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Investing In Tax Liens with a LLC or Corporation - YouTube
Channel: Clint Coons Esq. | Real Estate Asset Protection
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- Hi, Clint Coons here with
Anderson Business Advisors,
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and in this video I'm going to discuss
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tax lien investing.
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All right, you want to get started
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in tax lien investing because you know
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the opportunities that are there,
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that you can get in for a very low amount,
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and you can actually reap huge rewards.
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But the question is how should you
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structure those investments?
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You know, because we're looking at
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not only making money but also keeping
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more of what we earn.
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And the type of structure you choose
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for your tax lien investing
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can have a huge impact on that,
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not only from a tax side
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but also from an asset protection side.
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So if you're a tax lien investor,
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the first thing you need to ask yourself
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is what type of income do you want to make
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from these investments?
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Now, forget the redeemed aspect of it.
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But I'm thinking long term
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if you actually get the property.
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Do you want to hold those properties?
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Do you want to flip those properties?
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Many times people just don't have
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the right answer for that
'cause they don't know.
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And so that even makes it
even more difficult to plan.
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So if you're a tax lien investor,
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what I would tell you is that
if you need active income,
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so this would be the
real question we have,
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do you want active income?
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Now, why would I want active income?
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Well, maybe I need to show a greater W-2
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so I look better to traditional lenders
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for deals I want to put together.
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Maybe I want to put some money aside
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in a Solo 401(k) so I can defer taxes.
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You know, whatever your motivation is,
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if you desire active income,
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that's going to drive the
decision-making process.
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So if I need active income,
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then as an investor in tax liens,
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I'm going to create a
corp for my investing.
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I'm going to create a corporation.
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Now, this could be an LLC taxed as a corp,
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or it could be a traditional corporation.
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If you watch my other video
on LLC versus corporation
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for real estate investing,
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I discuss this in more detail.
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But if you want active income,
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so if I want active income,
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then I'm going to run my deals
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through my corporation.
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That's where I'm going
to take my tax liens,
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tax deeds, right through here.
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And so if they get redeemed,
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then all the money flows into the corp.
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And then what I'll do from there
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is I pay myself out a
salary with those proceeds.
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That's W-2 income to me.
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And again, you're going to
pay a little more in taxes,
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'cause you have to pay
employment taxes on that.
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But there's a reason why we're doing this,
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because it's about building
our business going forwards.
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And so you recognize you want that W-2.
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Well, maybe you don't need that much W-2.
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So what you're going to do instead
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is you're going to throw
onto this a Solo 401(k).
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So now if I'm taking
out $18,000 in salary,
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I'm dumpin' it into my Solo 401(k)
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so I'm not havin' to pay taxes on it.
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And then I'm doin' tax liens and deeds
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possibly out of there.
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How cool is that?
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Then you don't have to
pay any tax on the money.
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So this is one way to do it
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if you want active income.
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Now, one other caveat here.
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If you obtain a property, all right,
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if you end up getting a
property off of one of these,
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'cause they're not redeemed,
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then the issue becomes
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what are you going to
do with that property?
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Well, first thing is is
that you need to know
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ahead of time whether or
not you intend to flip it
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or you want to keep it.
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Because if you want to keep it,
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then do not take title
in that corporation.
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Because the corporation
is only there for flips.
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If you want to keep it,
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then what you need to do
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is when you take title to that property,
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you should have a
limited liability company
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set up over here to own that real estate.
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And remember, I talk about this a lot,
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not only on my videos but also
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in our three-day tax and
asset protection workshop,
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the importance of having multiple LLCs
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to reduce your risk exposure.
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So if you're going to take it,
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then move it over here and
take it title in an LLC.
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If you're going to flip it,
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then you can keep it over in the corp,
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because flipping activity
is active income.
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Now, we talked about this
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being the primary motivating
factor initially for you.
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What happens if you don't necessarily
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want active income and
you want to try to keep
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your investing as passive as possible?
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In that case, I would do
this through a LLC here
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if I want to make it passive.
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And I would have this
treated as a partnership,
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or I would make it a disregarded entity,
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disregarded for tax purposes.
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So then you're down here.
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This is your LLC; you're up here.
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You're doing your tax liens
and stuff through here.
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So the money flows into here,
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and then it comes out to you.
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It's going to come out as passive income.
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Unearned income is what we're
looking for on our return.
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So we're not going to
be able to contribute
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to the Solo 401(k) or anything like that.
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Great, that makes sense.
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You can do it this way.
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But if you're obtaining these properties
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and you don't want to keep 'em
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'cause you don't want to be a landlord,
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now it comes back to
the other problem again.
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You get a property here,
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and you want to just
turn around and sell it.
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Well, now we're running the risk
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that you're going to
get tagged as a dealer.
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So we don't want to sell
properties out of this LLC.
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Only thing we want to do with this LLC
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is bring in the income
from the redemptions.
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Or if we're going to
hold things long term,
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collect the property
here and then move it off
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to a different LLC, which is important.
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You never want to own a bunch
of properties in this LLC.
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This would just own the tax liens, deeds.
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You're not going to take
the properties here.
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But if I want to flip, then what I'll do,
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I will have a corporation
set up over here for my flip.
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So now you get pushed right
back in that active side.
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And in this case this corp
could be an S corp or C corp.
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I'd probably make it an S corp,
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because you want to keep as
much passive income as possible.
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If you wanted the active income,
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I would have made it a C corporation
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tax status up here.
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So with tax liens, I mean,
it is kind of complicated.
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There's no doubt about it.
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And what really drives the structure
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is more from the tax side of it.
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What type of income do
you want to generate
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from your investing activity?
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And then we create the
structures around it.
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And so invariably, it
typically ends up being
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a two-tiered structure.
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There's a corporation there,
and there's an LLC there.
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And the difference between the two
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is what our motivations are.
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Are we going to make most of our offers,
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buy most of 'em in the LLC
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because we're looking for passive income?
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Or our main motivation active income,
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so then we'll buy everything
in the corporation
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and then just move 'em out
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if we're going to keep 'em as holds.
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Tax liens investing, it's important.
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Make sure you click on the link
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to get a strategy session set up
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if you're a tax lien/tax deed investor
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so we can walk you through
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how to create the right
structure for your business.
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(upbeat instrumental music)
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