All Forum Posts by: E.J. McCaffrey

No matter what type of investing you pursue, it’s essential to build a comprehensive tax and asset protection strategy. A well-crafted tax plan ensures you’re taking full advantage of available deductions and structuring your income in a way that minimizes your tax burden. Meanwhile, a strong asset protection plan can safeguard you against legal threats tied to your investments and help protect your personal assets in the event of a lawsuit. With the right strategy, you can reduce the risk of litigation, improve the chances of resolving disputes favorably, and make it harder for creditors to reach your assets. To get the most out of both, I recommend partnering with a skilled tax professional and an experienced asset protection attorney.

In addition to adding members to your "team" who can help you find deals, invest money, etc., I highly recommend working closely with both a knowledgeable tax professional and an experienced asset protection attorney to ensure you're maximizing both your protection and tax efficiency, regardless of the type of investing you are doing.

You're absolutely right to prioritize setting up your investment with the proper structure, and that should include a comprehensive asset protection plan. A well-designed strategy can create a legal separation between your personal finances and your investment property, helping shield your assets from potential lawsuits or liabilities.

Depending on your goals, there are also tax strategies that can be integrated into your structure. For example, many of my clients establish their own property management company taxed as a C Corporation to take advantage of opportunities like business reimbursements, the Augusta Rule, and sponsoring a Solo 401(k) to build retirement savings.

I recommend working closely with both a knowledgeable tax professional and an experienced asset protection attorney to ensure you're maximizing both your protection and tax efficiency.

No matter what type of investing you pursue, it's essential to begin with a solid asset protection strategy. A carefully designed plan creates a legal shield between your personal wealth and your investment property, offering critical protection in the face of lawsuits or unforeseen liabilities. Whether the risk stems from tenant issues, property-related accidents, or even personal legal troubles, the right structure, such as an LLC, land trust, or a layered ownership approach, can significantly reduce your exposure. Taking proactive steps now will help you navigate your investment journey with greater confidence and security.

Congrats on starting your journey in real estate investing! Once you find your first property, it's important to have a solid asset protection plan. A well-structured plan can provide a legal barrier between your personal finances and your investment property, helping to safeguard your assets in the event of a lawsuit or unexpected liability. Whether the risk arises from tenant disputes, accidents on the property, or even personal legal matters unrelated to the investment, having the right structure in place, such as an LLC, land trust, or layered ownership strategy, can help insulate you and limit your exposure. It's always best to get ahead of potential issues before they arise, and doing so now will ensure you move forward with confidence and peace of mind.

I don't recommend doing your house flips in an LLC that you personally own because it could cause the IRS to label you as a "dealer." In real estate, being seen as a dealer means the IRS treats your properties like inventory (just like a store selling products). This label comes with several disadvantages. If you're flipping houses, wholesaling, or developing properties, you could lose out on valuable tax benefits such as 1031 exchanges, installment sales, long-term capital gains rates, and depreciation deductions. On top of that, dealers must pay a 15.3% self-employment tax on their real estate profits.

The IRS looks at several factors when deciding if someone is a dealer, such as why you bought the property, how many improvements you made, how often you sell properties, how involved you are in real estate as a business, how much marketing you do, and whether you use a broker. These rules are very broad and can apply to almost anyone actively involved in real estate.

Because of this, it's usually better to run your flipping and similar activities through a corporation instead. A corporation can help you avoid dealer status, offer tax benefits, and protect any passive income you have from being affected.

Now that your offer has been accepted, this is the perfect time (if you haven't done so already) to begin putting a comprehensive asset protection plan in place. A well-structured plan can provide a legal barrier between your personal finances and your investment property, helping to safeguard your assets in the event of a lawsuit or unexpected liability. Whether the risk arises from tenant disputes, accidents on the property, or even personal legal matters unrelated to the investment, having the right structure in place, such as an LLC or layered ownership strategy, can help insulate you and limit your exposure. It's always best to get ahead of potential issues before they arise, and doing so now will ensure you move forward with confidence and peace of mind.

Many of my clients are dealing with similar issues as they try to navigate the changing world of real estate wholesaling. More cities and states are putting up rules that make it harder to wholesale real estate. Because of this, many wholesalers are having to expand into new cities and states to find enough profitable deals. While it can be done, it takes a lot of work and it’s important to know that every new market you enter may have its own set of laws and rules. This means you’ll need to understand the local requirements in each area to make sure you stay compliant and avoid any problems.

Many of my clients have been happy using American Express Business Checking and Chase Business Complete Banking for their business needs. Both banks seem to offer good features tailored to small businesses.

Regardless of the bank you choose, it’s a good idea to work with a dedicated business banker who can guide you through the process, and who is someone you can create a good reationship with for future needs.

Aaron

It is strongly recommended to set up a separate bank account for your rental property. Ideally, you should transfer the property into an LLC before renting it out and have the LLC own the bank account. However, if that's not an option, at the very least, maintain a dedicated bank account for the rental. Using your personal account for rental income and expenses could expose you to legal risks. If a lawsuit arises, the plaintiff's attorney will argue that you commingled personal and business funds, potentially putting both your personal and investment assets at risk.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.