las Vegas to gamble. Suing you is usually a gamble for an attorney anyway, since most attorneys take cases on contingency (they don't get paid unless they win.)

Since most attorneys take their cases on contingency, they're playing to win. So there's no way they'll take a case they think they can't win or isn't worth their time.

At Royal Legal Solutions, we make it a gamble for attorneys to come after your money and your real estate investments. And remember, lawsuits are a business. By making it a gamble to sue you, the reality is it won't make business sense to try suing you. They just won't try it.

Are You Ready To Be a Real Estate Investment Pro?

Becoming a real estate investment pro isn't easy. But that doesn't mean it's expensive. There are affordable ways to become a real estate investment pro without having to invest thousands of dollars.

Let's go over those affordable ways below.

Get Real World Real Estate Investment Experience

If you want to get real world experience, the first thing you should do is find the smartest investors near you. Look for investors who are actually doing deals. You'll to find these people at meetup groups or online through websites like biggerpockets.com. You can also find some of my articles with tips for investors while you're there.

And what you're going to look for is somebody that's allowing you to bring money into a deal without having to be a huge stakeholder in any individual project.

This will give you an opportunity to work with more experienced investors on reviewing contracts, vetting deals and looking at tax and legal structures. If you're putting money into a deal with other investors, they have an interest in educating you on why this is a deal that you should put money into.

Not only are you getting a free education, you also have a chance to make money in the process. And sure, you could pay a "guru" to look over a deal with you. Just remember, a guru won't care about educating you as much as someone else who has money on the line.

So even if you're not making money in those first few deals, think of this as the cost of education and real world experience. But let's say you're not ready to invest or work right away. Don't worry, you've got another option.

Get An Education By Attending Real Estate Investment Seminars

If you can't work or invest you should look to attend real estate investment seminars. For example, here in Austin Texas we have the Austin Board of Realtors and other education-based seminars for individuals wanting to learn more about real estate investing.

Seminars are great resources. They're certainly much cheaper in comparison to the thousands of dollars you might have to pay to a "guru" to teach you something. Then there's also the benefits you reap from networking within your local community.

The people you meet at these groups and seminars are real professionals from your community. This is your opportunity to meet with other investors and professionals you can use for other business dealings you're doing.

And the seminars themselves, they're not professional CLD courses. So they're not gonna be over your head in terms of too many buzzwords. The people at these seminars are interested in communicating with you. They won't try to sell you something, like a book or a program. It's just pure information.

The Cost Of Becoming a Real Estate Investment Pro

For the price of real world experience, a valuable education and the chance to network within your community, you're looking at spending about $100. That might seem like a lot, but compared to your return on investment it's nothing.

I hope the above information was useful to you and I wish you good luck on your quest to becoming a real estate investment pro! If you have any questions feel free to ask me in the comments. And don't forget to share this blog with your friends and family on social media.

Learn more about real estate investing,  flipping homes tax free, and building your real estate dream team. I'd love to be a part of your dream team. For personalized legal advice to guide you on your path to becoming a real estate pro, schedule your consultation today.

Making Your Real Estate Dream Team

Believe it or not, making your real estate dream team only requires three people. You need an attorney, a CPA and a deal maker. A deal maker is either a real estate agent or a wholesaler. For the attorney and the CPA, don't go cheap. A good attorney is worth their weight in gold.

You're investing thousands of dollars. Make sure the deal you're working on is going to be protected. As an attorney, that's what I do. I make sure your company structure, as well as the deal itself is going to flow.

My job is to make sure you're not going to lose your money based upon a legal technicality. Or some other event that's going to cause you a legal headache.

A CPA is also worth its weight in gold in terms of tax savings. Especially after your company gets off the ground a little bit, you're going to want to hire a CPA who's also a real estate investor. A CPA is going to know exactly how to structure the tax savings that's gonna save you the most amount of money.

The Cost Of Your Real Estate Dream Team

Now you might think, wow, I have to pay these people a lot of money for a bunch of years and that's going to cost me a ton. Well maybe not. If you're doing a repeatable kind of business, then it's gonna be the same types of legal documents, as well as the same types of taxation that's going to occur every year. Now there's going to be some minor tweaks here and there to the legalities as well as the tax structure.

But any generic CPA at that point is going to be able to look at the model used by that attorney and by the other CPA that's a specialist and be able to tell you where you're gonna need to tweak a tax return. That will mean long term savings for you.

As far as the wholesaler or your real estate agent goes, these are really the crux of your business. Because those are the people that are going to actually be the ones making you money.

Don't Cheap Out On Your Real Estate Dream Team

As a real estate investor myself, I pay my team well. After all, what they really want to do from their position is cultivate a few number of select clients (hopefully you) to be able to build up their business.

This benefits all parties involved because now they don't have to market their business out to hundreds of people and deal with all of the phone calls and headaches from that. And you get to make consistent profits.

If they could just have a few clients and be able to buy all of the properties it makes their life a lot easier. This also means that you're competing against much less people, in terms of who's negotiating after the fact about what that particular deal is going to be worth.

This increases your leverage in being able to make more money working with those people. Now you might not be able to have enough money to be able to keep a wholesaler exclusive to yourself. Which is fine because...

The Series LLC Comes Into Play

Think about the way you can JV (joint venture) with other partners in bringing in other money to investing in a particular deal. If you combine that JV strategy with a series LLC, you're able to get into more deals at no additional cost.

Remember, the series LLC structure allows you to create as many series as you want. And each one of those series is treated as its own LLC.
That means you can bring in their own JV partner. With its own EIN member, operating agreement, everything that you would do in a traditional LLC. And bringing the money there, the Series LLC doesn't require you to have any additional filing.

So you can literally create a new series on your desktop with a new operating agreement bringing in that JV money and closing the deal with that wholesaler before anyone else is gonna be able to do it.

I hope you found the above information useful. And remember, when it comes to making your real estate dream team, don't cheap! Especially on the CPA.

What's a 'Pass Through Entity' & How Does It Help Real Estate Investors?

A pass-through entity is a business structure, such as an LLC, series LLC, or S corporation. We use the term "pass-through" because you can claim the income of these types of businesses on your personal income tax returns instead of a separate business tax return. Watch the video below and I'll explain:

LLCs Can Function as Pass-Through Entities

The LLC, or Series LLC, has the easiest tax returns for a single member. As a pass-through entity, all of the income from your company can be recorded on your personal income tax return.

That means you won't be taxed twice and or have to pay thousands of dollars to a CPA to file a business tax return. Normally other business structures have to file a business tax return.

Do you and your spouse file joint income tax returns? That's no problem, the above would still apply. But there are some instances where you will have to file a separate return, despite using a pass-through entity. We'll discuss this, and some of the other basics you should know about pass-through entities, below.

The Partnership Return for Multi-Member LLCs

Some states require at least two members in an LLC. Let's say, for example, you and your partner have an LLC. You're going to file what's known as a partnership return. A partnership return is a separate return for the business itself.

Due to the complexity of a partnership return, you're most likely going to want somebody to help you prepare it. I suggest you hire a CPA who is also a real estate investor.

Also note that an LLC is able to be taxed as a corporation. In some instances it can make sense in terms for your operating company to have that LLC taxed as an S corporation. So keep that in mind.

Speaking of real estate LLCs...

Which Pass-Through Entity Is Best For A Real Estate Investor?

The series LLC offers unbeatable asset protection, easy tax filing and is the foundation of a solid asset protection plan.

Say you own 5 properties. Instead of holding all 5 properties in one LLC, with a series LLC you can create a "series" within your LLC. Each series will hold one property.

The benefit of this is if someone sues one of your series and wins, only that one property in that one series will be affected. The majority of your wealth and assets would be protected.

Another great benefit is, no matter how many "series" you have within your LLC, they can all be filed on the same income tax return. This is a huge cost saving benefit you can't get with a regular LLC.

The Three Company Structure For Real Estate Investors

Many real estate investors buy and sell property without a company or LLC. While this is okay for investors with 1 or 2 properties, someone with multiple properties would be better off knowing how to structure a real estate investment company. He or she would be better off using the 3 company structure for tax and asset protection purposes.

Just think, the more properties you own, the more risk you're facing, and the more taxes you're paying. That's why it makes sense to use the 3 company structure, which is made up of 2 LLCs and your operating company, a corporation. Note: if you haven't already, see our info on how to start an LLC.

Three Ways to Use an LLC

  1. Buy & Hold LLC. This LLC is for your long-term rentals and other properties that you expect to hold for longer than a year. We can structure this LLC to make it friendly for long-term capital gains tax.
  2. Fix & Flip LLC. This LLC is for properties you plan on holding for less than a year. We can also structure this LLC to make it tax-friendly for short-term capital gains tax.
  3. Operating Company. The operating company will generally be a corporation. Having an operating company will shield you from personal liability.

By using the three company structure, your assets will be protected and your business will become more tax efficient. When you combine the Buy & Hold LLC and the Fix & Flip LLC, all your assets will be protected.

Now, all that's left are your personal assets. These will fall under the protection of your operating company, preventing liability and the risk of having to forfeit your assets in a lawsuit.

In essence, the three company structure protects you and your assets from lawsuits and allows you to get the most money out of your properties.

Why Should I Use Three LLCs?

If you're wondering why one LLC isn't enough, you're not the first investor to ask that question.

Remember the expression, "Don't put all your eggs in one basket?" Not to mix our poultry metaphors, but with one LLC, you're a sitting duck because all your assets can be found in one place. By separating them, not only will it make a lawsuit less likely in the first place, but you can also rake in more profits from these tax-efficient legal structures.

The name of the game (asset protection) is separation and anonymity. Your LLCs will hold everything that's valuable, and nobody except you will know they exist. Your operating company will exist only to sign contracts and negotiate with clients.

So if anything ever went wrong between you and a client business-wise, they wouldn't get anything if from suing you.

But let's say you don't flip homes. If that's the case, then you won't need a Fix & Flip LLC. The same applies to the Buy & Hold LLC if all you're doing is flipping homes. You could have two of each instead in these situations.

And sure, filing an LLC costs money, but unlike a lawsuit, you won't have to worry about bankruptcy. Get maximum asset protection and tax efficiency with the 3 company structure.

The Two Biggest Reasons Why New Real Estate Investors Lose Money

Welcome to the real estate industry! You'll quickly find out how easy it is to lose money when you don't know what you're doing. And even if you do know what you're doing, you can still lose money if you're not careful. But let's assume you're new.

I'm not trying to be a "party pooper" or anything like that. As a real estate investor myself, I just want you to know what you're getting into. So what exactly are the two biggest reasons why new real estate investors lose money?

You Will (Probably) Make Bad Investments

While it's not necessarily a guarantee that you'll make bad investments, the probability is high. However, it's only natural to be "bad" at something when you first start doing it. *wink wink*

But is there really any other way to learn other than from your mistakes? Yes and no. I recommend new investors do joint ventures with more experienced real estate investors before they go out on their own. Just make sure you find someone who knows what their doing if you choose to do that.

So what's the other big reason why new real estate investors lose money?

You Will (Probably) Get Sued

This one might surprise you. The truth is anyone can and will sue you if you're worth enough. It could be a random person off the street or even a business partner. You never know when it'll happen, but you have to be prepared. Otherwise you could lose everything.

Luckily for you, preventing lawsuits is easier than learning how to not make bad investments. The most proven way to prevent lawsuits is through asset protection. Asset protection involves the use of LLCs and other legal structures when doing real estate transactions and signing contracts.

Like I said earlier, anyone can sue you. But that's only if you're worth enough. Asset protection can make it appear as if you're worth nothing. Or, you can use asset protection as leverage to convince someone not to waste their time suing you.

Well that's everything. As always, if you have any questions feel free to ask me in the comments below. For questions about your individual situation, contact us directly.

Real Estate Investor

As a real estate investor, you have to understand that lawsuits aren't a business.
If anybody is looking to sue you, they're looking to get money out of you.
A proper asset protection strategy keeps people from finding out what you own.
If they ever were to see you, it limits what they can get from you.
More importantly, a great asset protection strategy exhausts their will and their resources to fight you.
This keeps people from continuing with the lawsuit.
It gets them to settle early. It gets them in most cases to stop the lawsuit before it even starts.
What you have to understand is that because lawsuits are a business the main part is how do we get money out of somebody when we sue them?
This is what asset protection strategy fights.
This strategy protects the assets from being seized by somebody via a judgment. This person doesn't believe that they are getting anything out of their investment in a lawsuit.
Lawsuits are only paid for in two ways: Either you pay an attorney to sue or the attorney takes it on contingency.
If an individual is researched and found to have no assets on paper, how much money should you be willing to risk for a judgment?
Moreover, there's no attorney who is worth his salt that is ever going to take a case like that on a contingency. Contingency is free for the client. The attorney risks everything.
In addition, attorneys only accept fire cases that they are very confident they can win and collect on. So, when you ask yourself how do I protect myself from a lawsuit? what you should really be asking yourself is: how can I make it seem as if I don't own anything?
Scott Smith, an asset protection attorney for real estate investors, is a real estate investor himself and would like to help you. 

The Benefits Of Homestead Exemptions

Homestead exemptions protect your property from taxes and creditors. Homestead exemptions are available in 48 states, notably Texas. If you live in one of the states that have these exemptions you can save you thousands in taxes.

Also, If your state has homestead protection, never put it into an LLC. Homestead protection is usually superior to what you can get from an LLC. But you may want to put it into a trust for estate planning purposes.

Every state that has homestead protections and exemptions will have different amounts for what they allow to be exempted. Whatever the exempt amount is, neither the IRS nor creditors can touch your property.

Let's Look at an Example of Homestead Exemptions

If your homestead exemption is $100,000  and your house is $50,000, well then it makes sense to pay off your entire house because we know all that money is going to be protected from a lawsuit since the exemption tells us that no one can get to it.

However, if your house values $200,000 and your homestead is $100,000 then what we want to do is create a lien (harmless debt) against your property to cover that gap so you can pay less in taxes and be protected more from creditors.

Homestead Exemptions Can Be Superior to LLC Protections

If you live in a state which has homestead exemptions, you're better off filing for those then an LLC. It will not only be cheaper (in most cases) but also more beneficial as far as property taxes go.

There are many ways to lower the value of your home and meet a homestead exemption limit. You could use a home equity line of credit and another bank loan or establish your own mortgage company.
These options aren't as complicated or expensive as you might think, especially when it comes to establishing your own mortgage company.

Always Know What Your Homestead Protections & Exemption Limits Are!

They're powerful, cheap to get and "old". The homestead laws have been around for over a century, which means they're not going anywhere.  Remember, never transfer your property to an LLC if you live in a state with homestead laws.

If you're interested in learning more about homestead protections & exemptions, call Royal Legal Solutions now to schedule your free consultation.

3 Ways Real Estate Investors Can Hide Their Equity

Fact: Creditors Want Your Equity

Did you know lawsuits don't need to be resolved with strictly monetary settlements? Creditors can and will attempt to take away your equity as a form of compensation, essentially stealing everything you've worked so hard to build.
Once a lawsuit is in motion, the plaintiff can opt to receive equity and there's nothing you can do to prevent it. What you can do is hide your equity altogether, making it a less attractive form of compensation. What they don't know can't hurt you.

Defense #1: Take Out a True Mortgage

This strategy allows you to extract your money from the property. However, there are several drawbacks that make this less than ideal. For one thing, you have to go through the actual process which can suck up a lot of your valuable time. Then there's the closing costs. And you also need to factor in regular interest payments, which drops the return on your investment.
So why bother, right? Well, in some cases the upside can offset these costs. That said, there are other ways of protecting your equity.

Defense #2: Open a Home Equity Line of Credit

This technique should be considered as a first line of defense. While it will hide your equity from unwanted scrutiny, it won't protect you in the event of an actual lawsuit (more about lawsuits here). It's an effective deterrent, but that's about it.
The good news is getting a home equity line of credit is fairly straightforward (learn more here). This isn't a major hurdle and definitely warrants consideration as a component of your asset protection plan.

Defense #3: Establish a Mortgage Company

This may sound complex and over the top, but it's really not. The purpose isn't to have commercial clients. Instead, you simply want to issue a mortgage to yourself.
This tactic creates an additional layer of separation and allows you to establish a no-cost mortgage to yourself. The recording and attorney fees to setup the company are going to be much lower than a bank mortgage over time and you get all the benefits without incurring long-term expense.
The best part of this is in the event of a lawsuit, you won't need to pay off the mortgage before a creditor collects, allowing you to retain your equity through the mortgage itself.