Real Estate LLC – Does It Work For Real Estate Protection?

Real Estate LLC – Does It Work For Real Estate Protection?

How do you use an LLC to invest in real
estate? That’s the question that you’ve been asking and today, we’re bringing the
answer. Kris Krohn here with Limitless TV, sharing everything you need to know
about getting that LLC right now. So today we’re talking about how to use
an LLC to rock out your real estate portfolio and some of you don’t know
exactly what that is but obviously a lot of you do because you’ve been asking
questions and a lot of you are in this position where you want to get into real
estate, you know you need an LLC and you haven’t set one up. So Steven,
let’s jump into this. What is an LLC? – Well, an LLC is a Limited Liability Company
and the purpose of it is just that, it’s to limit your liability. What is your
exposure and how do you lessen that exposure, in other words, if something
goes wrong or something happens, if someone trips on your property and they
sue you, are you protected, right? – Yeah and there’s a lot of entities to choose from.
There’s s-corps and there c-corps and then there’s nonprofits and you’re
always going to find that real estate is done with limited liability corporations
and what the LLC does is, it’s they’re designed to create protection, help you
manage your portfolio and so in this video, we’re going to talk about how you
specifically use one and by the end of this video, I just hope that you
understand that if you own real estate, you need to have one and it’s better to
own one up front because you can actually build credit with it and it can
help you with your future investing. So first of all, an LLC, Steven, let’s talk
about really what is it what are the basics of this. – So first of all you need
protection and legitimacy and I think that’s what really an LLC brings to the
table. Especially when you’re talking about partnerships, right? When you get
into partnering with other people, you want this, you want to be protected
yourself but you also want to make sure that the person that you’re getting into
the partnership with understands that you’re legit, I mean, that you are a real
investor, it’s only the onesie twosie type of investors who go into this the
wrong way, don’t get an LLC, don’t set it up, do it with a handshake and then when
something goes wrong, they’re up the creek without a paddle. – Now I don’t know
what LLC translates into in other countries around the world – *Speaks German* – Thank you, that’s what it is for German. *Speaks German* – Thank You
Steven. – You’re welcome. – Steven is always going to bring you those little German moments
but here in the United States, an LLC also creates legitimacy with the IRS. You
could claim that you have business tax write-offs but the moment you’re
incorporated then business, actually, the IRS actually looks at that and says, well
I don’t have a red flag over that, you’re incorporated so of course, it makes sense
yet business expenses so by the way, LLC allows you to not just create protection
but allows you to write off your gas mileage, it allows you to write off your
home office, it allows you to write off your cell phone,
vehicle, some of your travel, a whole host of other things. You need to have a good
tax person, you can just even Google that, there’s a lot of advice on how to do
that because by the way, if you’re in a 10% tax bracket or a 40% tax bracket, you can save forty cents on every dollar you spend, so it
makes sense to track some of that and that’s going to flow through your LLC and
your LLC is going to flow to your personal and it’s a way to basically say, I’m
putting a corporate veil between my personal life and my business life and
that’s the protection because like Steven said, if anyone has a problem
with you, are they going to go after you personally?
Well they are but if the business that you did is inside of an LLC then they
have to look to the LLC which means that you’ve created some really great
separation between your personal life and your business life and that
separates them from all of you and I can tell you from past experience, you know,
having done hundreds and millions of dollars worth of real estate,
owning right now probably over 40 LLC’s, it’s important to have that separation.
Now in addition to protection and legitimacy, we want to talk about how you
set up ownership. If you are the only owner then the document is essentially
going to say you own 100% of the company and that’s one of the first things to
look at but if you have a partnership for example, Steven and I own an LLC
that we might own, we might decide we’re 50/50 partners and an LLC essentially
has two documents, there’s the Articles of Incorporation that you file with your
local state and that’s a really simple short document but then you have an
operating agreement and this is not a formal published document because this
is a privately held company, it’s a document that you have for you to
understand, what is my ownership interes, what roles am i playing, what roles are
my partners playing and then what happens in worst case scenario. So
Steven, talk a little bit about partnership and roles. – Absolutely. So
first of all, you’ve got your manager and then you’ve got your member, right?
Managers and members are your typical roles in an LLC. The managers are
obviously the person who is doing the day-to-day, they’re making the decisions,
they’ve got the voting rights. Often times, you’ll have multiple managers, for
example, if we were to do an LLC, we may both be managers on that property at a
50-50 partnership but sometimes, you don’t want both people to have say
in a specific, you know, decision-making process so maybe if I’m bringing all the
expertise to the table and Kris is just bringing in maybe the money and credit, I
may say, you know, on this one, I’m going to make the decisions, you’re bringing the
money in credit but we can set it up in a way or he’s still going to be protected.
Although, I’m making the majority of the day-to-day decisions as the managing
partner, he’s maybe just a member partner, we’re going to set it up in a way where
he’s still protected. – Now the cool thing is that, when you do an LLC, a lot of
it is already the LLC that we used, we’ve already put the money in and we already
have all of the different pieces we need in there so there’s only a couple of
things to customize, one of them is who owns what percentage of what, the next
one is who are the active and passive managers and then who are the members
and so in that, you know, Steven’s using these terms of manager and member but
also, you’re going to have a chance to put in the definition of, well what does the
manager do, oh they’re actively doing this, they’re
the day-to-day decision makings and then you also have someone that’s maybe a
passive member, this could be the person that’s bringing money to a real estate
deal, for example, or money to the operation and depending on whether they
want voting rights or not will determine whether they’re the actual member or
whether they’re one of the managers, some can be more active, some can be more
passive, this is easy stuff, I know for some, it might be like, “Well Kris, there’s
some new turns here on, swimming in this.” But it’s actually really simple if you
have competent help, this is actually something that we provide and we
actually help people set up their LLC’s because we’re setting them up all the
time, we’re doing so much real estate, you need to know how to set them up
correctly so.. – I don’t know if you’re going on on something else there but I wanted to, I want to move on for
just a second, I want to talk about worst case scenarios because I
think this is one of the reasons, we talked about protection in the beginning
but really that it’s protection from what and it’s protection sometimes from
those worst-case scenarios that could arise. One worst case scenario could be
that one of the members of that LLC or one of the managers of that LLC dies or
passes away. – And then you have their spouse jumping in saying, “What do I own?
Do I get to start making active decisions in the business?” and you’re
thinking, whoa whoa whoa whoa that wasn’t actually the original intent but
everything might head south because you haven’t thought through what happens if
someone dies or what happens if the two of you have a disagreement or what
happens if you have a different understanding of the contract and all of
that gets pre-decided upfront so at the end of the day, it’s like, alright, well
let’s look to the agreement, let’s make sure we understand what we do
in this situation and we use a particular LLC that has been vetted by
our legal team over the years where we’ve been able to add to it. Just about
every scenario, a good operating agreement, our operating are in mint has
between 30 and 40 pages after it’s been put together which, you know, most of that
you’re not going to care about, you’re never going to need to worry about but
should something go wrong, you’re going to be grateful that it is in that document
and that it’s already been designed and defined. – Yes, at the end of the day, when
it comes to LLC’s, when it comes to protecting yourself appropriately and
being legitimate in the marketplace as you’re going out and finding partners or
buying real estate and protecting yourself, the biggest thing that we could
say is, make sure you get one, make sure you put something in place that you
know what you’re doing there that you hire someone who’s
competent to help you out and like Kris said, we do have, we do help people,
we’ve been helping people for years and years and years, put together these type
of agreements to make sure that they’re not just protected, not just legitimate
but that they’re moving forward in the most powerful way. – You know, when you’re
dealing with people, weird strange random things can happen and what you’re trying
to do is have an agreement that says, “Listen, we don’t know financially what’s
going to happen over the years, we’re working together.” and you’re going to
have people where things happen in their life, you’re going to work with people where
things change and if you don’t have the right kind of agreement, it can create
drama. Look how random this can be.. I could say,
“Steven, check out that curtain right there, isn’t that amazing?” and I come in
here, I’m like, actually putting on the choker holdin, I’m going to take him out and
I’m going to do something mean like that and afterwards, he’s dead. No, he’s not.
He’s just passed out then he wakes up and he says, “Kris, I hate you. I never
want to work with you again, yeah, and at the end of the day, what do you do when
weird stuff in front of the camera happens like that. I tell you,
that over the years, I’ve seen some pretty bizarre things happen. Steven and
I, even though we’ve been friends for nearly 20 years, we’ve had our moments
where we didn’t see eye to eye. In fact, we went through several years where we
didn’t really agree with each other’s philosophy or business operation systems
and we always worked it out, it never needed to get legal, nowhere near but
what do you do when things get weird or strange or those things.. – Those things do
happen, that’s like, that’s the reality of it, those things do happen. I know, for
example, that I can never control Kris. – Yeah, exactly. Who can?
– I know that I can never control hulk. No, I can never control Kris, right. In other
words, he has his choice to do whatever he wants in whatever the circumstance
may be, I can only control myself so the only reason why we’re putting these
operating agreements in place while we’re putting this LLC in place and
defining those roles and defining those exit strategies and defining those
worst case scenarios is because I know that I can’t control him, he knows that
he can’t control me and if that disagreement ever comes to a head where
it’s end of the road for one of us or the both of us, we already have it in
place and we don’t have to get crazy like, this doesn’t have to
take some long like 18-month legal process and it’s called an exit
strategy. – So at the end of the day, when you take a look at what we’re talking
about here, we’re talking about what an LLC is, you’re defining ownership, you’re
defining rules, you know what to do in worst case scenarios and you have an
exit strategy. Friends, use your LLC’s wisely, make sure that you have them even
before you start buying real estate, if you’re not currently incorporated, it’s a
great idea so that you’re fully ready, prepared and set up to dive into the
world of a successful real estate investing. If you own real estate but you
don’t have an LLC or if you’re planning on buying real estate, now is the time to
get an LLC. Click the link and my team will get you your LLC set up and
streamlined with all of the language that you need from the lawyers to help
yourself safe guarded and protected right now.

11 thoughts on “Real Estate LLC – Does It Work For Real Estate Protection?

  1. Great video, found your channel a while back and have watched almost every video on REI since then. Just a quick question, if someone does sue you and you hold your property in an LLC, does that mean they can only come after the cash and assets held under that LLC? I get that they can't come after your personal assets in that case, but then wouldn't it make sense to make a seperate LLC for EVERY property you buy? In which case, if someone does trip on your property and they decide to sue, there's not really a lot to go after whereas if you held all your properties and bank accounts under a single LLC, they could come after all of it? Just wondering your opinion on this…thanks for all the amazing and informative content!

  2. Great video. Thank you so much!

  3. Way to go kris in no time you will at 100k keep it up ✌🏻

  4. great vid. when ur coming to chicago?

  5. Hey Chris I had a question about FHA. If I just graduated college do I still need the 2 year work history to apply for a loan? or can I just send them proof of future employment. thanks

  6. You mentioned you have 40 LLCs, please explain the reason for having so many? Thanking you in advance, Ty

  7. What a great video Kris! I started watching your videos yesterday and I'm hooked. You actually read my mind with this video πŸ™‚ I am looking to start another LLC for my upcoming real estate business and you answered so many of my questions. What link can I click to find out more information about the operating agreement you mentioned in the video? Keep up the amazing work!!!!

  8. Should have mentioned the tax benefits of Deleware/Nevada, does this translate to Real Estate?

  9. Hey Kris I would love to have help setting up an LLC for realestate investing

  10. So if I am house hacking, will I need an LLC or do I wait to get once I move out and have that house as an investment property?

  11. When are you coming to LA and how much the entrance cost to your event?

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