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Buying Rental Property with a Limited Liability Company (LLC) - 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 buying property
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with a limited liability company.
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Now, if you are a real estate investor,
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you've probably been
told that you can acquire
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property with an LLC and in fact,
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that would be the best way to go because,
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why buy it in my own
name if I turn around and
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just deed it into an LLC?
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And I get a lot of new
real estate investors that
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will come up to me, they'll
see me at one of my events,
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and, or they'll just email me.
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And the last week, how do
I go about buying property
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in the name of an LLC?
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Well, the first question
I'm going to ask you is,
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what type of financing are you using?
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If it's just cash, not a problem.
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You can close directly in that
limited liability company.
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However, when you have financing involved,
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there's going to be the problem.
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If you're using traditional financing,
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if it's a Freddie/Fannie loan,
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then, if the property
itself is residential,
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it's going to, they're going
to require that you close
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in your own name.
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You're not going to be
able to close in the LLC.
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So it's a non-starter.
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So don't even attempt to put that deal
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together in that LLC name.
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Now if it's not a Freddie or Fannie loan,
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lets assume it's a loan
from a community lender,
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so it's what we refer
to as a portfolio loan,
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so this community lender bank
that you're working with,
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they don't intend to sell it,
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they have different guidelines,
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they will probably allow you to close
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in the limited liability company.
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So, in that case, you could set up the LLC
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in order to close.
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Now, one thing to also consider here,
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when you're thinking about
closing in the name of an LLC,
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the question I would have
is how is that purchase
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and sale agreement put together?
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Was the purchase and
sale agreement written up
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between yourself and the seller?
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Or did you leave yourself
some wiggle room?
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Because many times, a lot of people,
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they don't follow my advice
and set up a few LLC's
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and have what I call
them, on the shelf LLC's
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ready to go to put in their offers.
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And so they're scrambling.
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I mean, this just comes from experience.
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You should have LLC's
set up ahead of time.
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That's something I do
a lot with my clients,
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is I create two or three
LLC's and I tell them,
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these are always going
to be there for you,
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make these offers in these
limited liability companies
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so that we can close in the name of them.
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Now, if you begin, or you
have a subscription to
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procrastinator's monthly, and
you're a little slow on that,
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then what you should do in
your purchase-sale agreements,
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and write them up as follows,
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lets say you're going
to buy in your own name,
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or you're putting it in your own name,
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or maybe you have a corporation,
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you would put down Clint Coons
and/or designated entity.
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Alright, use that language,
not and/or assigns,
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which a lot of people
have used in the past,
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which is now looked at
skeptically by sellers
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and their agents.
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I use and/or designated entity.
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And then, here is what I tell people,
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if I'm ever questioned on that,
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I explain to the seller or their agent,
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the reason I include that
extra language in there
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is that I have not yet
talked to my tax professional
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or my attorney about
how I need to take title
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for estate planning and taxes,
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and that they may advise
me to take it in a limited
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liability company.
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So that's why I'm putting that
additional language in there.
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Because I may close in an LLC.
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That explanation works, okay?
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I have not had anybody
reject that explanation
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because now you've told
them that it's your local
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professionals, or your professionals,
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that are advising you to do this,
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and so, they don't want to
practice law without a license.
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So the realtors will
often back down when you
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give them that rationale.
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So anyhow, if you're
using anything other than
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traditional financing,
like I talked about,
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if its a community bank,
then you can close directly
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in that limited liability company.
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And if you are going to do that,
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some things you need to keep in mind,
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you better make sure that, with the LLC,
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that you're not using a nominee on there.
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There's a lot of people that, you know,
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we even talk about it, in the
battle of limited liability
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companies with a nominee
manager, well the problem is,
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if you are using a nominee
manager, it's not you.
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That's going to create
title issues for you,
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trying to close in the name of an LLC,
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and your lenders going to
have a heartache with that.
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So, you're going to want to set up an LLC
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where either your information
is publicly visible,
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or if you want anonymity,
what I often tell people,
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set up a fresh, new Wyoming
LLC, or Delaware LLC,
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where your name and
your information is not
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provided to the Secretary of State,
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then you'll close in that
entity and with title,
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and with your lenders,
they'll just ask to see
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a copy of the operating agreement,
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showing you as the manager
and member of that company.
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Funny thing about that is,
what has occurred before is,
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I'll have a lender or title
ask me or ask my client
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to update the state, have
their information listed.
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And it's kind of comical
because we call them back,
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and we tell them, inform
them that's impossible.
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The state doesn't accept that information.
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So even if I sent it to them,
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they wouldn't put it up there.
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And then they come back to us and say,
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oh, we understand, okay great.
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As long as we have your
operating agreement,
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it shows your position in that company,
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that you're the owner, you're the manager,
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we can proceed forward with this.
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So, you want to make sure that
either your name is listed
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on the entity itself
as a member or manager,
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with the Secretary of State
where the LLC is set up.
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Or you're using an entity such
as a Wyoming or Delaware LLC
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that provides anonymity.
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The other thing you're going to need is a
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certificate of good standing.
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Typically, this needs to be acquired
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within 30 days of closing.
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So be prepared to obtain that.
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You're going to have to
contact the Secretary of State,
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request the certificate of good
standing in order to close.
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If you do not have that
certificate of good standing,
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it will hold up your closing.
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It's kind of a ridiculous
requirement from my opinion,
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that many of these LLC's
are just recently set up
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within the last six months.
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There's no way they
could have been revoked.
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But again, rather than
fight them and try to argue
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they don't need the information,
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just give them what they need so you can
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close on your property and move on.
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Now of course, if you are buying for cash
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or you have private money
that's coming in to fund a deal,
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its never going to be an issue.
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But, when working with lenders,
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those are some of the things that you need
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to take into consideration.
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Get that LLC set up ahead of time.
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Make your offer in it.
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If not, you and/or designated entity.
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When you go to closing,
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make sure you have your
operating agreement ready
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for title for the lender.
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And also make sure you have a
certificate of good standing.
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My name's Clint Coons with
Anderson Business Advisors
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and we just covered how
to purchase real estate
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with a limited liability company.
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