Real Estate Investors KISS Guide to Entities
|Buy Advice & Courses the Way You Buy Houses|
All successful RE investors understand that you make money by buying properties for less than they are worth. The decision to buy is properly based on well-honed analysis and reliable numbers. Buying or selling based on emotion is the fast-track to losing money. Most investors seem to understand these rather elementary points. As such, it amazes me how many would-be investors purchase overpriced advice and overpriced course material based on emotions. When it comes to selling asset protection material, the carnie-type speakers tend to market based on greed and fear. Based on what I’ve seen, lots of REIA members flock to the back of the room with little thought and buy greed and fear when they think they are buying asset protection.
Here’s What & How Most Asset Protection Gurus Sell
First they scare you with the “Evil Lawyers Refrain” (Play Phantom of the Opera or The Empire Strikes Back Darth Vader theme for audio effect). They talk about how idiot plaintiffs make $2 million dollars off of idiot juries after spilling boiling coffee on themselves. They get you worked up and afraid. Before the pitch is over, you’ll be looking under the bed for evil lawyers every night. Like government, the asset protection speaker creates a problem to solve and markets that problem through fear…..and then offers a convenient “solution”, in exchange for some serious dollars (or freedoms, in the case of government).
They then talk about how expensive it is to hire attorneys of your own. Hundreds of dollars per hour, hundreds of hours needed. Even when you “win”, you really lose because of the cost. Jacking up the cost of solutions makes their product more “valuable”, what a shock! Reminds you of the phony appraisals some people use to sell over-priced houses. You CAN save money on legal & accounting fees with good course material – but to suggest that you can eliminate such fees (as many authors do) is dangerous nonsense – there ARE certain things that no course can teach and professional help is a MUST. Often, doing it yourself is penny-wise, pound foolish.
Then they offer a comprehensive “solution”, in the form of an overpriced course. The hallmarks of the typical asset protection course:
As you can tell, I’m not a big fan of most “asset protection” speakers.
- Often written by a non-attorney, non-accountant. Would you let a car mechanic operate on you or let a surgeon fix your car? Absurd! Even many of the speakers with credentials (JD, CPA, etc.) haven’t practiced in years, if ever.
Suggests that asset protection consists of using entities. That’s partially correct, but quite incomplete and therefore misleading. There is far more to it than that. It’s like suggesting that investing consists of writing checks at closing. That’s part of the process, but quite a lot has to be done to get there first! The danger: Investors with entities feel “protected” by their entities and therefore neglect certain fundamental asset-protection issues (e.g. - HOW you do business), which in turn creates needless vulnerability down the road.
- Suggests that entities are necessary for huge tax savings. While certain entity types can offer tax savings, most tax breaks are independent of existence or type of entity. Also, many of the “tax benefits” touted by slick-sales types are illusory. For example, you’ll invariably hear that C-Corporations can deduct $50,000 in term life insurance. True – so what? $50,000 of term life runs $120/year in premiums at most. So if you are in a 30% tax bracket, a $120 deduction saves $36 in taxes. Who cares? That sort of “savings” isn’t going to enter into my decision to form or not form a C-Corporation. But if you didn’t know that, the number that would stick in your mind is the $50,000 figure. Great sales technique, poor tax planning. These sorts of illusory benefits abound on the speaking circuit. Entities CAN save you taxes – in certain situations for a certain price. The trick is to weigh the true benefits against the true costs.
- Suggests that you can set up your own trusts without an attorney. Setting up entities (e.g. – LLC’s, corporations, etc.) is fun and easy. With a few exceptions (e.g. –land trusts), non-attorneys should NOT dabble in trusts. Even most lawyers are not competent where trusts are concerned. Specialists are required. For example, setting up your own living trust (for estate planning purposes) is generally a massive mistake. People who sell do it yourself kits for trusts (excepting simple land trusts) are doing you a major disservice. A few template documents and explanatory tapes will NOT qualify you to set up a trust!
- Suggests that you need Nevada or other foreign entities. For most RE investors, such entities provide NO or INFINTESSIMAL additional protection but DO involve plenty of extra cost.
- Suggests the use of complex, multi-tiered entity structures. Such structures are generally not appropriate for small to medium-sized RE investors. They add little in the way of true protection, but DO add plenty of additional cost in terms of time and money.
- Is quite expensive. You should not be paying thousands of dollars for a course based on the “tens of thousands” in lawyer fees it will “save” you. There are plenty of reasonably-priced products out there that provide quality information. I think that particular advice applies to RE courses across the board. A few hundred bucks for high-quality material can be reasonable, if the material is good. Paying thousands is a bad joke.
Allow me to (immodestly!) offer one alternative. My entities material is:
My course, The Real Estate Investor’s KISS Guide to Entities, will teach you to select, set up and maintain the correct entity for your RE business. You can pay $299 now, or you can pay MUCH more later when:
- Based on Current Experience: I am a practicing attorney and accountant and real estate investor. All of my clients are real estate investors. I get lots of information from books. Unlike many would-be “gurus”, I also learn from dealing with real estate, RE investors and the legal system day-in and day-out.
- Reasonably Priced: What you get for $299 will more than suffice to meet the entity needs of a small to medium sized RE investor. Spending more than that makes little sense.
- Focused on Cost-Benefit: Every business cost has to pay its own freight. My material focuses on balancing the cost of entities versus their benefits. Unlike many authors, I do not focus on benefits to paint a rosy picture and pump sales. Instead, I look at the benefits in light of their costs – and costs arise in many ways (e.g. – your time). I look at the benefits in terms of their true impact (Remember the $50,000 in deductible life insurance). The costs of entities can also be indirect (e.g. – needing a licensed attorney to evict once a property is no longer in your personal name). A high cost and lack of real benefit is why I do not care for Nevada entities in RE, for example. Cost-benefit, cost benefit, always cost-benefit.
- Explanations: I have heard countless investors lament that “I get different advice from different gurus….who do I listen to?” I do not just tell you what to do (or not to do!) – I also explain WHY you should or should not do something. That way, you can use your own judgment in making important decisions. You can compare my “why’s” to others’ reasons for doing things (assuming that they provide any reasons at all).
- State-by-State Approach: The first two-thirds of the course focus on universal principles, applicable across the nation. The last third provides the documents needed to set up and run an entity in your specific state. One size does NOT fit all.
- KISS Approach to Setting Up Entities: Setting up an entity is quite easy – any literate adult can do it. We walk you through the process, step by easy step. Most attorneys charge at least $500 to do this (I do). Setting up ONE entity pays for the course!
- Documents Needed to Run the Entity: Meeting minutes, corporate resolutions, bylaws, they are all there.
- Clear Choice of Entity Rules: Knowing which entity to use is of key importance, especially where taxes are concerned. We provide an analysis of entity types and the reasons to use (or not use) each one. Which entity for flips? For rentals? For Sub2’s & Lease-Options? We answer those questions!
- Non-Entity Asset Protection: Entities are just ONE step for proper asset protection. We cover a number of other KEY issues, such as how to run your business and tips on drafting enforceable contracts.
- Cover the TRUE Nature of the “Lawyer Problem”: This country does have a lawyer problem – but it is probably not what you think or what the gurus tout. To effectively defend yourself, you must know the true nature of the enemy.
- Available for the Following States: AL, AZ, CA, CO, FL, GA, IL, LA, MD, MI, MO, NJ, NV, OH, TN, TX, WA
1) You pay someone to set up an entity that you could have done yourself;
2) You set something up yourself that you should have paid a professional to so (we help distinguish between #1 & #2);
3) You pick the wrong entity for your business and pay extra taxes as a result;
4) You overcomplicate the business, adding expenses but little real protection;
5) You focus on entities to the exclusion of other important asset protection issues.
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