All Forum Posts by: Cal Dunagan

Hi @Blaine Chapman

You can negate the due on sale clause by transferring the asset into a land trust. To avoid the capital gains, you could sell the asset at its current basis to the new entity. Alternatively, you could use a strategy called a "friendly lawsuit" where the new entity sues the existing entity, and as part of the settlement agreement the property is given to the new entity as a "deed in lieu" of litigation. This is the same process in broad strokes as a mortgage default and having to change the ownership because of that situation.

-Cal

Hi @Olive Eagle

S corporation is likely the best solution for tax savings since it helps you avoid self employment taxes. The properties themselves should be in a completely different set of entities to protect them from litigation, but the money generated from those properties could be paid to your S-corp as a property management fee. You can either take income from that, or generate expenses in your S-corp

-Cal

Hi @Leo Tsang

For 1-4 unit properties, you can avoid the due on sale clause and banking issues by transferring the property into a land trust that is in turn owned by the LLC. This creates anonymity, asset protection, and streamlines your taxes through just the LLC itself. So in whatever way you were going to report taxes if the property was held directly in the LLC, it will be the same if the property is held in a land trust underneath the LLC

-Cal

Hi @Saleh Sedighi

For California investors, you can either use an LLC that has strong charging order protection (DE, WY, TX, or NV are most common) or if you are doing a buy / hold strategy with your assets you can use a Delaware Statutory Trust. When using the LLC you may have to pay the $800 per year in franchise taxes, so if you're just looking to hold and protect assets the DST is preferable since it is infinitely expandable because it contains a "series" function, is anonymous, and also is a Trust that avoids the Franchise tax

-Cal

Hi @Mark Sandlin

With this level of complication, I would consider paying for a consult with a CPA an attorney before taking action. It should cost you less than $500 and you would have a much more sound strategy, and also the start of having an actual team in place. (1) Legally, you need the asset owned directly or indirectly through the legal entity with the partnership. Otherwise there is nothing to protect the partners from whomever holds legal title. (2) The best and easiest thing to do to get started is an LLC with an Operating Agreement that contains the provisions of your partnership

-Cal

Hi @Fahadbin Alam

(1) You can either purchase directly in the LLC with commercial financing, or you can purchase in your own name and then transfer into a Land Trust is owned by the LLC (this avoids the due on sale clause and allows you to own the property anonymously) (2) There are no limits to how many LLC's you can buy (3) you pay yourself as a owners draw, or if you are making enough money it can make sense to pay yourself through an S corporation to avoid self employment tax

-Cal

Hi @Nicole Brodie

With this level of complication, I would consider paying for a consult with a CPA an attorney before taking action. It should cost you less than $500 and you would have a much more sound strategy, and also the start of having an actual team in place

-Cal

Hi @Michael Ruvido

Each state has its own restrictions and benefits on the formation and operation of LLCs. Some of these are legal, operational, or even tax-related. While there may be certain benefits to forming an LLC in your state of residence, they are but a fraction of the rewards you can reap from operating in a pro-business state, such as Texas, Nevada, or Delaware. You can check out more here: https://www.biggerpockets.com/blog/best-states-forming-llcs

-Cal

Hi @David Campbell

Making real estate investments, issuing loans, and much more can be done through your retirement account. You can easily use any type of retirement funds to invest in real estate (IRA, SDIRA, ROTH, 401k's, etc.). Using a SDIRA a custodian holds the money and you have to contact them to make the investment; we recommend using an SDIRA with checkbook control so that you can control the funds yourself, enter into contracts yourself, and otherwise cut the custodian out of the picture on making the deal happen. For each retirement account, it can depend upon your custodian if you are using an IRA regarding a minimum. If you don't want to worry about minimums, we suggest rolling your IRA into a Solo401k.

-Cal

Hi @Jodi Wilson

You actually should have them sign the leases with an LLC that doesn't own the asset so that if there is litigation regarding the lease it goes against that entity. The assets themselves should be moved into a completely separate structure. That structure should be one or more LLC"s (or a Series LLC if you want something more cost effective and easier to use) with corresponding land trusts. The land trusts will avoid the Due On Sale clause of the mortgages and also create anonymity with the property ownership. The anonymity will help fight off future litigation since people don't sue people who don't look like they are wealthy on paper (or at least what they can find on paper before they sue)

-Cal