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Real Estate Lease Option Investing (LLC Structure) - YouTube
Channel: Clint Coons Esq. | Real Estate Asset Protection
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- Lease options. What the hell is it?
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Or how should you structure it?
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Well, Clint Coons here at
Anderson Business Advisors.
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And in this video,
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we're gonna talk about what you should do
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for your real estate lease
options and structuring.
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Alright, let's get started.
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(upbeat, lively music)
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Okay, so lease options, you know,
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if you're not familiar with the strategy,
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it goes something like this.
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You have a property and
you bring in a tenant
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and you wanna give the
tenant some incentive
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to, A, maintain the property,
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get a sense of ownership there
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because they'll stick around longer
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and make a little money off this deal.
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So you have this tenant
come in and you tell them,
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"I'll tell you what.
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I'm gonna lease you the
property for two years, right?
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For a two-year time period.
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And if you lease it from me for two years,
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at the expiration of that two year period,
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you like the house, I'll sell it to you."
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And so then you come up with a sales price
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and let's say, we agreed
to sell it at $150,000
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at that point in time.
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That's gonna be the sale
price for the property.
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Now, the tenant, in order to
get this transaction together
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and get the benefit of this,
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they're gonna give you some
option money, it's called.
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That's where that option comes
in. So this is the lease.
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And then the option money
is money you receive
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in exchange for agreeing
to sell them the property,
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in two years at 150K.
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So let's say the tenant provides
me $10,000 option money.
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Now, first off, the great thing
I like about lease options
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that I really like is
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that this money you
receive, this option money,
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it ain't taxable, right?
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That money is tax-free
to you, for a while.
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So you bring in 10K on your lease option.
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You don't have to take pay tax
on that money until a couple
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of things happen.
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A, they exercise, and then
when they exercise it,
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it gets added into your sales price.
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So that's longterm capital gains for you,
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or they default on the
lease option agreement.
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And so when something
happens with that option,
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that is when you have to
pay tax on that money.
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So if the tenant carries
it all the way out
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to the two-year period, exercises
it, then you'll pay tax.
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So now you got 10K that
you can invest with,
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that is tax-free to you
for a period of time
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or we'll call it tax deferred.
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Okay, so that is the
basics of a lease option.
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Now there's other some subtleties to this,
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that there are real
estate investors out there
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that do this all the
time that will tell you,
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"You can do it this way or that way."
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Don't need to go into those
details because I wanna talk
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about how do you structure this
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from an asset protection standpoint?
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We'll keep in mind
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that in a lease option
arrangement like this,
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you're the owner of the property, okay?
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Until you sell it,
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until the tenant exercises
that option, you own it.
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So if anything goes wrong
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during the lease period, you are liable.
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So you wanna make sure that
you're protecting yourself.
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That is why in lease options,
we will typically set them up
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in limited liability
companies, just like this.
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So the tenant then is
leasing from the LLC,
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not from you individually.
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So if anything goes wrong, I mean,
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the tenant can even hurt
themselves on the property.
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Just because they've agreed to buy it,
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doesn't relieve you of
liability for your tenants
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and that particular property.
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So by having the LLC there,
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what you're ensuring is that
you have asset protection
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and then maybe you bring
that zero loss strategy
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in on top of that,
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with the equity stripping
technique that I showed you
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in my zero loss strategy video
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to further reduce the
equity that appears on title
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to an aggressive creditor.
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So for lease options,
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we're gonna use limited
liability companies
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to hold the property.
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Depending on the property
and when you bought it,
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let's say I just bought a property,
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put a tenant in it, did a lease option.
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It could be looked at sometimes as a sale.
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The IRS could view that as a sale.
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So that may be considered a flip.
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And so we wanna get with a professional
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and we would analyze it.
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And in that context this
entity here may be owned
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by a separate entity like a corporation.
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So maybe we have a corp
down here owning it.
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If it's going to be
considered a disguised sale,
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that it's actually a sale of this property
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at that point in time.
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So I don't pay, I'm not
treated as a dealer.
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If it's not and it's going to be looked at
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as an investment asset,
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then we would have this LLC
held by our Wyoming LLC.
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So that's it! Not a lot on this one.
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It's pretty straightforward
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and simple how you
structure lease options.
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You're going to use
limited liability companies
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to hold the property,
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for the reasons we do
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with any other investments that we held.
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All right, hey, if you're not a member,
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subscribe to my channel.
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So you'll get the latest updates
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whenever I release a new video.
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And I wish you all the very
best with your investing.
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(upbeat, rhythmic music)
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