The Best Legal Entity for Real Estate Investing

The Best Legal Entity for Real Estate Investing



what is the best legal entity to buying rental real estate that's today's video let's dive in hi there I'm Clayton Morris I'm the founder of Morris invest in a long time real estate investor and one of the areas that we don't really talk about much I think because it maybe doesn't sound as sexy as you know the cash flow that we get from rental real estate or the taxes that we save from owning rental real estate but how you structure your business inside of a legal entity in order to protect yourself is incredibly important you know what if a tenant slips and falls and one of your rental properties and you have that property in your own name John Smith well the problem is if that tenant sues you and it's in your own name and that rental property is in your own name you could be in for a world of hurt because now that plaintiff that tenant can come after not only the rental property assets with all of your personal access as well so John Smith all of your personal assets are now open because you bought that rental property in your own name huge mistake so is there a better legal entity for owning real estate than another one again this is something you absolutely want to consult with your own lawyer and your own accounting team on I am NOT a lawyer so full disclaimer I'm not a lawyer and I'm not an accountant I'm simply going to tell you the way that we have structured our business and our rental properties at the behest of lawyers and accountants again I'm not a lawyer not an accountant regardless of any of this you always want to have liability insurance so make sure that you have liability insurance on your rental properties for your company for your LLC for even if you're in a sole proprietorship make sure that you have insurance regardless of how you structure your business and how you put your rental properties into these different legal entities so what is a legal entity what's simple it's a limited liability corporation it's a sole proprietorship it is a c-corp it is an S Corp it is all of these different characterizations for different companies that you can buy properties inside of personally we use a limited liability corporation the reason we do this is because it limits the liability so is there a best form of legal entity to buy real estate in if you talk to many high-level accountants or lawyers they will tell you that owning rental properties inside of an LLC is the way to go why once again it limits your overall liability their advice to us has long been owned up to about one hundred and fifty thousand dollars worth of value in one LLC and then when you be moved beyond that set up another LLC what does that mean well that means if we buy three rental properties most of the ones we buy are about 40 45 50 thousand dollars and you have three of them that adds up to one hundred and fifty thousand dollars in value so if we create an LLC so we call it I don't know it's going to make up an LLC name like camera happy LLC camera happy LLC now owns three rental properties and its capped the value is about one hundred and fifty thousand dollars then my wife and I will set up a second LLC for the other rental properties that we purchase so a limited liability corporation we set those up in the states where we own our rental properties so if we have three rental properties in Indiana or three in Michigan we're going to set up LLC's in those states where those properties are located now I've worked with a lot of foreign investors for instance a couple of Canadian investors who purchase properties with our team and one of the things that they found out going cross-border is that owning a us-based LLC does not offer them the level of protection that AC Corp would so Canadian investor buying real estate in the United States setting up a c-corp in order to protect themselves legally so that those assets are in that corporation and if they are sued then the corporation is really the only chunk of this that's on the hook for the liability not their personal assets so it's very important to talk with your lawyer talk with your accountant and find out what legal entity is best for you once again I'll give you our structure we purchase our properties in an LLC and which take about five minutes to set up they're very very simple to do if you go to your Department of State's website so Indiana Department of State Pennsylvania Department of State Delaware Department of State should be you know State DOT Delaware gov go to the website right there on the website start new business click on that and pick your LLC name usually cost a few hundred dollars to set it up right on the website there are all these other website services out there I would just ignore those just use go right to the source do it cheaper and go right to the government that's who's going to do it in the end anyway set up your LLC pick a name that you like and and go from there so the way that my wife and I do it is we have those LLC's then high-level ninja trick is that we then have those individual LLC's reporting up to a holding company LLC and that holding company is in the state of Wyoming because it offers an incredible level of protection so now those each individual LLC's are reporting up to a holding company and that way it offers an extra layer of protection we'll dive a little bit deeper here in a future video on exactly why the benefits of a holding company but today I just wanted to give you the overview of how we structure it and what are the best legal entities to buy real estate as Tom will write the great accountant like to say you should never ever buy rental properties in your own name it's just a absolute disaster of a mistake to do that to own those properties in your own name if you get sued you also don't get any of the tax benefits in the way that you would if you own them in an LLC or a company or another legal entity so that's a little overview of one of the best legal entities to buy real estate and again click on the videos below we have a whole bunch of other resources as we are diving more deeply into how to structure your rental business I'm Clayton Morris thanks so much for subscribing to this channel we really appreciate it if you haven't already subscribed please do because we have videos that publish every week thanks everyone we'll see you next time