All Forum Posts by: Scott Smith

I see similar circumstances daily as an asset protection attorney. I'm hoping what I'll share with you could save you a lot of time. You're actually set up just fine to make a transfer that won't break the bank. The main reason people are probably telling you not to make this transfer is because they're concerned it would cost you your financing. Most mortgages have a "due on sale" clause that can be triggered by transferring the property directly into an LLC. Investors make a really big deal about the Due-on-Sale clause, but the truth is, we don't need to. There's a pretty simple solution for incorporating your property into the LLC without having to worry about this. I've written a more detailed description that was a featured article here on BP, but here are the basics:
1. Buy property in your own name.
2. Transfer ownership of the property to a Land Trust
3. Incorporate the Anonymous Land Trust into your LLC structure. This is actually more straight-forward than most people think, but it's helpful to have a competent real estate attorney with experience in Land Trusts to assist you.

It's great that you have an LLC to protect your new rental asset. Way to think ahead. Because you made the choice to get an LLC, you won't have to worry about lawsuits as much as someone who has made the mistake of keeping property in their own name. Yes, I know I just told you about a method that involves buying property in your own name, but know that it doesn't stay in your name when you execute this transfer correctly. As a bonus, the Anonymous Land Trust will beef up your protection strategy for this asset while also allowing you a way around that pesky Due on Sale clause.

@Lance W.  your plan to buy a duplex is a smart one. Many investors have use this method to get their feet wet and build wealth. You will also have the advantage of being able to easily attend to issues with your tenant. If they have a problem, you’re just right next door. I would recommend looking at some successful multiunit investors and what they have to say about entering the game in this asset class. Scott Sutherland and Rod Khleif recently popped by my office to share some of their multi-unit wisdom for my new podcast. I would suggest taking advantage of some of the free information they give out on this subject. The more you know going in, the more likely you are to achieve your goals in your preferred timeline. Good luck to you!

@Brian Bradley You're dead on, and hey, it's great to see another AP attorney on here! Like you, I recommend my clients always have both. If insurance is a fence, then then Series LLC is a series of brick walls. Then when you bring in other elements, like Anonymity--that can be like a moat or a dense line of trees keeping the invaders away from your assets. Who doesn't love a good combat methapor? After all, the business of lawsuits is certainly a bloodsport.

Thanks for your elaborations, and couldn't agree more. 

@Derek Tellier Neither option that you've pointed out is necessarily a bad choice. That said, if it were me, I'd keep contributing to the 401k, if only to take maximum advantage of those employer matching contributions. How often in life do we get free money? Rarely, so it's something to jump on. I'd be taking advantage of that for as long as possible, and maxing out the contributions if that was an affordable option. You're correct that you can't roll over those funds while you still work for this company. You can, however, roll those funds into a Self-Directed IRA LLC or SoloK when you leave.

From there, it's easy to self-direct those funds into the real estate investment of your choosing. Fortunately, you don't need to be an expert to succeed at self-directing. There are many professionals (CPAs with IRA backgrounds, financial advisers, attorneys) that have done this homework for you. Make use of them. This doesn't have to break the bank, either. There's another free resource you're already using to help you too: your investing community. Hell, you're doing it right now just by posting on BP! But you can also get some expertise from your local community, especially if that's where you plan to make your investment. Never underestimate the power of the network. Getting advice from someone that has successfully done what you plan to do can be one of the best ways to make sure you get started on the right foot. And that advice is priceless, in every sense of the word.

@Derrick Tellier Neither option that you've pointed out is necessarily a bad choice. That said, if it were me, I'd keep contributing to the 401k, if only to take maximum advantage of those employer matching contributions. How often in life do we get free money? Rarely, so it's something to jump on. I'd be taking advantage of that for as long as possible, and maxing out the contributions if that was an affordable option. You're correct that you can't roll over those funds while you still work for this company. You can, however, roll those funds into a Self-Directed IRA LLC or SoloK when you leave.

From there, it's easy to self-direct those funds into the real estate investment of your choosing. Fortunately, you dont need to be an expert to succeed at self-directing. There are many professionals (CPAs with IRA backgrounds, financial advisors, attorneys) that have done this homework for you. Make use of them. This doesn't have to break the bank, either. There's another free resource you're already using to help you too: your investing community. Hell, you're doing it right now just by posting on BP!  But you can also get some expertise from your local community, especially if that's where you plan to make your investment. Never underestimate the power of the network. Getting advice from someone that has sucessfully done what you plan to do can be one of the best ways to make sure you get started on the right foot. And that advice is priceless, in every sense of the word.

@Jason James Any time, and there's way more where that came from. Happy to help!

Kent,

If we're talking about the home you own and live in, then your personal home is not a major liability based on the information you've shared. Definitely have insurance on that home for legal liability matters. 

Your next question is a matter of perception. Most of us don't have personal homes that we profit from. But it IS putting money in your pocket, at least on your taxes. I assume you take a Homestead Exemption on your personal return. Also, you have a property that you own outright. That on its own is a huge asset and piece of security many aspire to. It could EVENTUALLY put money in your pocket through the magic of appreciation, as well.  From where I'm standing, and with only your side of the story, it sounds like an asset to me.

As for your rentals, you want those to be secured. I'm an asset protection attorney. This is what I do all day--defend investment properties from lawsuits. But rarely would I ever suggest a home owner place their personal home in an LLC structure, because doing so would disqualify you from that homestead exemption.

You're right to be very cautious here. You don't even want to LOOK like you're self-dealing, or "touching the money." @Carl Fischer's suggestion of using a bill pay service is a good one. 

In the meantime, you can bone up on common prohibited transactions. Getting up-close-and-personal with the Department of Labor's prohibited transaction rules can help you continue to avoid them. Those penalties for prohibited transactions are no joke. Your SDIRA provider may have some suggestions as well, but keep in mind that like all companies, they're looking out for their own bottom line. 

Another way you could approach this is to get the opinion of a tax or real estate attorney with experience in self-directed investing. Bonus points if that attorney is an investor as well. This may sound expensive, but it doesn't have to be. The penalties would certainly cost more. But you can also exploit the thirst for business among attorneys by taking advantage of cheap or free consultations. I may take a beating from the other lawyers here for making that suggestion, but it could work for a straightforward question like yours to be sure you're getting the correct answer. Of course, do your homework on your professional to make sure they're qualified to give you the answer you need.

@Nash Harjo Welcome to the game! I would make a couple of suggestions based on my experience as a fellow investor and attorney:

1. Go with what you know. Since this is your first deal, you probably don't have real world experience. We'll come back to that. But what have you done more research on? Do you have skill sets that would be helpful for flipping? Things like ability to do thorough inspections, work experience with construction/repair, non real-estate investments that have transferable skills can help.  

2. Do TONS of homework. Research both sides of the field. There are so many great free educational resources online on the details of flipping (and saving on taxes), and even more on straightforward rentals. I've written many resources here on BP and elsewhere, as have many other experts in their fields.

3. For first deals, or deals in new asset classes, I always like to partner with an investor who is more experienced in the area. You benefit from their experience, and they benefit from you pounding the pavement to find the deal. Local Meetup groups and online communities like the one we have here on BP can help you build a network. Never, ever underestimate the power of the network.

4. Get a competent real estate attorney to look over any deal before you even THINK about signing. Be aware of and use contingencies to ensure you're really getting the deal you want. For more info on this subject, check out my most recent article for BP on using real estate contingencies to your advantage. If you have an attorney who is also an investor, that's generally best. Most lawyers will tell you what you "can" do. You're looking for someone who can give you advice on what you should do based on your unique situation. Also run this by your veteran investor friends as well. The more experienced eyes you can get on a deal before you dive in, the better. Harness the expertise of your network--and count me in! Most of us who have been in the game for a long time love helping new investors simply because it's rewarding.

Finally, there's a general strategy that works well for someone trying to build wealth quickly when they're new to the game. Consider grabbing a duplex, living in one half, and renting out the other. Note that this isn't legal advice or financial advice, just something to think about and research. There are many perks that can reduce your risk, and if there's ever a problem with your tenant, you just walk next door. Just something to think about. I hope some of that information is helpful to you! Good luck!

@Michael Lee Those are some topics that we've covered (or recorded) at least, but I'll keep capital in mind. Everyone always wants to know more ways to come up with capital, and we have some interesting guests that offer solutions you may not have thought of. One person I had the pleasure of working with recently does nothing but crowdfunded real estate, and has tons of stuff for beginners.

So sorry to hear about your medical problems. They can wipe people out at any age. It makes it hard to work or think straight, not to mention being personally stressful. And that's at any age. Heck, I hired one of my staff while she was still on a walker following major surgery, and she's only 28. It's great that you are taking advantage of this downtime to do more research for your investing comeback. 

Thanks for your insight and feedback! If you care to join us for the wild ride, you're certainly welcome too. We try to provide as many FREE resources as possible for listeners. Personally, I've been in the investing game for a while, but I can say I genuinely learn something new from every conversation. I hope you can have that experience, too. Get well soon!