Creating multiple LLCs

[Hooch]

The lender has 1st person. The judgment creditor, the person who sued you, has 2nd position and doesn't get a dime until the lender gets paid 100%. When the lender takes back the property via foreclosure, the 2nd position lien is wiped out. The trick is to make sure the loan balance is higher than the market value of the property.

This is very interesting. I'm trying to figure out what kind of deals I come across would be good for this.

What would be a good scenario for using this technique? A house with tons of judgments the homeowner cant get out from but they own the house outright? If there is a mortgage on the property there is no way you will get to be 1st to be paid, right?

[BLL]

What would be a good scenario for using this technique?

Free can clear properties you own or those you will buy with cash. You can also use equity stripping to secure equity from a down payment and future appreciation.

A house with tons of judgments the homeowner cant get out from but they own the house outright?

These liens will be superior to your mortgage since they were placed first.

If there is a mortgage on the property there is no way you will get to be 1st to be paid, right?

Yes, but remember the purpose is to settle on your terms. When a creditor sees he won't get to the assets, he will take whatever you give him.

[Hooch]

Free can clear properties you own

In this case you would have to already have another company with the debt and interest with no payments setup on that house prior to the judgment or whatever coming on it. Correct?

or those you will buy with cash.

How in this situation?

You can also use equity stripping to secure equity from a down payment and future appreciation.

What is an example of when this would be of use?

It is clear that you have mastered this form of creative real estate. Thanks for the examples!

[HoldAndBuy]

I read that the LLC can be pierced for being under-capitilized? Does this mean when you strip out 100% of the equity, or does under-capitalized mean not funding the LLC in the first place? thanks!

[HoldAndBuy]

I believe what he's saying is create an entity (LLC or c-corp), fund it, and then have it lend money to another entity which actually owns your property. So there's a lien on the property and it's unattractive to someone suing you. But it's a demand note so you only exercise it at the point when they get a judgement and try to foreclose on the entity that owns the property.

Free can clear properties you own

In this case you would have to already have another company with the debt and interest with no payments setup on that house prior to the judgment or whatever coming on it. Correct?

or those you will buy with cash.

How in this situation?

You can also use equity stripping to secure equity from a down payment and future appreciation.

What is an example of when this would be of use?

It is clear that you have mastered this form of creative real estate. Thanks for the examples!

[Hooch]

Ok, I see. So it is useful for protecting your property prior to anything happening but can not necessarily be used in the purchase of a property to your benefit.

[BLL]

I read that the LLC can be pierced for being under-capitilized? Does this mean when you strip out 100% of the equity, or does under-capitalized mean not funding the LLC in the first place? thanks!

Stripping out equity is not under-capitalization. Under-capitalization is not funding the LLC with enough cash to operate.

[BLL]

Free can clear properties you own

In this case you would have to already have another company with the debt and interest with no payments setup on that house prior to the judgment or whatever coming on it. Correct?

yes. Place the mortgage before any liability occurs to get the friendly lender a 1st position.

or those you will buy with cash.

How in this situation?

You buy a house with cash and then strip out the equity. It's like a cash out refi.

You can also use equity stripping to secure equity from a down payment and future appreciation.

What is an example of when this would be of use?

You buy a house with 30% down and 70% financed conventionally. That 30% and future appreciation along with mortgage pay down is available to your creditors. Your friendly lender loans enough money to cover the 30% and appreciation.

It is clear that you have mastered this form of creative real estate. Thanks for the examples!

I'm glad to help, but I am far from a master.

[BLL]

Ok, I see. So it is useful for protecting your property prior to anything happening but can not necessarily be used in the purchase of a property to your benefit.

Correct.

[HoldAndBuy]

ok, thanks

I read that the LLC can be pierced for being under-capitilized? Does this mean when you strip out 100% of the equity, or does under-capitalized mean not funding the LLC in the first place? thanks!

Stripping out equity is not under-capitalization. Under-capitalization is not funding the LLC with enough cash to operate.

[Brian06]

But with the taxes and maintenane and other fees isnt there a way to set up a sort of "umbrella" company that will invest money into all the LLCs?  So you can have different people invest money into the "umbrella" company and structure their returns according each deal but hold the properties in LLCs under that one "umbrella" company? 

[BLL]

But with the taxes and maintenane and other fees isnt there a way to set up a sort of "umbrella" company that will invest money into all the LLCs?  So you can have different people invest money into the "umbrella" company and structure their returns according each deal but hold the properties in LLCs under that one "umbrella" company? 

That's how I do it. I have a c-corp that loans money to LLCs and the money is used to buy real estate. The interest payments are used to fund benefits programs for the c-corp employees (e. g. retirement, health insurance). The interest payments are deductible to the LLC as interest expense where the money ends up in a related company. The c-corp gets a tax deduction for funding the programs and thus has no tax liability. The best part is the money in these funds are immune to creditor claims. They key is to make real, arms length transaction loans and comply with all the corporate benefit laws.

[Brian06]

That is a smart way to legally avoid the tax liability.  Do you list yourself and the investors as employees in the C-corp?  Can you recommend a professional to set up that kind of benefit program to comply with the corporate laws? 

[Hooch]

I have an S-Corp that has a number of companies under it and historically I have been taking owner withdrawls and paying full boat on tax to buy my rentals that I put in LLC's. This way you are doing it sounds like it will save me a lot of money.

[HoldAndBuy]

C-Corp must have more than one member, right?

But with the taxes and maintenane and other fees isnt there a way to set up a sort of "umbrella" company that will invest money into all the LLCs?  So you can have different people invest money into the "umbrella" company and structure their returns according each deal but hold the properties in LLCs under that one "umbrella" company? 

That's how I do it. I have a c-corp that loans money to LLCs and the money is used to buy real estate. The interest payments are used to fund benefits programs for the c-corp employees (e. g. retirement, health insurance). The interest payments are deductible to the LLC as interest expense where the money ends up in a related company. The c-corp gets a tax deduction for funding the programs and thus has no tax liability. The best part is the money in these funds are immune to creditor claims. They key is to make real, arms length transaction loans and comply with all the corporate benefit laws.