Case Study Using LLCs with Rental Property by Dyches Boddiford
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Copyright © 2009 Dyches Boddiford • Assets101.com THIS INFORMATION IS DESIGNED TO PROVIDE ACCURATE AND AUTHORITATIVE INFORMATION IN REGARD TO THE SUBJECT MATTER COVERED. IT IS OFFERED WITH THE UNDERSTANDING THAT THE PRESENTERS ARE NOT ENGAGED IN REDNDERING LEGAL, ACCOUNTING OR OTHER PROFESSIONAL SERVICE. IF LEGAL ADVICE OR OTHER EXPERT ADVICE IS REQUIRED, THE SERVICE OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT.
Case Studies
Case Study #2 (real life): John and Sarah are husband and wife. Based on an accountant’s counsel, they own four LLCs where they are each members, making them multi-member LLCs. Each of these LLCs owns a single rental property. They also own one rental property in their own names as joint tenants. All properties are or are almost paid off (large equities). Here is their structure.
John
LLC
Sarah
LLC
LLC
LLC
This structure provided the asset protection for John and Sarah and segregated liabilities between the properties. However, it created a need for four additional bank accounts, EIN numbers and partnership tax returns. In studying The Grand Plan and The Limited Liability & Partnership courses, you know that it makes more sense to structure as below. © Dyches Boddiford
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Case Studies
John
Sarah
Single Member LLCs
Multi-Member LLC
LLC
LLC
LLC
LLC
LLC
This would segregate the liabilities for each property from other properties. And, since the single member LLCs are disregarded for tax purposes, only a consolidated partnership return for the multi-member LLC is required. It would also provide charging order protection should John or Sarah get a judgment against themselves personally. But John was tired of the extra tax returns and wanted to simplify even more. He proposed the structure below. He proposed to set up five single-member LLCs, one to hold each property. He would own two of the single-member LLCs and Sarah would own three. In this structure, John certainly simplified the
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paperwork and tax reporting. All income and expenses would now go on their joint personal tax return.
John
Sarah Single Member LLCs
LLC
LLC
LLC
LLC
LLC
While this structure is better than owning the properties directly, four points should be made. 1. John and Sarah potentially lose charging order protection that the multi-member LLC provides since each own separate LLCs (no innocent third party). This is a significant consideration since the houses are almost paid off and therefore attractive targets for any judgment holder against either or both of them personally. (Some form of equity stripping should also be considered.) 2. A liability occurring on one of the properties should be stopped from affecting the owner of the LLC that owns the property. © Dyches Boddiford
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However, with a single entity layer, opposing counsel will probably investigate whether the liability shield was respected by the owner. In other words, was the entity treated as separate from its owner? 3. John and Sarah lose the low audit profile of the multi-member LLC’s separate tax return. This partnership return would net all income and all expenses, passing these net numbers on to the members’ personal return for the taxes to be paid. While there would be no extra taxes to pay, there would be the cost of the extra informational return. 4. To take maximum advantage of estate tax exclusions, Sarah and John must try to equal the equities in the properties. This should be revisited each time a property is purchased or sold.
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Dyches Boddiford & Peter Fortunato present For more info Click here… www.Assets101.com
Amassing Tax-Free
WEALTH
Using Self-Directed IRAs Feb. 21 & 22, 2009 Atlanta, GA Theory and practice come together for one dynamic weekend. Just think of how much you could make if you could invest your retirement plan in an investment you already understand. For most of us, that is real estate and notes in our own local markets. Well, properly structured, you can. We have been doing it for years. This weekend is an opportunity to learn how to super-charge your IRA with returns of 12%, 15%, 25%, 50% and higher! You will learn nice and steady, as well as very aggressive, techniques for growth. Peter and Dyches will join forces in what promises to be a lively conference on self-directed IRA investments. Pete will present case studies and will walk you through, step-by-step, exactly how the transaction would be crafted and the results. He will also suggest scenarios to watch for that can boost your returns significantly. Dyches will take you through the technical issues in layman terms, as well as sharing some of his own IRA experiences. He and Pete will analyze some actual transactions and show you the different ways they could have been done to gain different advantages or results. Though the discussion will mainly be concerning using your IRA to invest in real estate in your own locality, other investments could be used as well. For instance, one former student uses his IRA to fund a rental program for commercial dumpsters. He routinely gets a 40%+ return on his invested capital! Think out of the box. Is there an investment that you are aware of that can provide exceptional returns? Bring your ideas and we will discuss them. The manual for this class will only be available to class attendees and not for sale afterwards. Just a few of the topics that will be covered -
y Why Roth IRAs are for everyone!
y Simple IRA estate planning strategies that provide tax savings and asset protection
you understood them)
y Avoiding disqualified transactions that could y y y y
(you only thought
y y y y y y y
cost over 150% of the investment in penalties! How to make sure your lower valuations stand up to IRS scrutiny when converting to a Roth IRA... Get retirement income before you reach age 59½ without penalty!... Investing in real estate and notes Making loans/buying options with your IRA
Hilton Garden Inn - Atlanta Airport $80 Single or Double 2301 Sullivan Road Group Code “Boddiford” College Park, GA 30337 404-766-0303
Using land trusts and sub-trusts with IRAs Making your kids millionaires with their own IRAs Using SEP-IRAs to sock away 25% of your income Prohibited transactions & disqualified parties Custodians that allow IRAs to invest in real estate SIMPLE Retirement Plan(s) & when to use them and much, much more... Pre-registered Attendees. . . . . . . . . . . . . $ 597 Each for 2 or more registering together. . $ 497 (Add $60 at door)
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How to Become a
HARD MONEY LENDER For more info Click here… www.Assets101.com
March 21 & 22, 2009 Dyches Boddiford & Robert Witcher, Atty Only two pre-requisites for this class: • you must have access to at least $15,000 – 25,000 to lend and • have experience dealing with real estate.
If not . . . don't forget to recycle. Just some of the topics that will be covered:
v v v v v v v v v v v v v v v v v v v v v v v v
New Mezzanine Loan program designed for a tight real estate market! (You and your borrowers will love this one!) What prepayment penalty clause allows you to charge prepayment penalty no matter what, even at foreclosure? When do you have to give a default notice and the right to cure (and when do you not)? Who has to give truth-in-lending statements and who doesn't? What are the penalties if you don't comply? Do you know how much normal attorney's fees are for a foreclosure? 15% in most states right? Not necessarily, it could be much less if you don't have the right language. The attorney gets all the attorney fees at foreclosure, right? Not necessarily, you can participate if you know how. Evaluating the property and borrower. What do you do when a borrower wants an extension? Can you charge an extension fee? How do you maintain records of payments received and how do you calculate pay-offs (an improper pay-off amount just cost a lender $7,000 to settle!). How to deal with Chapter 7 & 13 bankruptcies. And how to try to avoid them in the first place. What is "usury" and how do you calculate it? The proper way to title public documents for IRA loans. If they aren't done properly, you may not be able to foreclose! How to track loans, step-by-step. How 1098/1099's are handled. Handling and tracking loan payments from borrowers to your IRA. Licensing requirements and how to avoid them. Avoiding consumer loans--HOEPA (Home Ownership and Equity Protection Act), also known as Section 32, RESPA and Predatory Lending Acts affect you and your loans. What's the penalty if you don't comply? Why loan-to-value has little meaning, you should look at investment-to-value. How a DUE ON SALE clause can make you money (accelerating the loan is only one way). Why using a Call can be better than a Balloon. Adding "Money Stretchers" to loans. Using "Must Takes" to get ride of dog properties you may have. Why you should never make phone calls to debtors. Why you should never let debtors send their payments to your home. Bridge, building & construction loans up to 5% per month in some states - well secured! Alternatives to escrows – keeping it simple and making money at the same time. Other ways to structure funding that can generate even greater returns.
Plus – You will be provided with all our latest documents and checklists. The value of these documents and clauses will return you the cost of the seminar many times over. Hilton Garden Inn - Atlanta Airport (Single or Double $80 2301 Sullivan Road "Boddiford Group" rate) College Park, GA 30337 404-766-0303 Name
__
Pre-registration ends 3/16/2009 On or before 3/19. . . . . . . . . . .$ 997 $ ________ Additional person . . . . . . . . . . .$ 797 $ ________ (add $50 each after 3/19 and $100 each at door)
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Call: (770) 428-7846
Dyches Boddiford presents Buying & Selling Using
For more info Click here… www.Assets101.com
Owner Carryback Financing April 25 & 26, 2009 “Owner Will Finance” Those are magic words. Even in a market where institutional interest rates are low, those words will get the phone ringing. Whether you are buying or selling, you need to understand how to get this financing or take back financing your self without getting taken! This class will be of interest to Buyers, Sellers, Real Estate Agents, Note Brokers and Note Investors. We will consider the difference in terms and financing you would want as buyer versus those you would want as seller. We will also discuss how selling and carryback financing can benefit the investor who wishes to retire from day-to-day management. Below are just some of the topics we will cover. y Getting a Higher Price for the Property while Selling y y y y y y y y
y y y y y
Faster Difference in Balloons & Calls – when to use each WRAP Notes & Mortgages Lease-Options, Lease-Purchases & Land Contracts as financing tools Terms & paperwork depending on whether you are Seller, Buyer, or Note Buyer/Broker Clauses to include in Note & Mortgage Interest only, normal & negative amortization Getting Seller to give you 0% financing Tax reporting – installment sales1098, 1099, Section 121, dealer sales, capital gains, SE tax
y y y y y y y
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How to Purchasing Subject-to Dealing with Insurance “Nothing Down” v. “No Money Down” Getting Guarantors/Co-Signors “Abandoning” the Collateral and suing on the Note as alternative to a Deficiency Judgment Collections & alternatives to foreclosure “Walking the Mortgage” Additional Collateral The relationship of Price & Terms Discount for early payoff & lump sum payments Substituting Collateral Dealer property issues and owner financing Pre-registration ends 4/20/2009 Pre-registered Attendees. . . . . . . . . . . . . . . . .$ 597 Add 2nd person pre-registering at same time. . $ 397 (Add $35 after pre-registration deadline, add $60 at door)
Ck #_________
MASTERCARD
VISA
DISCOVER CARD # ___________________________________________
Address
Expiration Date ______________ Home Phone
Work Phone
CVV________
Signature __________________________________________
Mail to: The Oaks Group, Inc., PO Box 505, Marietta, GA 30061 or call/fax (678) 935-4439