The Ultimate Estate Management Guide for Savvy REIs

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

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

Keep reading to learn how to protect your assets!

Basic Overview

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

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

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

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

Estate Management Tip #1: Inventory All Your Assets

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

Tangible assets include:

Intangible assets include:

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

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

Estate Management Tip #2: Establish Your Legal Plan

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

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

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

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

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

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

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

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

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

Estate Management Tip #3: Determine Your Beneficiaries

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

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

Key Takeaways

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

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

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

Selecting the Best Entity for Real Estate Flipping

Flipping is just different than other investing strategies. In terms of both the financial aspects and legalities of running this type of business, there are a few things flippers should know about organizing and defending their real estate portfolios. Chief among the things every flipper should understand is how to construct an asset protection strategy that adequately defends against lawsuits and forms a sound structure for active real estate businesses. Here’s how.

Do Your Homework Before Forming Your Entity: Special Concerns for House Flippers 

House flippers’ asset protection strategies should reflect their actual needs. Here’s a short checklist for you to consider before you start with entity formation.

When you form your real estate entity, consider how it will fit both within your asset protection and broader investment strategy. Here are some critical issues to consider:

If you have specific questions about these concerns in your life, speak with a qualified real estate attorney as well as an advisor you trust familiar with your investment market(s). Let’s shift gears and dive into the decision-making process you’ll use to select the entity for your flipping business.

REI Entities for House Flippers: What’s the Best Choice?

We’ll talk about a couple of popular choices for house flippers. Ultimately, the only way to know for sure what will be best for your business, portfolio, and plans will be the product of conversations with personal advisors. But feel free to use these rules of thumb as a starting point for your research and discussions about forming an entity for flipping real estate.

We’re going to talk about key strategies for house flippers with the understanding that flipping is a form of active trade. LLCs and S-Corporations are popular options. Learn more about the entities you can use and the key questions you’ll need to answer below.

The Limited Liability Company: How to Flip Houses With an LLC, Series LLC, or Both

It’s vital that those engaged in active real estate flipping businesses find a way to limit the many liabilities that can accompany this investing method. For many flippers, the Limited Liability Company helps square both the issue of liability and how to formalize the flipping business.

Now, the Limited Liability Company comes in a few variants. You’ve got your Traditional LLC, an affordable classic; the Series LLC, which allows you to quickly create an infinitely scalable network of mini-LLCs, as well as ways to use both types of LLC together for a formidable asset protection structure.

We hope to help you make the best decision for you by explaining how these companies protect your assets, how you can use them, and ways to approach some of the choices you’ll have to make whether you establish one Traditional LLC or a two-company structure. One of your unavoidable decisions is how your LLC will pay taxes, and yes, you get to choose.

The Tax Choice: Should You Consider Taxing Your Real Estate LLC as an S-Corp?

One reason flippers like LLCs is because you have options for taxation. LLCs may be taxed like partnerships or as S-Corporations. Making the S-Corporation judgment can be difficult for any investor, and we strongly recommend involving an REI-savvy CPA. But here are some things you can discuss with that professional, or anyone else assisting you with forming your real estate LLC.

S-Corporation makes sense as a tax savings strategy for some investors, but of course we all know there are no legal silver bullets for tax minimization. One huge benefit of using the LLC in general is pass-through tax treatment, which is still available if you’re taxed as an S-Corp. LLCs are beloved pass-through entities for investors, meaning profits and losses are simply recorded on the company members’ respective personal income returns.

There are certain advantages of S-Corp taxation for house flippers:

Be aware you may hear discussions of the S-Corp vs. the LLC as if this is an either-or proposition. Resist the temptation to listen to such reductive views, because you truly can have it both ways. One could in theory form a separate S-corporation entirely, but for most investors, opting to use an LLC taxed as an S-Corporation is a simple choice that preserves the beneficial features of both entities. Even better, the LLC taxed as an S-Corp is easier to run than a fully separate S-Corporation (complete with its many legal requirements). Not every flipper will even benefit from S-Corp taxation, but enough do that you should consider all options.

Combining Entities for Greater Protection: How to Use a Traditional and Series LLC Together

Some investors may be happy with a single entity, but many of our flippers and other investors love the tried-and-true method of pairing the Traditional LLC with the Series LLC. Under this model, the Traditional LLC serves as your operating or shell company. It manages day-to-day activities like collecting rent, paying employees, etc. 

Meanwhile, your Series LLC functions as an asset-holding company.  This company must never interact with the world, because that’s what the Operating Company does. To maximize the Series LLC’s effectiveness, all you do is create as many Series as you have assets, direct your attorney to help you make the appropriate transfers so each asset is in its own Series, and ta-da. You’ve got yourself a basic two-company structure. Use it correctly, and it can protect your real estate assets for life.

Using your entity correctly means ensuring liabilities go where we want them. In the case of the two-company structure, that Traditional LLC is the company we actually want a would-be litigant to come for. It doesn’t own anything. The company that does own all your assets, the Series LLC? It hasn’t ever been exposed to those liability-magnet business operations. By separating these functions structurally, you prevent many lawsuits before they even begin simply because it’s harder to sue this structure than a person. The system works, and your assets stay under your control.  

No matter what you decide, trust your experts, be transparent, and fearlessly gather information. We’re here to help you while you learn the best way to establish your flipping entity and protect your new business.

 

Interested in learning more? Check out our article Real Estate Flipping: LLC Taxation Issues To Know About. You can also see our article over at BiggerPockets called What’s the Most Powerful Business Entity for House Flippers?

Selecting the Appropriate Entity for Flipping Real Estate

Flipping is just different than other investing strategies. In terms of both the financial aspects and legalities of running this type of business, there are a few things flippers should know about organizing and defending their real estate portfolios. Chief among the things every flipper should understand is how to construct an asset protection strategy that adequately defends against lawsuits and forms a sound structure for active real estate businesses. Here’s how.

Do Your Homework Before Forming Your Entity: Special Concerns for House Flippers 

House flippers’ asset protection strategies should reflect their actual needs. Here’s a short checklist for you to consider before you start with entity formation.

When you form your real estate entity, consider how it will fit both within your asset protection and broader investment strategy. Here are some critical issues to consider:

If you have specific questions about these concerns in your life, speak with a qualified real estate attorney as well as an advisor you trust familiar with your investment market(s). Let’s shift gears and dive into the decision-making process you’ll use to select the entity for your flipping business.

REI Entities for House Flippers: What’s the Best Choice?

We’ll talk about a couple of popular choices for house flippers. Ultimately, the only way to know for sure what will be best for your business, portfolio, and plans will be the product of conversations with personal advisors. But feel free to use these rules of thumb as a starting point for your research and discussions about forming an entity for flipping real estate.

We’re going to talk about key strategies for house flippers with the understanding that flipping is a form of active trade. LLCs and S-Corporations are popular options. Learn more about the entities you can use and the key questions you’ll need to answer below.

The Limited Liability Company: How to Flip Houses With an LLC, Series LLC, or Both

It’s vital that those engaged in active real estate flipping businesses find a way to limit the many liabilities that can accompany this investing method. For many flippers, the Limited Liability Company helps square both the issue of liability and how to formalize the flipping business.

Now, the Limited Liability Company comes in a few variants. You’ve got your Traditional LLC, an affordable classic; the Series LLC, which allows you to quickly create an infinitely scalable network of mini-LLCs, as well as ways to use both types of LLC together for a formidable asset protection structure.

We hope to help you make the best decision for you by explaining how these companies protect your assets, how you can use them, and ways to approach some of the choices you’ll have to make whether you establish one Traditional LLC or a two-company structure. One of your unavoidable decisions is how your LLC will pay taxes, and yes, you get to choose.

The Tax Choice: Should You Consider Taxing Your Real Estate LLC as an S-Corp?

One reason flippers like LLCs is because you have options for taxation. LLCs may be taxed like partnerships or as S-Corporations. Making the S-Corporation judgment can be difficult for any investor, and we strongly recommend involving an REI-savvy CPA. But here are some things you can discuss with that professional, or anyone else assisting you with forming your real estate LLC.

S-Corporation makes sense as a tax savings strategy for some investors, but of course we all know there are no legal silver bullets for tax minimization. One huge benefit of using the LLC in general is pass-through tax treatment, which is still available if you’re taxed as an S-Corp. LLCs are beloved pass-through entities for investors, meaning profits and losses are simply recorded on the company members’ respective personal income returns.

There are certain advantages of S-Corp taxation for house flippers:

Be aware you may hear discussions of the S-Corp vs. the LLC as if this is an either-or proposition. Resist the temptation to listen to such reductive views, because you truly can have it both ways. One could in theory form a separate S-corporation entirely, but for most investors, opting to use an LLC taxed as an S-Corporation is a simple choice that preserves the beneficial features of both entities. Even better, the LLC taxed as an S-Corp is easier to run than a fully separate S-Corporation (complete with its many legal requirements). Not every flipper will even benefit from S-Corp taxation, but enough do that you should consider all options.

Combining Entities for Greater Protection: How to Use a Traditional and Series LLC Together

Some investors may be happy with a single entity, but many of our flippers and other investors love the tried-and-true method of pairing the Traditional LLC with the Series LLC. Under this model, the Traditional LLC serves as your operating or shell company. It manages day-to-day activities like collecting rent, paying employees, etc. 

Meanwhile, your Series LLC functions as an asset-holding company.  This company must never interact with the world, because that’s what the Operating Company does. To maximize the Series LLC’s effectiveness, all you do is create as many Series as you have assets, direct your attorney to help you make the appropriate transfers so each asset is in its own Series, and ta-da. You’ve got yourself a basic two-company structure. Use it correctly, and it can protect your real estate assets for life.

Using your entity correctly means ensuring liabilities go where we want them. In the case of the two-company structure, that Traditional LLC is the company we actually want a would-be litigant to come for. It doesn’t own anything. The company that does own all your assets, the Series LLC? It hasn’t ever been exposed to those liability-magnet business operations. By separating these functions structurally, you prevent many lawsuits before they even begin simply because it’s harder to sue this structure than a person. The system works, and your assets stay under your control.  

No matter what you decide, trust your experts, be transparent, and fearlessly gather information. We’re here to help you while you learn the best way to establish your flipping entity and protect your new business.

The Real Estate Investor's Guide to Acquiring Foreclosed and REO Investment Properties

Warning: We cannot print today’s pieces without a frank discussion of the “f” word. Yes, the “f” word.

Foreclosure. It’s a fate we all hope to avoid personally. But as real estate investors, we also know that foreclosed homes may offer us tremendous opportunities for profit, incredible deals, and epic upselling after appreciation works its magic.

Acquiring properties that have been foreclosed, are owned by banks, or are otherwise underpriced because of related issues is a smart investing strategy for many REIs. If you’re thinking about going this route, you can’t afford not to know the following information about why and how to buy these discounted properties. Read on to learn more about REO investments, foreclosure, and how to make these assets into your next profitable investment properties.

What is an REO Investment?

An “REO” is a term for a bank-owned property. “REO” just stands for “Real Estate Owned”--meaning someone already owns the property. In the case of REO properties, that someone is always a lender. These lenders are, more often than not, banks. So all “REO investment” really means is just that the property is purchased straight from a lender, not a person.

Another thing to understand is that these aren’t “short sale” homes. “Short sales” are usually where investors can find major steals. In these sales, a homeowner is selling their home for less than they currently owe on the mortgage. Foreclosed homes have essentially been sold in this fashion back to a bank.

At that point, most banks mark the price way up--back to what the asset’s original value was, most of the time. After all, even banks want to make their money back. By the time the foreclosure is complete, the bank becomes the owner and seller. They can make any demand they like. Smaller banks may offer great deals on their homes.

What are Some Benefits of Buying Foreclosed Homes as Real Estate Investments?

The foreclosure auction can be the deal-hunting real estate investor’s best friend in this department. This is just one of your options for shopping around, but first, let’s get into why you might want to:

 

 

This is just the shor tlist of some of our favorite perks of these properties. Of course, you may reap additional benefits we can’t list because they honestly warrant an entire article of their own. But these are some of the very basic reasons why people love hunting for REO or foreclosed homes. They can be a dealmaker’s delight.

The REI’s Guide to Buying Foreclosed Homes

If the auction isn’t your scene, of course you can also buy a foreclosed-upon home directly. You’ll generally follow the same basic steps, but of course, check with your own real estate attorney before you purchase any major assets. That said, this is the basic outline of what you have to do to legally and safely acquire one of these properties:

  1. Assemble your team of qualified professionals. Most folks like to have at least an attorney and a real estate agent on their dream team.
  2. Defend your offer. Even a verbal promise is better than nothing, but ideally you’ll be protecting yourself down the line with real estate contingencies that allow you to back out at no cost if the property “fails” any of the next steps. See our previous pieces on crafting real estate contingencies to your advantage for more information.
  3. Have the property thoroughly inspected. This will help immensely with the next steps.
  4. Weigh the pros and cons of purchasing this investment. Consider your portfolio, return expectations, the amount of time you have (if any) to put into renovating this property, property management costs, and of course, a good 20% buffer never hurts a pro forma. You can also ask your team of advisors their opinion on your investment opportunity.
  5. Get the property professionally appraised. Only a real-deal appraisal will give you the true value of the home. This is vital for determining whether your deal is worth the amount of time and effort (as well as money) that you have to invest in this new acquisition. It can also become enormous leverage at the negotiating table. Getting additional discounts on these homes is easy for the deft negotiator.
  6. Bring in experts if necessary. Should any special issues arise during inspection around local law, water, ground coverage, or any other impediment to your ideal use of this property, don’t be afraid to have an expert in whatever subject come on down. You can usually secure experts quickly and easily on most common real estate problems, assuming both buyer and seller have a desire to fix the issue. While you get obvious negotiation power in such situations, you can simply ask to have the problem fixed. It’s best in our opinion to invest more in due diligence and addressing all potential issues prior to purchase than to buy on a whim and handle everything “later.” 
  7. Make your offer. If you’re buying a bank-owned property, understand you’re likely to pay sticker price for foreclosures. If you know ahead of time sticker price is well within your budget, make the exact offer if you wish to expedite things. You can try to bargain, but frankly your odds of success may vary wildly between institutions.
  8. Close. Grab your keys and get to work. You’ve either got some remodeling to do. some tenants to find, or some property management contracts to sign. Get any third parties you may need to run your real estate business.

Don’t Forget to Cover Your Assets

Buying a foreclosed or bank-owned property is no different than making any other investment from an asset protection standpoint. Ensure you handle this property exactly as you would any other REI asset from a legal standpoint. If you normally buy with your Traditional LLC, do that. If you secured financing in your own name and have a land trust ready to go, proceed with your plan. If you don’t have an asset protection plan at all, it’s time to start learning about asset protection at the very least. Ideally, real estate investors should have a trustworthy attorney who can answer asset protection questions.

Of course, asset protection experts and firms exist for a reason as well. You’ve got options for protecting your new asset, so get a plan that’s customized to maximize your business’s profits, tax savings, scalability, and success. You can find an expert on any budget to help you out, but above all, don’t hold any real estate assets in your own name over the long term. You’ve got so many alternatives that there’s no excuse, so start planning before you even think about buying.

Bottom Line: The Savvy Investor Can Win on Good REO and Foreclosed Properties

If you take nothing else away from this article, simply understand that making deals with the bank is a bit different than making deals with a person. This basic truth is the root of most of the confusion around foreclosed and REO properties. But since you’re no longer confused, you can start considering whether such investments have a place in your portfolio. Your answer will likely depend on many factors, including your age, sex, location, main career, investment class preferences, investment strategies, aspirations for your portfolio, and other highly personal details. 

But for now, at least you know the basics of how to intelligently vet and purchase these properties. Your team of advisors and even your personal investing network is likely full of insight on the foreclosure opportunities in their respective local markets. Asking around can often be the beginning of a beautiful learning experience. So don’t be afraid to ask around about how foreclosure and REO deals have gone for others in your personal and professional network.

Considering A Reverse Mortgage – A Unique Cash Flow Solution for Secure Seniors

Reverse mortgages have gotten more than their fair share of both good and overwhelmingly negative press coverage, so it’s no small wonder most investors and seniors are confused about what they even are. As retirees face longer life expectancies, many outlive their personal savings or Social Security plans, face mounting medical costs, and find life generally costs more than they’d planned for. A reverse mortgage may seem like an enticing way to solve many problems at once, but of course, you should never dive into any financial “solution” without understanding it well.

Today, let’s clear up some of the misunderstandings that make the world of reverse mortgages seem more mysterious than it is. We’ll talk about what a reverse mortgage really is, how this cashflow option can help certain secure seniors, which drawbacks to consider, and what to keep in mind when deciding if you’d personally like to exploit the reverse mortgage in your own real estate investing strategy. Making the best decision will require you to have lots of information. Let’s start with the basics and work our way out to the kinds of details you’ll want to ask about down the road.

What is a Reverse Mortgage?

A reverse mortgage is a type of loan specifically available to seniors over age 62 and federally insured. It gets its name from its unique ability to allow you to borrow against the equity stored within a home already. Those of you who own outright or are close to doing so may have even gotten marketing calls from institutions that issue reverse mortgages, particularly after your 62nd birthday.

Some of the basics to know about reverse mortgages include these rules:

Why Would Senior Real Estate Investors Be Interested in a Reverse Mortgage?

Well, first, only those over 62 get access to reverse mortgages at all. But beyond this, there are reasons certain seniors may want a reverse mortgage. There are still other reasons that are unique, or made all the more pressing, if the senior considering a reverse mortgage is also a real estate investor.

Any senior experiencing cash flow issues, whether they’re as a result of an investment gone awry, out-living or under-projecting retirement savings, medical costs, the difficulty of living on fixed income, or any other reason, may consider a reverse mortgage if they’re eligible. If you have high amounts of equity in your home or own it outright, this loan option offers flexible disbursement options, meaning you don’t have to borrow the full value you can. Just take what you need.

Many seniors find this solution helpful when they have a definite, short-term need that a definite amount of cash to fix. If your need is more about your long-term budget, try to put a number on what you need for say, one year. Coming up with this type of metric will help you and anyone assisting with your financial planning determine your exact cash need, thus helping figure out what a good conservative loan amount for you might be.

What Are the Biggest Benefits of Reverse Mortgages?

Nobody would be getting reverse mortgages if there weren’t very real benefits for some seniors. The biggest issue to keep in mind as you learn about this tool’s benefits is whether they outweigh the drawbacks discussed later in your own personal situation. 

You may find that answering questions about your status and goals honestly saves you lots of time, and fees, on having to pay a lawyer to review the basics. They’re your advisor, not your teacher. Lawyers are all-too-happy happy to teach, just understand that you don’t need to pay for this service.

Flexible Lending Options

Investors may choose to accept the loan as one single lump sum, in monthly installments, or even as a line of credit. This amount of control the borrower has in this regard is greater than most loans. Borrowers may choose the most conservative option that will serve their needs, a luxury not typically afforded to those seeking loans.

Comfortable, Cash-Friendlier Lifestyle

No doubt, very little cash can be converted into a great degree of comfort if you’re smart about it. If you just want to live out your golden years comfortably, you can do so and even plan to pay your mortgage off while you’re still living. We’ll discuss below why to always account for reverse mortgages in your estate plan, but for now, if you want to live it up, a reverse mortgage is an option.

Interest Limits 

The reverse mortgage has an interesting set of rules regarding interest. On the plus side, you’re not charged interest while you continue to live in the reverse-mortgaged home as your primary residence. Interest is also capped on the first $100,000 worth of debt. 

What Are the Drawbacks of Reverse Mortgages?

There isn’t a financial option we’re aware of that’s all “pros” and no “cons.” Let’s break down the downsides of reverse mortgages.

Deceptive or Inflexible Terms

Sadly, not all mortgage providers are ethical. Those targeting seniors may attempt to exploit their clients perceived lack of sharpness or assume you won’t do your due diligence. To this, we say prove them wrong. Vet your company before considering a loan, and have someone you really trust who understands every word read the fine print. This could be a CPA, financial planner, family member working in the industry, or even another investor you know who’s successfully used a reverse mortgage and knows what to look for. You’re looking for anything that sales reps haven’t disclosed,terms you don’t agree to, or red flags of any sort. These are immediate cues to shop around and look elsewhere. Not all lenders will offer good terms, even if you’re lucky enough to only ever deal with the ethical ones (and few of us are so fortunate). Be on the lookout for inflexibilities as well as poor terms. For instance, reverse mortgages are often difficult to refinance, a fact that makes them less than optimal choices for some. See if this will be the case with your loan, and even ask your salesperson to see how honest their answer is compared to what their literature states. Any time a salesperson’s word vastly differs from a written offer, be skeptical.

Your Loan May Become Your Family’s Debt

If you fail to make an estate plan or somehow account for a way to pay your debt immediately in the event of your death, your reverse mortgage may be subject to probate. Your heirs, which for most people are their family and loved ones, don’t get to touch an estate while it’s being probated by the courts. If you die with a debt, it gets passed on, just like your assets and earnings do. So your heirs will be able to pay debts from your estate, but let’s just say the worst-case scenarios around this issue are heartbreaking, lengthy, frankly exquisitely boring yet brutally legalistic affairs. 

If you decide to pursue a reverse mortgage, you can offset this downside by minimizing your loan to what you’re certain you can pay directly from your estate and updating your estate plan to account for the reverse mortgage. This way, your attorney’s already involved and can give additional personal advice on how to address your situation. Often, you can make plans to avoid estate planning surprises--simply remembering to is the most difficult part. 

Our suggestion is to take care of this detail immediately if you end up seeking the loan. You may pay it off while alive or pre-arrange for your estate to make payments, but be advised interest will likely rise if you wait and let your beneficiaries pay off the debt. 

Assets Encumbered by Debt Can’t Pass to Heirs

Suppose you take out a substantial loan against your home’s equity because of its perceived safety. If you’re unfortunate to pass away before making payment or fail to update your estate plan, your heirs may be unable to inherit the home with the reverse mortgage until the loan is paid off in full. If you lack the funds in your estate, that could mean one less asset for your heirs, or at least a substantial barrier to receiving their full inheritances.

Limits and Difficulties Securing Other Types of Loans

Some seniors who take out reverse mortgages later find it difficult to secure additional lending elsewhere. A reverse mortgage is fairly easy to obtain if you meet the qualifications, but it doesn’t necessarily “look good” to traditional hard lenders. This can be problematic for investors who rely on good terms to make their deals profitable. 

Stay Out of Trouble if You Choose to Use Reverse Mortgages

As long as you understand the deal you’re going to sign, you should be able to intelligently decide whether the reverse mortgage will help you, particularly if you’ve got pros to help you make the judgment call. Even a close network of fellow REIs, homeowners, and smart borrowers with experience in reverse mortgages can be a valuable source of information, as can educational resources like this very online article. Learn what you can, shop smart, be skeptical. Professional advice, planning ahead, and practicing due diligence can keep you from becoming a horror story.

Tax Scams To Be Wary Of: The Dirty Dozen List, (1-6)

The IRS released its 2019 scam watchlist, affectionately known as the Dirty Dozen. What should you watch out for during this year’s tax season? Learn the latest below, and remember, it’s okay to be skeptical of any officer claiming to originate from the IRS.

#1: Illegal Use of Off-Shore Accounts

We’ve shared before about the legal use of off-shore banking, which is safe. Unfortunately, anyone illegally convincing you to use off-shore accounts to evade taxes is dragging you down a dark path. Should you follow, you’ll pay the price.

#2: Phishing Attacks

Phishing is better known as “that scummy move where people send convincing-looking fake emails to steal your log-ins.” For those unfamiliar with Scumbaggery, you’ll get an email that looks like it’s from, say, Your Bank. But it isn’t from Your Bank. It’s from some jerkface who wants you to believe he’s Your Bank, so you’ll unwittingly give him Your Banking credentials.

Watch emails closely. Unless you know someone personally, don’t take identities for granted online. An email from yourbank.com that’s consistent with other emails from Your Bank isn’t a phishing attack, and there’s nothing wrong with calling Your Bank (or whichever institution the caller claims to represent) to confirm.

Phishing preys on the implicit trust we have in our institutions and your laziness. Phishers hope you don’t look closely at the email. Awareness is your best defense.

#3: The Bogus Tax Return (Preparer Fraud)

You can avoid this one by simply ensuring your tax preparation professional is qualified and ethical. CPAs usually won’t pull this move, but fake pros crop up every year, sadly.

#4: Refund Scams

This type of preparer fraud involves shady characters claiming to be experts promising you absurdly high refunds. This should set off your BS detector--vet the provider or switch if this offer isn’t the first red flag.

#5: The BS Charity

We hope there’s a special place in the afterlife for people who invent fake charities. But hey, it’s their souls--just don’t donate to one or it’s your behind on the line. Uncle Sam can’t get your money back. Further, deductions toward fake charities don’t count, which leads us to...

#6: Return Padding and False Deductions

Yeah, people really try. Unethical preparers have been busted cooking books or creating a laundry list of bogus undeserved deductions to get a huge refund, usually to “earn” themselves a cut. The scam and how the preparer profits may vary. Consider this your fourth consecutive warning to be careful who you let do your taxes.

Including you. Many individual taxpayers have taken liberties with deductions, and even outright invented false deductions. There are times when ethical people are tempted to break the rules in life. But when you’re filling out a tax return isn’t one of those times. Save your rebellious side for the stage, the canvas, the negotiating table, the board room, the bedroom, or really anywhere that won’t get you into a hot mess with Uncle Sam. That’s not legal advice, by the way--that’s just good old-fashioned American common sense.

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Manager-Managed LLCs vs. Member-Managed LLCs: What's Best for Real Estate Investors?

When you establish an LLC, you must plan for its management. LLCs may divide decision-making powers among members or select a manager. If your LLC is single-member, you assume managerial powers, but multi-member LLCs must decide. To make the best choice, check out our breakdown of member-managed LLCs, manager-managed LLCs, their differences, and how to address concerns around manager-managed LLCs.

Member-Managed LLCs vs. Manager-Managed LLCs: The Key Differences

Every LLC must decide between a member-managed or manager-managed structure. A member-managed LLC is the norm. These function like democracies, as power is equitably divided among the members. A manager-managed LLC, however, designates one person for managerial powers. Manager-management can help particularly large companies make decisions.

Whether the manager’s a “professional” or picked from the LLC’s members, the critical thing to know is that they have power over the entire LLC. Consider these company-wide powers delegated to managers:

If you’re appointing a manager, read your LLC’s paperwork carefully before signing to ensure power is limited and manager responsibilities are clear. Even LLCs using managers don’t surrender these member powers:

Managers of LLCs must meet more compliance criteria than members. Managers have to play by both the rules of the company and the law.

Making the Choice: Does Your LLC Need a Manager?

The manager holds a specific legal role. You may select a “professional” manager, as some multi-member LLCs do, or select a manager from among your members. But here are the key issues to be aware of should you choose this route:

The good news is this: for every concern you have, there are ways to address it.

Using a Manager-Managed LLC: Tips for Mitigating Risks

A beautiful thing about the LLC is you have choices. Once you’ve made decisions, they’ll be in plain black-and-white ink for anyone to read in the form of your Operating Agreement. This is your LLC’s Bible.

For instance, some of the concerns about abuse of power are easily prevented by addressing these possibilities and creating checks (like requiring a member vote) in your Operating Agreement. You may choose to make amending the Operating Agreement more difficult or bar managers from making certain calls without member consent. In fact, any matter you’d like member consent on can be accounted for before LLC formation.

The best way to control for problems is in your Operating Agreement prior to forming your LLC. Of course, LLC members truly worried about hierarchy can side-step the entire issue easily by simply forming a member-managed LLC.

Equity Sharing for Real Estate Investors: Methods for Acquiring & Protecting Your Shared Asset

Equity sharing is an increasingly popular way for investors to reap the rewards of investing even if they’re strapped for time or cash. Such arrangements can allow cash-poor or newer investors with time for pavement-pounding/vetting/reading to team up with time-strapped investors who like funding smart deals.

Equity sharing may benefit any investor. Those trying to break into REI, take heart that finding excellent deals is an incredibly valuable skill. A deal-finder will always find deal-funders.

To learn more about equity sharing arrangements, reasons real estate investors consider them, how common arrangements work, and protecting your assets when sharing equity, read on. If you want to learn a lot about equity sharing very quickly, you’re in exactly the right spot. 

What is Equity Sharing for Real Estate Investors?

Equity sharing may refer to any situation where one investor pairs with others to afford, finance, and purchase an asset. The investors split all profits or losses at the ratio the agree to (which need not be “fair” or even provided all agree).

Everyone involved in sharing equity has interest in the property. Family members sometimes use equity sharing to help transition mortgaged homes to the next generation, but our discussion is confined to REI today. In these cases, the interest is a business one. Equity sharing may be used to:

Equity sharing looks as different as the investors involved, but we’ll show you examples of your best options for asset protection of equity-shared properties. First, let’s look closely at why REIs get into equity sharing

Reasons Real Estate Investors Consider Equity Sharing Arrangements

We alluded above to one huge reason these arrangements work between investors: different investors bring different skills/abilities, pool them, then agree to share any profits or losses from the asset they have in common. While an investing newbie and more experienced partner are a common combo, the powers of any investors can be “pooled” in a complementary way. Some people mistakenly believe this is the job of a legal partnership, but with equity sharing, you don’t have to just have one “partner.” 

You’re also not confined to a single method. There are many ways to legally protect yourself while sharing the equity of a property with one or more people. We’ll get into some specifics, but for now, just understand that equity sharing does not preclude you from using land trusts, LLCs, or any other asset protection tools. While your arrangement may impact how to most effectively use asset protection or legal tools to protect the equity-shared asset, it doesn’t affect the options in your legal toolbox. 

What Options Exist for REIs Interested in Sharing Equity?

We promised there’s more than one way to share equity, and here’s where we deliver. These are our top three choices for protecting assets in equity-sharing arrangements. 

Option 1: Go the Joint Venture Route 

Using a Joint Venture for a new partnership isn’t just a smart move. JVs are also a great way to test-drive your new business relationship. See how you and your partner(s) handle challenges of the first asset in your equity-sharing arrangement while protecting yourself with a Joint Venture Agreement. 

You can choose to form a venture-specific LLC to further protect yourself, your asset, and your partners. Joint Venture-Specific LLCs can last for as long as you like, or for only the period the asset is under your control. You decide terms in the beginning, when you form the LLC’s Operating Agreement.

Option 2: Use Limited Liability Companies 

Owning a company with someone low-commitment. It’s not marriage: you get directions, a simple way to undo the arrangement, what’s allowed, what’s not, and literal rulebooks in the form of your Articles of Incorporation and Operating Agreement. You and your partner(s) may benefit tremendously from using an LLC to protect your equity-shared asset. 

A properly established LLC prevents either you or any individual from being directly associated with the asset. You may choose to use other tools to preserve anonymity on top of your LLC. If you already own an LLC that has never done business (AKA a “shelf” corporation) you might use that.

Note From Royal Legal Solutions’ Staff Legalese Translator:

Shelf companies are not the same thing as shell companies. That little “f” makes a huge difference. Shell companies control the operations side of businesses, normally preserving your anonymity. They’re never supposed to hold assets.

Shelf companies also don’t own or do much initially. Most REIs creating a shelf company form an LLC well in advance of needing it and don’t use it much or at all. After formation, the company stays “on the shelf” until a later date. Reasons investors form shelf companies include for their own eventual needs or to sell. Banks, lenders, and even partners are skeptical of “new” LLCs. But an LLC that has been “shelved” for years can be activated by simply performing a transaction. 

You can see why investors mix up these concepts. That Traditional LLCs are great entities for both shell and shelf companies doesn’t clear up any confusion.

Keep definitions straight by remembering what these entities do: a shell company hides your operations and identity from the world, just like a turtle’s shell. A shelf company, however, is one you make and stick “on the shelf” until someone needs it. Congratulations! You never have to get these ideas confused again. Back to your regularly scheduled investing content...

Option 3: Create a Private Arrangement Your Attorneys Can Agree On

Let’s say hate Options 1 and 2. That leaves literally every other legal structure and agreement, which trust us, includes many permutations of options. The quickest way for most investors to figure out their real preference is to get a trusted attorney’s opinion. If you and any partners do so, your interests may align. Your attorneys might independently give you the same thoughts, or some options and their benefits for your situation.

If you and your partners don’t wish to throw money at multiple separate lawyers (because honestly, who does?), you can always approach an impartial real estate lawyer together, tell them what you’d like to do, and ask their thoughts on the situation. Take notes! This doesn’t have to be the same lawyer who helps craft your solution. They’re just a qualified attorney you and your partners agree to trust to develop possibilities for your equity-shared asset protection strategy. 

After all, none of you want your property to get taken away by a lawsuit. Proactively defending your equity-shared asset can eliminate this terrifying, but all-too-common, possibility.

How Do Deeds and Titles Work For Equity-Shared Property?

A common question is who holds title to equity-shared properties. In the case of REIs conscious of asset protection, the question is what holds title (hint: sometimes it’s an anonymity-preserving entity/trust). Protected investors don’t like leaving their names on anything, especially titles and deeds. Deeds cause equal confusion, as the deed of an equity-shared property requires each owner to clarify their relationship to every other owner

But let’s suppose, just for example, that 14 investors enter into an equity sharing agreement. Which name would the title be under?

The real answer: it depends. On a few factors.

We’ve seen some beyond-sticky real deeds where, say, 12+ people want to share equity on a property and some are married couples. If each individual records their name, remember they will need to identify their spouse and also explain all other relationships to the remaining partners (however many there are). If you’re one of our 14 investors, you’ll ID your spouse if they’re involved, then explain the relationship you have to all other dozen investors.

Or, avoid this dilemma by controlling the entity without any partner directly owning it. All options above allow for this. LLCs, land trusts, and other legal options exist protecting equity shared properties. Number of partners won’t impact your level of asset protection, but can influence which option you want to use.

How Creating Your Own Mortgage Company Can Help Your Investment Portfolio

It may seem too good to be true, but did you know you can create your own mortgage company? It’s a great tactic for real estate investors who want unlimited equity stripping powers, as well as a solid asset protection boost. Or maybe you’re just TIRED of the convos with crappy banks. You can break free from financial institutions with gatekeepers and defend your assets with this simple method. We’re going to give you four steps to creating your own mortgage company, and some brief tips on how to use it for your benefit.

How to Create Your Own Mortgage Company for Real Estate Investing: Four Simple Steps to Freedom

Actually creating the company is simpler than you think. Let’s break down the most essential steps.You need not have anything much more sophisticated than you’d need for any other company set-up. And you can simply read for now, of course.

Here’s our most basic recipe for creating your own mortgage company in as few steps as possible. It’s helpful to think of this like a recipe card, in the old fashioned sense, but for an equity stripping mortgage company you get to control. For best results, you’ll need:

Step One: Use or Create a Traditional LLC

This will be your actual mortgage company, the one issuing the loans. You’ll just be able to control it with some help from a J.D. friend. If you already have a Traditional LLC you’ve used as a shelf company for a while, or one that had ONLY ever performed operations, you may be able to avoid even filing new fees in cheap state like Texas and Wyoming.

Step Two: Use or Create an Asset-Holding Structure (or Update Yours)

Series LLCs make awesome holding companies. These powerhouse entities allow you to create as many Series/mini-LLCs as you have assets. Each has liability protection, performing the same function as infinite LLCs. This structure’s infinite scaling works well for REIS with growing portfolios, streamlines business, and works well with your other structure.

In your new set-up, this the company does NOTHING except hold assets. It won’t spend one cent (or take one). Assets stay in the structure, appreciating. You want things this way to keep the actions and assets divided.

So this will be the company that holds all of your assets, including real estate investments. Your new LLC will be able to issue notes directly to the asset-holding company. Ideally, you’ll use a Series LLC so that upkeep is easy and you can scale up at any time, and make sure your asset protection strategy grows alongside your business and evolves to meet any new needs.

Step 3: Know the Game Plan for Equity Stripping

So much of asset protection is just keeping your pants up and approaching each move with absolute confidence. Do the math ahead of time, for crying out loud. Know exactly what kind of loan you can get away with issuing yourself. Do some brief research to see how much you can encumber property. Better yet, bounce your plan off of those friendly pros we keep mentioning: tax men, law men, music men, investors, stylists, or anyone with a business mind adds value to due diligence, provided you let them.

If you get lost creating your plan, dial up a free helper. The Office of the Taxpayer Advocate can actually give you tons of great, free advice on the tax consequences of your structure. Many professionals can be easily bought for under $100. That’s for just long enough to answer your burning desire questions once you've done thorough research. We can share some examples at a later date, but don’t want anyone attempting an example verbatim from this or any educational piece.

Step 4: Start Issuing Mortgages - The Right Way, Of Course!

So for our purposes, “the right way” has a nice easy definition.  Mortgages must be issued by the traditional company TO the asset holding company. Money must flow in this exact direction, or the company set-up won’t be effective.

The bottom line about preserving this structure is to isolate assets and operations properly. Keep everything nice and separate, ensure money flows the right way, rinse, repeat, and enjoy your friendly mortgaged investment and easier life. That’s it. Seriously. You’re done.

What Happens if I’m Sued?

Well first of all, it’s super unlikely. With your own mortgage company encumbering a property, attorneys quickly realize it’s worthless--or at least, appears to be. Thats’ actually exactly what we want: you know the value of your property. The purpose is just to deceive others from knowing this true value. And what better way to convince someone not to sue you by making it clear from the outset you have nothing they would possibly want?

Usually the plaintiff (AKA, Jerk Who’s Suing You) will hire a lawyer, often with lots of theatrics in the office. We’re not a defense firm, but trust us when we say pissed off real estate clients are highly entertaining. This isn’t a legal opinion at all, but a personal taste--there’s nothing funnier to us than imagining that Jerk Who’s Suing You getting angrier and angrier in front of an annoyed attorney. Now, the annoyed attorney will run a quick check on you and the property. This quick little bit of research is STEP ONE for even thinking about filing a lawsuit.

You have to know who you’re suing, after all. It helps to know why. But really, what the lawyer cares about is this: 

  1. What they stand to win. Is it a juicy asset? Cash-money’s better, but an asset to seize and sell will pay the bill for a lawsuit, easily.
  2. Whether they can win. In the case of an incredibly self-encumbered asset, even if the asset rivals the Taj Mahal, a friendly enough mortgage could render it worthless.
  3. How soon they get paid. Even if the attorney thinks the first two items, against all odds, are slam-dunk things to defeat in court, that same attorney will balk the moment they learn the mortgage must be paid off before they can even COLLECT on the asset. If you issue yourself a 50-year-mortgage and pay it in tiny increments, they’d know not to endure the torture of trying to get their client ot pay out of pocket. Landlord-tenant clients rarely do, preferring instead to rely on rage and self-righteousness to persuade their attorneys.

Fortunately for you, fellow real estate investor, lawyers are weak creatures with known vulnerabilities. Your asset protection plan protects you strongly by protecting you against not the Jackass Suing You, but their attorney. The moment the two don’t have the same interests any more? That’s the moment the lawsuit ends--well before anyone can even draft anything to file!

It’s liberating, right?

Do I Need Any Other Special Mortgage Licensing?

No, not if you are executing the mortgages correctly in the state of Texas. But that’s just my state--your state may have stronger or weaker regulations.

Specialized advice on this from an attorney with experience in this specific type of move in this jurisdiction may help, or you may simply hire a mortgage broker. Use these conversations to gather some intel about mortgage options on your investments. If you collect enough data, it will become clear that issuing your own mortgages is a legal golden ticket. It’s how you break free of banking as usual and afford to develop a portfolio that can build wealth quickly.

Use some of that investor creativity if you’re extremely concerned about legal compliance, pick up the phone, and ask at least another investor (if not some kind of pro) for help.

Wait, You’re SURE This Whole “Making Your Own Mortgage Company” Deal is Legal? Why Spill the Secret?

Yes. It’s really that simple. All you’re doing is using the structures and strategies that have long been available only to the wealthiest of wealthy investors.

Do you know the difference between  Beachcraft Rich and Learjet Rich? We can actually use it to make a broad marker of kinds of investors.

Consider this. Each investor has a number for this thought experiment, and yours may be zero, but think about how you WOULD pay if you were rich. Then consider how rich you’d have to be to play along and feel good about it. Sounds fun, let’s give it a try, shall we? Finding out if you’re Beachcraft rich or Learcraft Rich is easy.

Imagine you need to go somewhere by plane, but have no desire to avoid the airport. Would you spend:

  1. $750,000 on a beachcraft to take you and your friends/family to your destination.
  2. $1.5 M on a Learjet for the same purpose.
  3. Remember: this is JUST TO AVOID THE AIRPORT. Because it’s a pain, you don’t feel like a complimentary patdown. Hell, the pettier the reason, the better.

Keep in mind this is a one-time rental, not a purchase of a craft you get to keep. It’s not EVEN an asset or investment.

If you haven’t picked up on it, people who will say yes to Offer #1 are “Beachcraft Rich.” People who pick #2 can burn $1.5 Million on a last-minute Lear Jet simply because they don’t feel like enduring the horrors of the modern airport are officially Lear Jet Rich. If you're this rich, congrats on even reading this instead of luxuriating in your customized personal massage pool or whatever it is the obscenely wealthy do in their spare time.

Seriously--you had to be at least Beachcraft Rich (if not cruising up on Lear Jet Rich) to get access to asset protection just a few short decades ago. And it’s one reason I enjoy spilling the secrets of the rich: we live in the modern era. We all have an equal right to the information we’re smart enough to find.

The times of rich families winning alone are over. Welcome to the information age. Our era rewards the good research--even for you, fellow investor.. Now, go enjoy the benefits of your own mortgage company: equity stripping, asset protection, and of course, the priceless joy of liberty from banking-as-usual.

Is It Legal to Have an Offshore Bank Account?

Yes, now let’s all go out for a drink.

Just kidding. We take this question very seriously as asset protection professionals. But we’re also human, and understand why offshore accounts sometimes get a bad rap (and rep). If you’ve only heard about them in crime dramas or outrageous news reports, you’re hardly to blame if you’ve gotten the impression that offshore banking is, well, a bit shady. Today, we hope to show you such impressions are mythical and in fact, ordinary citizens open perfectly legal offshore accounts all the time. And to their benefit, from a lawsuit prevention point of view. (For more, see Why Ordinary People Set Up Offshore Bank Accounts.)

But what about the not-so-ethical Americans?

Brutal Reality, Coming Up Cold: Yes, you can use an offshore account to commit illegal acts. But if you do, that’s on you, not the offshore account. 

The truth you haven’t heard yet is that there’s nothing--absolutely nothing--inherently illegal about Americans using these accounts. In fact, it’s often a smart move from an asset protection standpoint. Let’s sort out legal fact from legal fiction when it comes to offshore banking. Along the way, you will find some helpful tips for operating a current or future account.

Legality of Offshore Baking: Can Americans Use Offshore Banking?

Let’s take a quick look at how American law has addressed the subject of offshore banking as of 2019. We must focus on U.S. law this time, though there are plenty of excellent reasons why individuals from other countries may enjoy the benefits of offshore banking. If you’re among them, check with a qualified lawyer in your jurisdiction.

There isn’t a single piece of American law that restricts any citizen from owning and operating an overseas account. This has always been a perfectly lawful method of asset protection, and you don’t need to explain your reasoning for opening an offshore account to anyone at all. Except your attorney, who should be in the loop when considering opening foreign accounts, moving money in or out of the country, or making other financial moves that could affect you or your businesses legally.

Major financial transactions CAN impact your legal structures in ways you’re unaware of--so you’re not “bugging” your attorney by asking him or her to do their job. It’s their job to let you know about legal traps you could fall into, but the bank for instance, has no such obligation.

Warning: Foreign Scammers Will Use Ignorance of the Law Against Americans

One thing to be aware of is that scammers are aware that Americans generally don’t know their own law, let alone that of other countries. Scammers simply create accounts OFFERING banking services directly. “Directly” means via email, personal message, something you either must click on or download an attachment to see in full. These types of messages are almost always a type of scam for your information known as phishing/spearphishing (which REIs are targeted for). Scammers often lie about American law to try to pressure you to click links, take bait, or even just keep talking. 

Here’s what to do if you get a fishy email: shut your mouth, don’t reply, and don’t even click on anything.  STFU, for your own sake. Google the company, at least. If it doesn’t exist, scam confirmed. And that’s why we don’t talk to strangers about offshore accounts.

It’s critical to vet any foreign bank you intend to use to ensure its legitimacy before you even begin broaching the topic of opening an account. You’ll want to also check out reviews from other foreigners about the bank. There are entire sites dedicated to assisting you in finding reviewed, legit offshore options. But there is also real law in pertaining to U.S. citizens about their conduct in using offshore accounts.

The law known as the Federal American Tax Compliance Act (FATCA), is the most essential law you should understand. We’ll dive deeper into its spirit below, but for now, what you need to know is basics of the law itself, since it does apply to all of us as federal law.

Introducing FATCA: The Basics and How the Law Can Affect Your Offshore Account

Here’s the deal with the FATCA, and once again, that’s the Federal American Tax Compliance Act of 2010. It was amended in 2014, the most recent change at the time of this writing.

Now federal law may sound very scary and authoritative, but it’s just basically a reminder to not do the kinds of illegal things we strongly suspect haven’t even crossed your mind. After all, you’re smart enough to be reading RLS’s content. We know your style’s more about following the law than trying to figure out how to break it.

That’s why we’ll reward you by cutting to the chase about FATCA’s requirements:

If you’re ultra-curious about the tax law, our research team found the most palatable article on the subject straight from the horse’s (read: IRS’s) mouth. Our writing team found you the most tolerable yet comprehensive explanation from IRS.gov. Even though they’re pros, read it at your own risk. It’ll likely collect dust in your bookmarks, unless you’re a CPA/financial pro. In which case you may be in for a riveting night of hot, fascinating intimate IRC details.

Is Offshore Banking a Form of Tax Evasion?

Certainly not, because tax evasion is a crime. Again, there’s nothing criminal about using an offshore account on its own. There is, however, a grain of truth to these suspicions.

Some Americans have mismanaged their accounts into illegal situations. Still others have exploited the asset protection gifts of offshore banking for blatantly selfish/immoral personal gain. In 2009, the U.S. Department of Justice took action against several institutions that were conspicuously setting up accounts and essentially advertising to global citizens seeking to outrun the Taxman. These actions preceded FATCA, which if you follow to the letter and don’t commit criminal offenses, makes your offshore account no more significant than any of the millions that other investors lawfully use.

News reports of individuals committing tax evasion might be true. You’re safe as long as you don’t join in. Or attempt to hide your banking activities from Uncle Sam if FACTA says you shouldn’t. Avoid those two things, and you’re set.

Staying on the Right Side of the Law With Your Offshore Bank Account

Since American law doesn’t say much of these accounts, it’s easy to comply. Provided you’ve followed the advice above, are complying with FACTA, and have at least one attorney and CPA on your side, you’ve got everything you need to get started offshore banking fearlessly. Heck, some of these banks will take as little as $500. If legalities are your only concern, you can stop worrying today and start considering your options--and helping pros.

Tax Consequences For Section 280A and Airbnb Vacation Rental Assets

Do you have properties you’re using as vacation rentals, short-term, or mid-term rentals? If so, or if you are considering listing part or all of an investment property on Airbnb or any other online platform, this article is for you. Vacation rentals have become an increasingly popular way to maximize profits on investment properties. That said,  to run your vacation rental business legitimately, you need to be certain to cross your “t”s and dot your “i”s. Because this type of use is a fairly new byproduct of the gig economy, regulations and laws can change quickly. Even the insurance industry has caught up at this point. So of course the Tax Man has. The smart investor must be mindful of not only their state and local legislation, but also how these types of investment properties are taxed. Here’s our little crash course on the subject to get you started.

What Type of Airbnb Host Are You?

Of all the questions that will help determine your tax responsibilities vis a vis Airbnb profits, this is both the most qualitative yet critical. Your answer is the difference between “not a penny owed” and “Get out your checkbook.”

Depending on which of these two criteria you fall into, you may not have to report at all:

  1. Your home is only on the Airbnb platform for 14 days or fewer of the calendar year. Pocket your funds and enjoy the thrill of beating the system. No reporting necessary.
  2. Those who rent their home over 15 days out of the year--including spare rooms, part of the home, etc.--will have to report any income derived from such rental on Schedule E of their tax return.  

Section 280A is the part of the Tax Code that makes these definitions for personal and rental use and otherwise lays out the rules investors must play by. Fortunately, it isn’t all bad news though. Here’s a quick breakdown.

What is Section 280A? Does it Matter to Me?

Section 280A of the Internal Revenue Code isn’t just a novel way to kill conversation during date night--it’s the Taxman’s guidebook for how you get to use your home in the course of business. In fact, Section 280A has made a cameo right here on the RLS blog before in our breakdown of the Home Office Exemption (a worthy read if we may say so ourselves).

If you’re renting your home or any piece of it for profit for fifteen or more days annually, then Section 280A matters to you. This is the portion of the Tax Code that will dictate what must be reported, which records matter, and perhaps most importantly for lots of you, which deductions you can take on your short term rental real estate business. If you’re considering entering this market, it’s wise to become hip in the ways of managing your records and taxes. You’ll find yourself coming back to 280A in some form or fashion a few times before Tax Season is over.

Get in the Habit: Accurately Report AirBnb Income and Expenses

Regardless of how long you plan to be in the vacation rental game, one area you cannot get sloppy on is bookkeeping. Now don’t worry, there are no new fancy systems to learn here. You’re free to self-organize to your heart’s content. Here’s what the Tax Man cares about if you’re hosting over fourteen days out of the year:

Now, Airbnb might report your earnings. They have to, beyond a certain point. Airbnb users with over 200 individual transactions or earning in excess of $20,000 within a year can expect Airbnb to report these figures. This is yet another good reason to always start with the records you have on the platform itself, but keep your own for accuracy reasons. You may be one of the many users that falls somewhere in between “occasional” and “frequent.” Whatever your situation, keeping your own records guarantees you’ll have at least one full set of documentation.

What Deductions Can I Take as an Airbnb Host?

Fortunately, there are tax benefits as well as obligations that you may enjoy related to your vacation rental business. This is why documenting expenses can be so critical to maximizing your tax savings on these properties.

You probably already know there’s a bit of overhead to hosting, and in some areas, quite a lot. That’s why these types of expenses are generally deductible on your taxes:

Basically, if it’s a real and justifiable business expense, you can likely use it as a deduction too. If there’s some unique cost related to your property, make a note of that. It never hurts to ask your CPA about costs like specialty insurance or anything you explore explicitly for your short term or vacation rental business. These are all possible--not certain--deductions you can exploit. Your asset protection entity may also be of assistance in managing taxes, so be sure to let your relevant professionals know how you control the rental asset. If you live in the home, this may not apply directly, but it’s still good to know where the divisions between your personal and business-owned assets are.

How Can I Bolster My Vacation Rental Business’s Chances of Success?

Following the above advice to the letter is a great start. But on top of excellent record-keeping, there are some other pro-tips to keep in mind when you establish your Airbnb or short-term rental business. Here are a few to get you started.

Offer Excellent Service

This may seem obvious bordering on cliche, but it also happens to be the truth. If two businesses offer the same product or service for the same price, how do you decide who to go with?

Really?

Think about it for a moment.

Now think about what would make an outstanding vacation rental. Really practice empathy and put yourself in the position of your likely traveler demographic. Write down everything that comes to mind, and aspire to offer the level of customer service you’d expect in a place twice as nice as what you’re offering. Hosts who go the extra mile tend to be rewarded on the Airbnb platform with designated statuses, high booking rates, and even featured listings. Truly offering the best experience of the space you have available, whether it’s a humble lodging for a solo traveler far from home or a beach condo for a family getting away from it all, will make you stand out on the platform and with your clientele. So go the extra mile.

Expect the Unexpected & Offer Simple, Thoughtful Solutions

Airbnb has lots of great advice for hosts. You can expect to go through more things than an average household: linens, cleaning supplies, trash bags, even certain food and beverage if you offer it. Get all the free information you can, but also plan for emergencies.

Here’s a common one few will warn you about: the need for an extra mattress. A $40 Walmart mattress not only could bail a guest out of a bad situation or furniture malfunction: it also counts as an extra bed to offer future guests. Think ahead about common mishaps, and if you can’t anticipate them, at least try to be available to respond. Consider also the types of items people forget when traveling. How many times have you found yourself without a hair dryer (an actual amenity you can list on Airbnb, for the record), deoderant, feminine products, contact fluid, Advil, or some other cheap but oh-so-essential item? After all, those are things you tend to need quickly when you need them. Keeping guest bathroom drawers stocked with such basics will put anxious guests (or those who meet a traveling misfortune) at ease.

Bonus: Those loving gift baskets? You can write all their contents off later.

Have a Plan for Responsiveness

We all know nonsense just happens when you travel. Planes are late. Layovers extend. Baggage gets lost. These types of situations can leave new Airbnb travelers feeling especially nervous. But the beauty of the platform is that you become that person’s touchstone to the city. If you cannot personally manage your Airbnb offering, it really is a good idea to get some full-time assistance.

Responsiveness is actually measured by the Airbnb app. Hosts with high levels tend to perform better. If you aren’t able to manage your property alone, recruit a friend, family member, or even friendly graduate student to help. Offer them a fair price to help you out wherever you need. Maybe that’s just a modified maid service, maybe it’s help maintaining your account, or even a hybrid of the two with your own needs mixed in. Just be sure that if you do hire an individual, you are clear on their role as a contractor. It never hurts to solidify even the most informal relationships with a solid contract.

Choose the Right Professionals for Help

Knowing when you need a lawyer or CPA can be critical. The smartest investors generally have a real estate attorney involved when it comes time to buy, sell, or transfer property. Many will set up asset protection systems in advance but also use their attorney for advice on growing their business. CPAs are more essential for tax-specific questions, though you will generally find real estate attorneys are at least aware of the issues likely to affect clients.

Nonprofessionals can also be helpful to you. Form your own personal-professional network of fellow Airbnb hosts, and don’t be afraid to make a few “aspirational friends” along the way. You know, the kind you want to be like. Following in the footsteps of someone who has had success is a good way to learn the industry quicker--and see your profits faster.

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.

3 Key Tax Benefits of Using an LLC Structure

Limited Liability Companies have many useful properties for investors. Most of my clients approach me about forming Traditional LLCs or Series LLCs for asset protection, but often are completely unaware of the potential tax benefits their entity may provide. Today, let’s talk a bit about the tactics you can use to minimizing your tax liabilities. Specifically, we will be taking a closer look at the tax benefits of an LLC structure.

Tax Status Flexibility

One of the appealing tax benefits of LLCs is that you get to choose the manner in which it is taxed. But owners of Series LLCs don’t have to miss out on the fun. In fact, if you own a Series LLC, you can tax each Series differently if you desire. What exactly does that mean? Let’s take a closer look at how LLCs are taxed.

You may make your pick from any of the following three tax status elections when forming an LLC (or Series within a Series LLC):

Note that there is an exception to the flexibility norm. Single-member LLCs are more limited and may be forced to file as a sole proprietorship, then report income or losses on their personal returns. It is also important to be aware that the above are simply tax classifications rather than different types of entities. It can be easy to get the impression that an S-Corporation is an entity when indeed it is a tax status, as a C-Corporation is an entity.

Which tax option will be best for you? As with most answers in the financial realm, you’ll find that it depends on your individual circumstances, status, and ambitions in the real estate business. Only a qualified attorney and CPA should be trusted to give tax advice.

Deductions and Credits Galore For Those Willing to Look

If you’re serious about lowering your tax bill you know the power of deductions. So we recommend that you deduct, deduct, deduct everything that you can. No business expense is too small or inexpensive. See if you qualify for fuel deductions, and take a good written record of everything you really need for work and its cost. It may seem silly if you’re looking at many small receipts or expenses, but the old adage about how they tend to add up is true.

The fact that you may not be aware of deduction and credit opportunities is yet another good reason to have a solid CPA and attorney on your real estate dream team. These pros will often point out savings options you didn’t even know you were missing out on. So go forth and deduct shamelessly. It’s a win-win for both client and CPA.

Personal Assets May Be Leased to the LLC

If a valuable assets drag you into a higher tax bracket, an LLC offers a handysolution. You may be able to minimize this situation by leasing the asset to yourself (specifically, your LLC)  with a formal leasing agreement. Such arrangements lower taxable income and often allow for deductions.

For example, a home office is an item you lean on come Tax Season when you’re deduction hunting. Learn more details about the home office deduction and who can qualify from our previous educational resource on the subject. Home offices may not only be deducted from your taxes, but also leased back to your LLC.  When that leasing agreement goes through, you can write it off and claim it as a business expense. The fact that this type of business expense

Optimize Your LLC Tax Strategy With The Pros at Royal Legal Solutions

Between the asset protection and tax benefits, LLCs may begin to seem like a no-brainer. But to get the right entity that will do the best possible job for you, you may need Our crack team of attorneys and the CPAs we work with can assist you through any tax concerns you may have. As investors ourselves, we may have some more tips that you haven’t yet learned to exploit. Which ones will apply to you will depend on your personal circumstances.

If you are wondering how Royal Legal Solutions can help you save on your taxes,take our Tax Discovery Quiz. Our consultants are happy to explain your options to you, answer your questions, and when you’re ready, set up your personalized consultation. We look forward to helping you keep more of your income where it belongs: in your bank account.

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

Tax Law and Family Court: What You Need to Know About Divorce, Custody, and Your Tax Obligations

Divorce is already one of the most stressful life events that many of us will go through. There’s a reason the expression is “going through a divorce”--it is truly a process to be endured. There are many factors to consider when you find yourself separating from your partner. On top of the emotional stress involved, you will also have legal and tax concerns to worry about. One concern is the fact that family courts often make rulings that directly conflict with federal tax law.

Technically, federal tax law trumps family court rulings. But in practice, this does not stop judges from making rulings that run counter to federal tax law and can spell trouble for the taxpayer. The errors in these rulings tend to arise out of ignorance. Family court judges may be accomplished experts in the practice of family law, but that does not mean they are also experts in federal tax law. The unfortunate result is that many judges inadvertently create tax problems for the divorcing couple. Further, if your family lawyer is not familiar with your potential tax issues, he or she may not be able to advocate for you as effectively. Fortunately, you can avoid the complications we will discuss by simply being aware of them and using the appropriate kind of professional help. Read on to learn some of the most significant tax issues you are likely to face in a divorce, and more importantly, what you can do to prevent the most common tax problems associated with divorce.

Dependency Issues: Which Parent Gets to Claim the Child as a Dependent?

One of the most common issues that a divorcing couple with children may face is who gets to claim any children as dependents on their federal tax returns. The parent who uses this exemption may be eligible for up to $4,000. Family court judges often mistakenly believe that both parents may claim a dependency exemption, particularly in cases where they are sharing custody. This simply is not true, and a person who blindly follows the court’s ruling may later find they owe the Taxman, despite having done “everything right” per the ruling.

Which parent has the right to claim dependency isn’t always clear-cut. Most courts will award the exemption to the custodial parent, or the parent who is providing over half of the child’s support and care. In joint custody cases, the determination of who is providing the majority of care will be made by the family court.

However, there is an exception to this general rule. The custodial parent may choose to release the exemption to the other parent by filling out IRS Form 8332 and submitting it with his or her tax return. Since all family situations are unique, this may be appropriate in yours. But be advised that if you elect to release the dependency exemption, you will not be able to claim the Child Tax Credit of up to $1,000 either.

Child Support Issues

Child payments may not be deducted or taxed, regardless of which party is awarded child support. The legal basis for federal tax law treating child support in this manner is interesting. The short version is that Uncle Sam does not want to incentivize or promote divorce in any way, and that allowing for any kind of potential tax break surrounding child support may do exactly that.

Alimony Issues

Alimony is a type of income and is therefore considered deductible for the party making payments. The payer may deduct however much alimony the payee is claiming as income on his or her tax return.

Some divorcing couples opt to use unallocated income as an alternative to alimony. This option is considered legally distinct from either child support or alimony, and may confer some additional benefits to both parties. First, contingencies may be placed on the support payments that are directly related the the costs of childcare and the circumstances of both parents and the child. For instance, unallocated income may end if your former spouse gets married, your child reaches a certain age, or in other scenarios. There may also be tax benefits for the divorcing couple, such as the recipient of unallocated income paying in a lower tax bracket for the support received.

Property Issues

A wide variety of property issues may affect your tax situation during the divorce process. Some concerns real estate investors would be wise to  advise their tax and legal professionals about may include the following:

If you anticipate any of the above property issues, one practical step you can take to make things easier is to make a complete list of any and all assets you own.

Other Tax Considerations in a Divorce

Many of the other issues to consider when divorcing are directly affected by which parent receives the dependency exemption. Examples of these issues include:

Avoid Tax Complications With Your Divorce By Getting a Professional’s Opinion

Fortunately, the issues discussed above can be prevented with a little bit of education and the help of competent tax professionals.

If you’re an investor preparing for a divorce, feel free to contact Royal Legal Solutions with questions you have about protecting your real estate assets during the process, avoiding tax issues, or any other concerns relating to your real estate investments. Our legal professionals are familiar with the tax laws affecting real estate, and we also maintain relationships with competent CPAs who can assist our investor-clients. We can also work with your family law attorney to ensure your needs will be advocated for properly in any divorce or custody proceedings. Whether your concerns are about taxes or other issues that require a sensitivity to the needs of real estate investors, Royal Legal Solutions can help you. Stay ahead of any potential legal issues by  scheduling your personalized consultation today.

Deciding How to File Taxes Once Married: Jointly or Separately?

You know that Frank Sinatra great “Love & Taxes?” Or those many romantic films that end with the couple riding off into the sunset, only to tumble into a large country bed with their tax returns? No? Us, neither. Fortunately for us all, the song “Love and Marriage” makes no reference to taxes and this part of married life tends to remain unscripted in film and TV. All the same, determining how to file is one important change you will have to address after getting married.

When does it make sense to file separately versus jointly? What factors do you need to take into consideration when determining how to file? We have created this cheat sheet to help you answer some of these basic questions and make the best decision for you and your spouse.

When Does The IRS Treat You as Married?

In general, the IRS will treat you as married for the tax year that you got married. So for the tax year 2018, it doesn’t matter if you got married on New Year’s Day or in December. You could have been married for a single day, even. But your marital status as of December 31, 2018 will determine whether the Taxman considers you single or married for the 2018 tax year--or any other.

When Filing Jointly Makes Sense

For most couples, filing taxes jointly once married makes sense. Couples who choose to do this will complete a single return together. Further, they must be aware that their combined income will be considered as a single unit. They must decide whether to itemize their deductions or take a standard deduction on this return. Fortunately, the IRS offers couples who file jointly one of the highest possible standard tax deductions. For tax year 2018, this standard deduction is $24,000--twice that offered to those who are married but filing separately.

Couples who file jointly are also eligible for certain tax credits that those who are filing separately may not receive. Examples of these credits include the following:

When only one spouse is earning money from a job or other income source, filing jointly makes more sense. This scenario makes it easier for the spouse’s combined income to fit into a lower joint tax bracket. The couple may also take advantage of the non-earning spouse’s deduction when filing their return.

Potential Problems With Filing Jointly

Filing jointly is not without its potential drawbacks. When couples file jointly, their overall income will be higher. This can potentially push higher-earning couples into an even higher tax bracket. Usually, it should not--the tax brackets for couples who file jointly are typically lower than if those same couples were to file separately. However, if two higher-income spouses file together, they may find their combined income is high enough to create problems. Such problems can include the following:

Another matter to consider is that when you file jointly with your spouse, you are liable not just for what you report, but for what he or she reports as well. By virtue of filing together, you are now “jointly and severally liable” for the tax payment itself, any interest due, and any penalties due as well. This can remain true even if you later divorce that spouse.

When Filing Separately Make Sense

While filing jointly makes sense most of the time, there are occasions where it makes more sense to file your taxes separately. After all, each couple’s tax situation is unique. Two key examples of when it makes more sense for spouses to file separately include:

The first situation is one where separately your liability from your partner’s has clear benefits. If your partner has been overstating income or knowingly making errors with deductions, you likely don’t want to be anywhere near that situation and this would be a good reason to file separately. The last thing you want is to get dragged in on a potential audit or tax dispute that you didn’t start. It may also be a good occasion to ask your partner some other pointed questions, but filing separately is at least a start.

There are a variety of scenarios that may meet the second criteria of one spouse being eligible for a substantial deduction that would mean the couple pays less overall by filing separately. Consider the following example. John and Mary are a couple in their late 60s. John’s income far exceeds Mary’s. He has continued to work his full-time job, while Mary has reduced to part-time hours awaiting retirement. Earlier this tax year, Mary had a major surgery earlier this year which cost approximately 20% of her personal adjusted gross income (AGI). Because of this fact, Mary could deduct the cost of her medical expenses if she and John opt of MFS status. If the two filed jointly, John’s income is so much larger that the medical expense would no longer meet the criteria for deduction: that it be larger than 10% of the AGI for the couple (if filing together) or Mary (if filing separately).

There are non-financial reasons why a couple may opt to file separately, as well. For instance, if one spouse is unable or unwilling to sign a return, or the couple is separated pending a divorce, filing separately may have some practical advantages.

Potential Problems With Married Filing Separately (MFS)

It is important to note that Married Filing Separately (MFS) is a different status altogether than filing as a single person. Partners who file separately must be aware of some limitations as well as potential drawbacks to filing in this manner.

First, spouses who are filing separately must either both take the general deduction of up to $12,000 (for tax year 2018) or both must itemize. One thing that is not permitted is for each spouse to do as he or she pleases--one cannot take the general deduction while the other itemizes. This “rule” is to prevent couples from making any substantial tax gains from simply filing separately. Similarly, the Internal Revenue Code also provides that taxpayers cannot “get around” the issues created by a higher income from filing jointly by filing separately.

Similarly, the couple who files separately waives their right to many of the deductions that couples who file jointly may take advantage of. For instance, couples who file separately must decide which spouse may lose the ability to deduct student loan interest altogether while capital loss deductions are limited to $ as opposed to the $13,000 couples filing jointly may deduct. The many kinds of tax credits listed above that are available for couples filing jointly would not be available to those filing separately. Social Security benefits are also affected. Couples who file jointly enjoy the fact that they are not taxed on their Social Security benefits until half of all benefits and other income received equals $32,000 or below. Every cent of Social Security income is taxed on a MFS return, however.

How Do I Know If Filing Separately or Jointly Is Best For My Situation?

There are two key things you can do when determining how to file your tax return. The first suggestion may sound like a bit of a headache, but it happens to be the only conclusive way you will know for sure whether your joint or separate return will in fact be cheaper. Prepare the return both ways, maximizing the benefits of each, then simply compare the costs. The other thing you can do, especially if going through the process of preparing your returns both ways is too time-consuming or demanding for your tastes, is get the opinion of a seasoned professional. A good tax professional can gather some basic information about both spouses and their incomes and generally tell which method will be best. He or she may also take the step of fully preparing both returns if the call is a close one.

Don’t Make Tax Decisions Alone: Get Help From Qualified Tax Professionals

As with all tax matters, it is wise to get the opinion of both an attorneys and  a CPA familiar with your situation before making major decisions. If you have read all of this information and still are uncertain about the best way to file, or simply want to learn more about what your options are for minimizing your tax liabilities, feel free to contact the experts at Royal Legal Solutions today. We are all too happy to see where we can help you keep more of your hard-earned capital in your pocket by developing strategies that take the full scope of your tax situation into account.

Royal Legal Solutions has attorneys who are familiar with tax law on staff, and we also maintain professional relationships with CPAs who are sensitive to the needs of the real estate investor. schedule your consultation today.

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. 

Scam Alert: How to Know if IRS Demands for Taxes Owed Are Legitimate Or Scams

Imagine you’re sitting in your office or at home going about your daily business, and you get a phone call. The caller informs you that you owe the IRS money. They go on to explain that your tax payment for the year before was never received at all and that you must pay up now or face serious consequences. You might be threatened with a wage garnishment or even jail.

Unfortunately, this is a real scenario that unscrupulous scammers use to trick honest taxpayers into paying money they never owed in the first place.  As you may have already guessed, the caller isn’t really from the IRS. They’re just a petty thief attempting a cheap, but an all-too-common con.

Ending up in a tax dispute is incredibly stressful. Of course, this is the fear that these opportunistic scammers will prey upon to fraudulently get their hands on your hard-earned money. Learn more about what these scams look like, alarm bells to watch out for, and most importantly, how to protect yourself from becoming a victim.

Four Warning Signs and Ways to Determine if IRS Scam Threats Are Real

First of all, don’t panic if you receive a call or email purporting to be from the IRS. Even if the threat is real, panic is not a strategy. Instead, follow these four tips to protect yourself from thieves posing as IRS personnel.

Verify The Source of The Communication

Make a note of the number that called you. A simple Google search can reveal if the number is in any way related to the IRS. If you received an email, look at the full address. If it does not end in “irs.gov” or at the very least, “.gov,” odds are good you are communicating with a scammer rather than a real representative of the IRS.

No matter what the caller says, you can simply hang up while you verify the origins of the call. You cannot be “punished” or forced to pay more money for hanging up on the caller, even if they really are with the Taxman.

Don’t Give in to Immediate Demands For Cash

While scammers will insist that you must pay past-due taxes immediately, our friends over at the real IRS will not. In a real tax dispute, you will receive a written demand for taxes owed in the mail.

Also, be aware that a real demand from the IRS will inform you of your rights in a tax dispute. Legitimate claims will always notify you of your right to appeal the amount in dispute. Even if you were found liable for taxes owed by the IRS, you would have options available to you such as payment plans.

Pay Attention to Payment Method Requests

Since the caller is demanding money, they will typically specify how it is to be paid. These requests can be clues that you are dealing with a charlatan.

One major warning sign is demand for payment in a particular format, such as with Western Union, money order, prepaid card, or even PayPal. Note that the real IRS will not even accept some of these forms of payment, nor would you be obligated to pay a large sum of money immediately over the phone or via an insecure email. Scammers will also play up the “urgency” of the situation in an effort to get you to reach for your wallet.

Demands for credit card payment are a dead give-away that the call is not related to a real tax dispute. Personnel from the IRS will never ask a taxpayer to give their debit or credit card information out over the phone. Even if you later find you do truly owe the IRS, there are plenty of other reasons to never pay your taxes with a credit card.

Watch Out For Outrageous Threats

Sometimes scammers will threaten to call the police or otherwise send law enforcement after you if you resist demands for payment. This is just another way to instill fear, cloud your judgment, and prevent you from assessing the situation rationally.

You cannot be arrested by state or local authorities for failure to pay taxes. Simply failing to file a  return or owing money to the IRS is not a crime, and therefore not a jailable offense. In theory, a person may be jailed for cheating on their taxes, but the IRS would have to prove that he or she did so deliberately. The burden of proof on the Government’s end is high, so even people who cheat on their taxes rarely end up seeing the inside of an 8x10 cell. Individuals who fail to pay the appropriate amount of taxes may be audited, have their wages garnished, or be subjected to a payment plan--but they will not be arrested.

What Can You Do About IRS Scams?

Even if you follow all of the above tips and find out that you really do owe money to the IRS, you still should not panic. There are several tools for fighting back if you end up in a legitimate tax dispute and even more for arranging payments.

If you do receive a call from a bogus tax collector, you can take action to help put the scammer out of business and spare future taxpayers from the types of calls or harassment you may have received.

First, you should consider reporting the scam attempt to the Treasury Inspector General for Tax Administration (TIGTA) online or by calling  1-800-366-4484. You may also file a complaint with the Federal Trade Commission. Mention in the complaint that you were contacted as part of an IRS Telephone Scam and include the details of the incident: dates, times, and any information that could help identify the scammer. Both of these authorities have the resources to notify the public about the details of these scams and pass on the information you have to the appropriate law enforcement agencies.

Bottom Line: Understand What IRS Scams Look Like to Avoid Becoming a Theft Victim

Now that you know these scams exist, you won’t become the next victim. That said, if you do have real concerns about paying your taxes, the best time to address them is before you file at all. Professionals like the experts at Royal Legal Solutions can help you with a variety of tax concerns. We routinely help investors set up structures that minimize their tax liabilities and work with CPAs who can assist you with other tax matters. Take our tax quiz and schedule a consultation to be proactive about your concerns and learn more about the services we can provide to help keep you on Uncle Sam’s good side.

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.

How is A Land Trust Different From A Standard Trust?

A land trust is defined as an entity used to hold title to real estate. Unlike the standard trust, usually land trust doesn’t involve family. Also, a land trust offers versatility for real estate investors since they are allowed to hold not only real estate but real estate related assets such as real estate notes. A land trust can also hold deeds and financial agreements.

Land trusts also provide several benefits:

  1. A land trust doesn’t go through probate court. As personal property, land in a trust doesn’t go through the usual tedious court proceedings required to sell, rent and otherwise manage property in the land trust.
  2. A land trust offers anonymity. This is one of the most attractive facets of a land trust and a critical component in preventing lawsuits. The name recorded on a trust is not attached to the parties involved in the trust, thus any worth or personal information attached to that property is hidden. As a result, lawsuits don’t appear to have much monetary incentive and seem more of a hassle to pursuit.

Revocable and Irrevocable Land Trust

However, there are some important tax considerations to keep in mind. Tax treatment depends on the type of trust that’s established. According to IRS definitions: “The land trust has no special distinction in the Internal Revenue Code and would be a simple, complex, or grantor trust depending on the terms of the trust instrument. Filing requirements would depend on the type of trust.” Here are the two types of trust:

  1. Revocable Trust. Most land trusts are revocable. A revocable trust is one in which the provisions can be either canceled or adjusted.
  2. Irrevocable Trust. An irrevocable trust is where the grantor, or creator of the trust has forfeited his rights of ownership.

Land Trusts as Pass Through Entities

Because most land trusts are revocable, they don’t have to file a separate return. This is because a revocable land trust is seen as a pass through entity by the IRS. Any income on the land trusts is treated as personal income and thus reported only on a personal tax return. As a pass through entity, a land trust doesn’t lead to the grantor being taxed twice. It also saves time and money, since additional tax filing documents and fees aren’t required.

For instance, Jane is recorded as the individual who has the power to revoke the land trust named Oak Tree 123. This may seem like a vague and uninteresting name, but this can actually work to Jane’s advantage. Names that are vague and uninteresting are bad for your Tinder profile, but creative trust names are great for your land trust. When tax time rolls around, Jane will simply report any income from her Oak Tree 123 trust on her own personal income form, reporting it just like it was any other type of income.

Incorporating Your Land Trust with a Series LLC

When you incorporate your land trust within a series LLC, the tax filing process not only remains simple because it’s a pass through entity, but you also enjoy maximum asset protection. Remember, a land trust is just like a regular trust in that it provides anonymity. The anonymity of a trust can help prevent lawsuits from even starting. Meanwhile, the series LLC structure separates assets under individual “child” LLCs, so an attack on one LLC doesn’t spread to others. However, a land trust can be incorporated within a variety of entities such as an LLC or S-Corp. Each will have its own tax implications to consider and cost, especially if you’re managing multiple LLCs.

When a Land Trust Requires a Trust Tax Return

There are a few exceptions to the tax filing procedure mentioned above with Jane’s revocable land trust. In cases where the landowner passes, the beneficiary will be required to file both a tax return on the trust and estate. In addition, in the more uncommon case of a land trust being irrevocable, the usual tax filing procedure mentioned above won’t apply. Instead, the trust creator may have to file a separate trust tax return. This would require filing out tax form 1041.

Steps to Filing Taxes With a Land Trust

Whether you have a revocable or irrevocable land trust, the following steps are essential to staying out of trouble with Uncle Sam.

  1. Keep accurate records of income. This will be reported along with information about gains and losses.
  2. Consult with a legal team. Our team of experts are real estate investors themselves. We can help you setup a land trust that provides maximum asset protection as well as potential tax benefits.
  3. Ensure all tax documents are copied and shared with the main parties of the land trust. These include the beneficiary, grantor, and trustee.

Combine Asset Protection and Tax Efficiency

We hope this article has been useful in explaining some of the important tax considerations to be mindful of when working with a land trust. We are one of the few firms in America to regularly manage land trusts. Our expertise allows us to provide a combination of asset protection and tax efficiency.

Interested in learning more? Check out our article How Honest is it to Use a Land Trust for Asset Protection?

Investing in Domestic and Foreign Real Estate with Your IRA Business Trust

Most people know that an individual retirement account (IRA) allow plan owners to invest in mutual funds, stocks and bonds. An IRA can certainly grow your contributions and create a nice nest egg for your golden years. However, what many do not know, is that there is a way to invest in much more! A self-directed IRA, also known as a SDIRA or solo IRA, gives you total control over your plan. It also allows for investments in alternative assets, like real estate, precious metals, private placements and renewable energy sources. While you can invest in almost everything with a SDIRA, real estate tends to be one of the biggest draws.

Full Checkbook Control

Many SDIRA plan owners establish a limited liability company (LLC) or business trust in their account’s name. This gives them full checkbook control. (When you establish a LLC of IRA business trust, you can open a banking account to help you better access your SDIRA finances.) With many properties being listed as foreclosures, short sales and estate sales – the atmosphere is ripe for low cost investments with the potential for significant returns.

Generate Income, Avoid Taxes

When you open a traditional SDIRA, you make pre-tax contributions. These dollars, and any profits generated by them, are taxed later, when you begin to take distributions. However, if you open a Roth SDIRA, you use post-tax dollars to make contributions. This means your gains and later distributions are made tax-free. For both traditional and Roth accounts, profits generated by a SDIRA-owned property flow right back into the account. When compared to a regular fixed-income, using your SDIRA to invest in real estate can generate profits that are two to eight times higher. Whether you rent or sell your SDIRA property, you can substantially increase your retirement account funds through real estate investments.

Real Estate at Home or Abroad

Not only can you use your SDIRA to invest in real estate in the United States, but you can also invest in foreign properties as well. This is true of both residential and commercial properties. There are plenty of reasons to invest in property, aside from the potential profits.

The truth is, property in general goes up in cost every year. In addition to that, your property taxes will as well. If you invest in property today, you can avoid having to pay a higher cost later. Depending on when you use your SDIRA to purchase the property, you may even have the home completely paid off before you reach 59 ½. If you rent out the property before then, you can also generate a profit that may: a) pay for the mortgage, allowing you to continue to grow your funds elsewhere without having to spend them on the residence or b) pay for the mortgage and generate additional income.

Why Choose a Roth SDIRA?

As previously stated, you can use a traditional or Roth SDIRA to invest in real estate. However, you should note some differences. Traditional SDIRAs are tax-deferred. This means you will have to pay taxes on your distributions. If you plan to take residence in a SDIRA-purchased property once you turn 59 ½, you will owe taxes. While this is still a smarter home-investment than buying a new home outright when you turn 59 ½, a Roth account will let you avoid this. True, property taxes are owed every year regardless of how you came to own the real estate. However, the asset’s value is not subjected to income taxes with a Roth SDIRA.

Finding the Right Firm

SDIRA accounts are not available through most mainstream investment firms. An Royal Legal Solutions, however, is available to anyone. Our professionals are able to support plan owners all over the world. We understand that you worked hard for the money you contribute to your retirement account.

 

As experts, we strive to provide you with quality support and professional custodial services. We have years of experience helping our clients understand tax laws, preparing documents, and providing trustee services. If you would like to learn more about retirement accounts, investment options, or checkbook control, please contact us today.

Which Self-Directed IRA Transactions Trigger the UBTI Tax?

Designating funds for your retirement is a great step if you are planning for your future. You probably already know about the 401(k) and the individual retirement account (IRA). These plans allow owners to invest in various stocks, bonds and mutual funds.

But for those of us who want a little more, there's another option: a self-directed IRA (SDIRA). These plans, which can be traditional or Roth accounts, allow for much more diversified investments. In fact, you can invest is almost anything, including real estate, precious metals, renewable energy and private placements.

SDIRAs and UBTI Tax

Establishing a limited liability company (LLC) in the name of your SDIRA makes a lot of sense. It helps to isolate and protect your investment funds. It also provides you with a level of anonymity that many owners find beneficial.

IRAs and SDIRAs are typically exempt from the Unrelated Business Taxable Income (UBTI) tax. This rule, as established by the Internal Revenue Service (IRS) in 1950, was introduced as a means of preventing tax-exempt businesses from unfair competition related to their profits.

Most passive investments made with your SDIRA LLC are considered tax exempt. However, real estate in particular can trigger the UBTI tax. Why? UBTI taxes are generally applied to incomes generated by “any unrelated trade or business” that is “regularly carried on” by an organization that would be subjected to the tax. To better understand this, let us take a look at the main components of this regulation.

What Does 'Trade or Business' Mean In Relation to UBTI?

The Internal Revenue Code (IRC) Section 162 defines “trade or business” as profit-oriented activities that involve regular actions by a taxpayer. There are very few cases in which activity needs to be attributed to a trade of business, however. This is because most expenses that are incurred from the profit-oriented activities of a taxpayer can be listed as deductibles under IRC 212.

What Does 'Regularly Carried On' Mean In Relation to UBTI?

For an activity to be considered “regularly carried on”, it is compared to those activities of a competitive, taxable business. There are some nuances to this. A short-term activity are typically tax-exempt if a similar commercial occurs all year. An example of this would be an ice cream stand operated by a tax-exempt organization during a state fair. Seasonal activities, however, are likely to be subjected to the UBTI tax. Intermittent activities are typically exempt if they are done so without the same type of promotional actions taken by a commercial enterprise.

UBTI Tax Triggers

It is important to identify and quantify the types of activities your SDIRA LLC has used to generate profits. This will help you to determine whether the activity and its profits are exempt or not. As previously stated, most passive transactions associated with your SDIRA LLC would not be subjected to the UBTI tax. However, there are several that could.

Legal Examples

There are plenty of examples of taxpayers butting heads with the IRS. Let us take a look at two examples that resulted in very different court rulings.

Invest with a Professional

Finding the right plan can be hard. However, when you open an account with a reputable professional, like IRA Business Trust, our experts go to work for you. Not only do we handle any documents and tax forms you may need, but also as experts, we understand where the IRS draws a line. Your SDIRA is a vital part of your future. To find out more about opening a SDIRA, forming an LLC, or understanding UBTI, contact us today!

Why You Need A Registered Agent Service

Did you know that as a business owner, you are legally required to have a Registered Agent in the state that your real estate company is formed in? This is particularly true if you have set up an LLC or Series LLC outside of your state of residence. There are many good reasons why investors choose to set up their companies in a location they don't live in. Some states offer favorable tax treatment, including a lack of a state income tax, while others offer legal and operational benefits to owners of corporate structures. It is not unusual at all for an investor living in, say, North Carolina, to have their investment properties secured in a Nevada or Delaware Series LLC. There are a number of financial, legal, and practical reasons to structure a company outside of your state of residence. There is nothing wrong with this practice. In fact, we often recommend it for asset protection purposes - check out our free educational resource on the best states for forming a Series LLC for even more details. But real estate investors who do this must have a Registered Agent in the state where their business operations are based.

What Exactly Does A Registered Agent Do?

The Registered Agent serves a clear role that is critical to the legal standing of your real estate investment business. This is the person who will function as your legal point of contact for all of your business matters in your company's state. He or she will be responsible for receiving business documents and keeping up with all legal correspondence. To learn more, check out our previous educational article on the role of the Registered Agent.

Who Can Serve As My Registered Agent?

Fortunately, you have options when it comes to satisfying the Registered Agent requirement. These are some of your most common options:

Using an attorney has some obvious advantages over a professional Registered Agent. First, someone who is simply a Registered Agent may not have much experience in matters of law. These individuals also cannot assist you with other aspects of company formation. An experienced real estate attorney, on the other hand, will be able to help ensure your compliance across the board - not just with the Registered Agent requirement. Further, a qualified attorney will also keep track of changes in law and corporate regulations. Because the law is always evolving, it's best to have someone with the knowledge and research skills to make sure you're operating your business by the book. Some investors prefer to use a professional Registered Agent to save a few dollars, but we find having a qualified attorney to help defend your real estate empire is well worth the investment.

Why Choose Royal Legal Solutions to Serve as Your Registered Agent?

At Royal Legal Solutions, we have served as Texas Registered Agents for our clients for years. We are real estate attorneys and investors ourselves, and well aware of the legal ins-and-outs of this role. Further, an attorney is the ideal legal face of your business. Our prices for this service are lower than market average, and competitive with some "professional Registered Agents." The difference is that we have the qualifications and credentials to back it up.
If you have questions about the Registered Agent requirement, contact us today If you're considering forming a business entity such as a Series LLC in Texas, Royal Legal Solutions can also serve as your in-state representative. Don't neglect this legal requirement for your out-of-state LLC or Series LLC. Take action and stay compliant by scheduling your personalized consultation today.

Criminal Acts and Activities: Landlord Liability FAQ

The dozens of day to day responsibilities required to be a landlord can cause important liability concerns to go unattended. Criminal acts and activities may not be an everyday occurrence, but that doesn’t mean landlords should wait for a crime to occur before they start thinking about protecting themselves from a lawsuit. More lawsuits are being filed against landlords in an attempt to hold them accountable for crimes occurring on their rental property. These crimes can involve both outsiders who break into the property or tenants’ criminal activity. In this educational guide, we will answer common landlord liability questions when it comes to criminal acts and activities. We’ll address everything from landlord responsibility for drug use and preventive measures. A lawsuit and settlement can cost hundreds of thousands of dollars. Don’t expose yourself to this risk. Read this guide to understand your liability and take steps towards creating an asset protection strategy.

What Are a Landlord’s Legal Responsibilities for Protecting Against Criminal Activities

While laws differ from state to state, landlords in most states do have some level of legal responsibility for criminal acts and activities. Landlords hold some responsibility for protecting their tenants from the criminal actions of outsiders that occur on the property. These include robberies, vandalism, and violent attacks such as shootings or rapes. Landlords are also responsible for crimes committed by current tenants against other tenants. More specifically, landlords can be held responsible for allowing a tenant’s illegal drug activity on their property. These illegal drug activities can threaten the safety of other tenants. Also, landlords have a wider responsibility towards their surrounding neighborhood. For instance, landlords can be held liable for allowing their tenants to continue with dangerous and illegal drug activity, which spills over to the surrounding neighborhoods.

Where Do Landlord Liability Laws Originate?

The above mentioned legal responsibilities stem from the following categories:

  1. Building Codes
  2. Ordinances
  3. Statutes
  4. Court Decisions

Landlord Liability for Drug Dealing Tenants

Drug dealing tenants pose several business and legal consequences. Here are a few consequences all landlords should keep in mind:

  1. Negative impact on property value. The presence of drug dealing can drive away current and future tenants. The low demand can into turn lower rental prices.
  2. Confiscation of rental property. In some states, law enforcement can seize rental property where drug dealing occurs. However, this happens in only extreme cases.
  3. Criminal penalties. Landlords who knowingly allow illegal drug activity on their property risk being charged by authorities for aiding the crime.
  4. Heavy fines. Landlords can be charged heavy fines on federal, state, and local levels for allowing illegal drug activity.
  5. Lawsuits. Both tenants and neighboring individuals can file a lawsuit against a landlord for allowing illegal drug activity. Filers can claim that the property is a public nuisance and threat to public safety.

Landlords should also note that the above mentioned consequences are not only triggered by direct drug dealing, but also illegally manufacturing or growing drugs. Thus, landlords shouldn’t turn a blind eye to illegal drug activity. A meth lab or illegal crop of marijuana can cost landlords thousands of dollars and criminal charges.

Preventing Landlord Liability in Tenant Drug Cases

In our own experience working with landlords, we’ve found that some simple preventive measures can be put in place to avoid landlord liability in tenant drug cases. Establishing preventive policies during the tenant screening process and acting early in response to potential illegal drug activity is key to preventing costly liability issues. Here are some ways to prevent potential illegal activity through a careful screening process.

  1. Screen tenants wisely. Landlords should balance their duty to follow anti-discriminatory laws established by the Fair Housing Act and a need to screen tenants likely to engage in unlawful activity. It is illegal for landlords to deny a tenant housing because they are a recovering drug addict, since addiction is seen as a disability under the Fair Housing Act. Also, it is illegal to deny housing due to a past arrest. However, landlords can still weed out potential problem tenants by analyzing their rental history and employment status. Past convictions, poor references by past landlords, or an inability to hold down a job can all be early warning signs.
  2. Don’t allow cash payments. While some tenants may choose cash payments to avoid the hassles of writing a check, others can be using cash as their form of “clean” money.
  3. Explicitly forbid illegal drug activity. Landlords should make it plain and clear in their rental agreements that engaging in illegal drug activity will result in eviction.
  4. Respond to complaints promptly. Landlords should pay close attention to the complaints of tenants as well as other neighbors. Upon learning about suspicious activity, seek the advice of law enforcement.
  5. Know the signs of illegal drug activity. Frequent foot traffic in and out of the rental property can be a sign of drug dealing on the premise. Landlords should not only pay attention to the amount of visitors but the duration of their visits. Short, frequent visits throughout the day can be a sign of a drug shop where drug customers come in and out to pick-up or drop-off illegal drugs.

Get Professional Help

As you can see, some practical steps can be taken to prevent potential liability issues relating to illegal tenant drug activity. The screening process is especially important in steering away drug dealers, but it should be done in a way that doesn’t violate anti-discriminatory housing laws. However, with the heavy proliferation of illegal drug activity, even careful landlords can find themselves in legal trouble. Our legal experts can assist with current drug related cases and help prevent future liability problems. Contact our experienced legal professionals today.