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Written by : Foster Costin
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hi Clint Kunz here with Anderson business advisors and in this segment we're gonna cover how to buy property on a short-term basis that is to flip when using a limited liability company now similar to buying property for cash for long term it works the same way with short term deals if you have an LLC and you're gonna buy for cash all you need to do is create the limited liability company here here's the property here you can either put cash into the LLC or can come from you personally to go to the seller to buy this property and then title would be taken in the name of the limited liability company now if you watch the other segment about buying property long term and how to set it up here it's the same principle when you're closing in a limited liability company your need to obtain a certificate of good standing from the state where the LLC is created in now the reason I say the state where the LLC is created in because this could be a Texas LLC buying Texas property to flip it could equally be a Wyoming limited liability company purchasing Texas property to flip now you heard me right I mean this is one of the strategies that we use at Anderson will often tell you here's your corporation right here this is oftentimes if I was doing Texas this is a Texas Corp and I'm the reason I'm using a Corp it could be an LLC I want to make sure that I'm not gonna be tagged as a dealer so this entity either is gonna be taxed as a C Corp or an S Corp now I have a lot of clients will create Wyoming LLC's that are owned 100% by this Texas corporation and that works fine if you're buying for cash to do it this way so title then is taken in the Wyoming LLC you're using cash and then when the property sold the profits flow back into the LLC and then the profits come down here into the corporation they're taxed to the corporation and of course after you've done that deal you want to make sure that you dissolve this limited liability company because you want any liability exposure that could be floating around out there to go away alright so if somebody wanted to sue the seller two years from now because they discover something that they thought the seller should have told them about which is your LLC they go back looking for that see lo and behold that company is out of business there you go that's great asset protection but the thing about this type of strategy when you're setting up the LLC and it's owned by that corporation people use Wyoming LLC's for flipping because they don't know where they're gonna be buying their property so I have clients they have a Texas Court they'll set up a couple Wyoming LLC's like this and they'll be making offers in the names of these Wyoming LLC's in potentially different states so I can make some offers in Texas with this one maybe I'm doing Oklahoma here maybe in this one here I'm doing Idaho who knows where I'm buying properties and selling them but because they're in Wyoming I can set these up and make offers in all different states I'm just not ready relegated to setting it up in Texas and just doing Texas deals I may want to do it everywhere now you might be thinking well Clint why not do the same thing with the Texas LLC or if you're an Oregon do an Oregon LLC costs a Wyoming LLC is only $50 to keep in place on an annual basis and that's pretty attractive to me and to set it up it's a hundred and twenty-five dollars to get this thing rollin so from that standpoint I'd like Wyoming it saves a little money on the filing fees so when you're buying properties you can buy properties to flip with an out-of-state entity that's different from buying and holding buying and holding you want the LLC file in the state where the property is located okay so that's if you're using cash now if we're not using cash and we're using a hard money loan to put our flipped deal together then it's gonna be a little different so when you're using a hard money loan let's assume that you have a corporation right here and as I stated you want your corporation to own that LLC so that you don't get tagged as a dealer because you're flipping property well the problem is the lender is not going to like this that is they look at your LLC operating agreement right here and if it points to this corporation they're gonna ask you we need to see all the documentation on the corporation so now you turn over that documentation and you're down here is the shareholder you're up here is an officer and director of this company and they look at your corporate Docs and you know most corporations they may be authorized a thousand shares that they can issue out to their shareholders but they've only issued out a hundred of those thousand well hard money lender will see that and they'll say hey what about the other 900 who else is gonna be a shareholder in this company now you you might want to say to them who cares I'm giving you the money you're getting a secured interest in the property but it's just the way they do things they want to make sure that it's all buttoned up to fit into their box the way they wrote the rules for their box so again this is gonna delay closing so what I like to do for Flip's were amusing hard money lending to finance the deal is I do not even disclose the fact I have a corporation so when you set up your LLC and again let's just say it's a Wyoming LLC it could be any state you set your LLC up with you as the member right here of that limited liability company and then you as the manager now again the reason I like Wyoming for this strategy is because the first year why only doesn't list any of this information on the Secretary of State's website so you can be the manager of your LLC and you won't lose your anonymity and if you watch some of my other videos on the importance of privacy you'll know what I'm talking about here you will not lose your anonymity because at the Secretary of State level if somebody looked at this LLC they will not see your information so the only information your hard money lender has to go off of is what you provide them in your operating agreement I mean consider this you set up an LLC and you list 18 Mathis is your nominee manager and then you go to get a loan lenders gonna say who the hell is 18 Mathis you say oh he's my attorney and he hides my information Oh what are you hiding from see where that's going so rather than create that issue for yourself if you go with Wyoming you can get anonymity because your information isn't listed anywhere and by structuring it this way were you're the member and manager of your LLC it makes it really easy to put the financing together because the lender looks at the LLC they see you they know they're dealing with you you're providing the down payment so the deal will go through with that information in the lenders pocket so you'll buy the property then you'll close in the name of the LLC and then after closing what you're gonna do is you're going to quietly assign your interest the LLC to your corporation and what I mean quietly a sign all you have to do is prepare one piece of paper you know I Clint Coons here buy a sign 100% of my ownership interest in XYZ
Thanks for your comment Chris Pricer, have a nice day.
- Foster Costin, Staff Member
hi lee phillips again i want to talk about an llc for flipping that would be for flipping real estate not a flipping llc so uh do you need an llc to do your flips and the answer is probably yes i would certainly set up an llc for my real estate flipping business that would be different than an llc for my hold and keep and rent business that's they got to be two different animals primarily because the taxes are going to be different you're going to want to tax the real estate for holding renting different than you do the real estate for flipping because the flipping is probably going to be moving fast and it's basically going to be what we call ordinary or earned income for you you're not going to keep it long enough to have it be a capital gains it's basically going to be taxed as income so you probably want it taxed under sub chapter s now the nice thing about the llc is is you can choose how you get your llc taxed it can be taxed under some chapter s of the irs code you want the llc for flipping real estate in order to get the asset protection if the flip is actually owned in the llc then the guy slips and falls repairing the roof or whatever it is in theory the llc is going to protect you from the accident that occurs as you rehab and as you fix the flip up so for that reason it would be good to have it in an llc it's going to be the same in that case as if you had it in a corporation you would have to have the corporation taxed under subchapter s but you will not use a corporation to flip real estate you will use an llc and the other reason is is you will get the charging order protection in the llc that you will not get in the corporation so you're going to use an llc to do your real estate flipping you're going to have it taxed probably under sub chapter s consult your tax dude and have him decide what's going to go but if he says something other than the subchapter s you might think about it and there are specific reasons you want subchapter s taxation on this llc that's another youtube video but but it is a great idea to have an llc flipping real estate and use the asset protection and the tax advantage that the llc will give you you will actually bring the asset in have it titled in the name of the llc and then you will sell it from the llc as well you're not going to be able to get a mortgage in the llc in all likelihood you're definitely going to have to personally guarantee that mortgage and you may get them to actually issued in the name of the llc but you probably won't which means you have to get the mortgage on it if you have a mortgage if you're doing hard money or you're paying cash you don't have to worry about this but if you get a mortgage on it then you are going to have to have that property outside of the llc get the mortgage then move it into the llc technically you're violating the due on sale clause but you don't really care because you're not going to hold this piece of property very long it's going to be flipped this is lee phillips talking about llc's flipping real estate now don't forget to subscribe okay and fact we'll see again
Thanks Freddy your participation is very much appreciated
- Foster Costin
About the author
I've studied oenology at Baldwin Wallace University in Berea and I am an expert in modern philosophy. I usually feel chipper. My previous job was scientist I held this position for 13 years, I love talking about safari and jigsaw puzzles. Huge fan of Emma Chamberlain I practice hurling and collect eggs.
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