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Getting Real Estate Investment Loans Using LLCs (Banking Set Up) - 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 this video I am
going to discuss lending
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and limited liability companies.
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(upbeat music)
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Now when it comes to LLCs
and lending, this can be
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a particular problem for many
individuals who are looking
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to acquire property, and what I'm getting
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at is it has to do with underwriters.
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I don't know how many of you
that are watching these videos
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now have been down that road
before where you've created
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LLCs, and then you go
in to apply for a loan
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and you're using traditional
financing and the underwriter
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gets your packet and they
don't know what to do with it,
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and so they just throw up
all over it and send it back
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and say to the broker, we
can't help this individual.
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I know this because I've
been there myself with my own
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tax returns, and so what I'm
gonna share with you are some
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things I've learned over
the years of investing
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in real estate where you
have asset protection,
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tax planning, and lending,
where those all collide,
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and they can create
problems for you in growing
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your business 'cause
at the end of the day,
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we want to make sure that
you're able to maximize
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your portfolio, grow
it as fast as possible,
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and you don't need
underwriters to stymie that
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because they don't understand
what it is you're doing
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or how you're structured
because in my experience,
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a lot of underwriters out
there, they're not coming out
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of college at the top of their class.
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Some of them don't even go to
college and they have not yet
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taken courses to become
familiar with taxation
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or business entities.
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They're great at putting numbers
into boxes, but they can't
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think outside of the box, and
that can be a problem for you.
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So let me just show you some things
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that you need to be aware of.
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Now, one of the strategies
that we teach a lot of times is
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to protect your investable
cash, that is create a limited
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liability company in Wyoming,
so you have your Wyoming LLC
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here, and this is where
you're gonna put your cash,
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and you're doing that for
asset protection purposes.
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I want to get the money out
of my name so if I get sued
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individually, that money's
not available to my creditor.
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Now, this can present a
problem for you when it comes
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to financing real estate, getting loans
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on mainly residential,
not so much on commercial,
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but more so on the residential side.
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So if you know that you're gonna
go out and you're gonna buy
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a piece of residential
and you're going to use
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traditional financing, that
means you're going to close
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in your own name, or even
if you're not gonna close
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in your own name, you're gonna
close in a limited liability
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company 'cause it's a
portfolio lender, and you plan
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to put down 20%, okay, that's
what you're gonna be putting
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down to buy this property,
well if I have a,
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let's say I had 160k
sitting up in this LLC,
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and I'm looking for property in the 80
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to $100,000 price range.
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I'm looking for investment
real estate that falls
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within that price range,
then you know the most you're
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gonna need to put down
is probably about $20,000
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if you find a $100,000 piece of property.
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So what you should do then if
you have this structure set up
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which I highly recommend if
you're a real estate investor,
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you have your investable cash
protected, you're gonna want
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to take out a distribution
out of this LLC of 20k.
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The 20k represents the
20% down you're gonna need
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on a $100,000 loan, so you're
gonna want to take that 20k
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out and put it into
your personal checking.
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All right, get that into your
personal checking account,
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okay, and you want to do
it two months in advance.
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Okay, that's very, very
important you do this.
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It's gotta come out two months
in advance of you actually
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getting that property
tied up under contract.
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Why? Well it comes down
to seasoning of funds,
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so when the underwriter
or the broker asks you
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to submit the information
for the underwriter,
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they're gonna put together
a loan packet for you,
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they're gonna want to see two
months of bank statements,
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and if your down payment
needs to be $20,000,
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they expect to see $20,000
in your bank account.
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If they don't see the
$20,000 in your bank account,
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they're gonna want to know
where is that money coming from?
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Is it a gift, is it a loan, and
if you tell them it's coming
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from an LLC, then they're
gonna want to know well,
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why is it coming from an LLC,
and you're gonna say well,
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that's where I keep my
investable cash when it's not
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being deployed, and that's
all of a sudden gonna create
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heartburn for them because remember,
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they like to put people into boxes.
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You no longer fit into their box.
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Let's say you have this LLC
set up as a disregarded LLC,
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which is the way my LLC is
set up and how we set them up
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for the vast majority of our
clients so it doesn't have
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to file a tax return.
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They're gonna want to go to
the IRS and they're gonna want
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to find a tax return to
associate with that LLC
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so they can verify that
it's yours, and you tell 'em
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it doesn't file a return,
and they're gonna look at you
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and say how can that be?
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It's a limited liability company,
it has to file tax returns
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and you're gonna say, but
no, it's a disregarded LLC.
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Never heard of it.
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Literally, I've been down this
road before, so I just want
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to forewarn you, these are
the types of individuals
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you're gonna be working
with, and they're gonna fight
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with you that this should
be filing tax returns,
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and you're gonna tell them the
IRS won't accept tax returns.
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Well how do we know who the owners are,
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how do we know there aren't more owners?
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Well the answer is if
there were more owners,
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then it couldn't be a disregarded
LLC because disregarded
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LLC means there's only one owner.
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If there's more than owner, then it has
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to file a tax return, get it?
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They don't, so rather than
put yourself through that
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heartache and stress of having to work
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with these individuals
who do not understand you
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and your complicated life and
how you put things together,
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pull the money out two months in advance.
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It's the simplest way to do it.
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Now, when they look, they're
gonna see that the money is
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in your name, so if this was a
situation where you're buying
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residential real estate, you're
using traditional financing,
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how about if I'm using
commercial or I'm gonna be buying
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something in the name of the LLC?
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Well in that case, we're gonna
do it a little different.
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What we're going to do is set
up our LLC that we're gonna
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make the offer in, so set
up this LLC right here,
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get your bank account set
up in it, and if I knew
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that I'm going to need, let's
say, $100,000 for my down
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payment up here, then what
I would suggest you do
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is you take the $100,000
out of this account
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as a distribution, so you
pull that down to yourself,
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distribution 'cause you're the
member, and then you're gonna
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contribute it to this LLC, so
that would be a contribution.
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All right, and again, do
it two months in advance.
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All right, always make
it two months in advance
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of making the offer, and the
reason being is that they're
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gonna ask for two months of
bank statements for that LLC
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as well, and we want to see
that money in the account
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on those two months of bank
statements so they know that
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that money's been in there
and it's been seasoned.
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This is very, very important
when you're putting
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these structures together.
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If you are going to be
using a self-directed IRA
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or a QRP to buy property in
an LLC, again, same principle.
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If there's financing involved,
which you should never
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do financing in a self-directed
IRA because it's taxable,
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but if you're gonna use a
nonrecourse note, again,
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get the money into the
LLC two months in advance.
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So when it comes to financing
in LLCs, it can sometimes
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be problematic if you don't
move the money the right way
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ahead of time before
you're making your offer
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so they can see where those
funds are coming from.
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Another thing to keep in
mind that I just touched on
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when working with underwriters
as well, LLCs I like
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to have them run through a holding company
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as you've seen in my other videos.
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Let's say that I have multiple LLCs set up
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for my real estate, this
is my rental real estate,
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then I like to create this
holding company right here.
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This is typically gonna be
Wyoming or it could be Delaware
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if I'm dealing with commercial,
and then I'm gonna have all
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of these LLCs owned by this one.
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This one down here I like to
treat as a partnership, right.
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I want it to file a tax
return, and it gives me a K-1,
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so I want to get that K-1 onto my 1040.
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Again, this is something
that lenders or underwriters,
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when they look at a tax return
for a real estate investor,
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it's gonna give you a
greater degree of credibility
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with your investing when you're
pulling it through a K-1,
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your rental income,
versus Schedule E page one
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where you just have a bunch
of properties listed there
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because it indicates to
them that you've taken
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your investing to another
level and you've made it more
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of a business, and so
that translates, again,
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into their little box scenario for them,
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so I preferred it to run it this way.
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So lending can be complicated,
there's no doubt about it.
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With Dodd-Frank they, well
Barney Frank first screwed it up
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back in the day, and
then he tried to fix it,
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and they went overboard,
and I know how frustrating
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it can be, I deal with it myself.
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Every time I got for
a loan, I just cringe,
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I keep my loan packet
available on my computer,
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I know everything they need ahead of time,
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and still they come up with
more information and say,
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well we need to know how much
you spent on wine last month
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because that's a new
calculation we have, so anyways,
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don't let the frustration get you.
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There's tremendous
opportunities in real estate,
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interest rates are low.
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Go out there, take advantage
of it, just make sure
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you're setting yourself up
the right way so you can close
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without any hassles.
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My name's Clint Coons with
Anderson Business Advisors,
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and in this video we talked about lending
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and limited liability companies.
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(upbeat music)
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