Joe: Hey, this is Joe Crump. I’ve got another
question. This one is from John Hodge. John: “What’s the best entity to use to protect
our investment against potential litigators and creditors? Should it be land trust, LLC’s,
a C corporation, etc.?” John: Good question. First of all you don’t
have to have a business entity set up in order to get started. And I find that a lot of people
use this as an excuse not to get started. So don’t let this be an excuse. This is for
something that you can do as you start making money. You don’t have to spend any money on
this at the beginning, and you don’t need to really spend very much money to set it
up. Don’t go and pay somebody $5,000 to set up an LLC for you. It doesn’t cost very much
money. In Indiana here, we can set them up for $90 — I can set up an LLC for $90 here
in Indiana. Other states are more expensive. California is more expensive and there’s franchise
tax fees and all of these other things that they’ve got to pay that we don’t have to pay.
Joe: But it makes sense to own properties. I own my properties in limited liability corporations
(LLC’s). I also have my teaching business in an S corporation because it brings me income.
And, I also own properties with an LLC inside a Roth IRA. A lot of the properties I have
are inside of my Roth because I believe that a retirement account is more protected than
a regular business. So there’s been some legal precedent for that, although I can’t give
that to you. Remember, I’m not an attorney. I don’t play one on TV. I can’t give you legal
advice. These are just experiences that I’ve had personally. So I would suggest an LLC
to hold your property in and maybe to flip your properties in.
Joe: But if you don’t have a real estate license, then you need to be a principle in the transaction.
So you don’t want to be a principle as an LLC and then sell it as a LLC because then
you personally won’t be a licensed person that’s able to do this. Make sure that you
cover yourself on how you become a principle in the transaction. So, do it in your own
name, and then hold the properties that you keep for the portfolio for the LLC.
Joe: And if you’re doing business that’s bringing you regular income, then maybe an S corporation
makes sense once you get above the $75,000 a year threshold (and this comes from my CPA).
Once you get to $75,000, that’s about the time that you need to have a corporation,
and then, that gives you the opportunity to set up pension funds and profit sharing plans
and things like that, which I did on mine and recently converted it all into my Roth
IRA, because I’m getting close to retirement age (I’m 52 years old and that retirement
age is coming along a lot sooner than for a lot of you out there.)
Joe: So anyway I hope that helps. LLC’s, corporations — they really can help protect you. If you
own a lot of properties, split them into multiple LLC’s. If you’re in my Six Month Mentor Program,
I’ll walk you through the steps for asset protection for you personally. We’ll look
at your situation, what you’ve got, and what you’ve got to risk, because the reason you’re
protecting yourself from creditors is because you’ve got something to risk. If you don’t
have anything to risk it’s not a big deal — you’re not going to lose anything if you
don’t have it to lose. But once you have assets, then you’ve got to protect it and you’ll want
to put layers between yourself and your properties so that they can’t come after you personally.
Joe: I hope that helps.