274 – Clint Coons – Asset Protection Strategies Simplified

Synopsis

Clint Coons, a real estate investor, and lawyer is one of Anderson Business Advisors’ founding partners. He invests in properties all over the country, mostly in the Winston Salem market, and has 400 to 500 properties of various asset classes, including single-family, multifamily, commercial, and mobile home parks. Their firm specializes in assisting real estate investors with tax and asset protection.

In this episode, join us as Clint discusses the importance of asset protection in real estate investment to prevent major difficulties in the long run.

Key Points

Importance of Asset Protection

When it comes to investing, if you set up your properties correctly, they will help you grow as a real estate investor, but if you set them up poorly, they will impede your success. It doesn’t necessarily mean that when you invest in real estate, you’ll be sued; in fact, there’s a very little chance you’ll be sued, but if you are, it may destroy you.

Clint has seen so many people in his 22 years in the industry who had one tragic occurrence wipe them out, forcing them to start from scratch after devoting so much time and effort in the past—and you don’t want to be that person. To avoid this, he advises people to ensure that they are isolating their assets when establishing entities to reduce their total risk exposure. This could imply that you would need one LLC for each property for the first 15 properties you purchase.

Real estate investors often concentrate on equity when purchasing a home, which is one of the most common mistakes. When building your portfolio, keep cash flow in mind since you want to protect all your cash flow streams. Since you are earning more, you will modify your lifestyle, maybe pass it on to your children, and establish generational wealth. To do so, you must be in a position where if a mistake happens, you will not jeopardize all of that.

In addition, if you have control over how the entity treats you in terms of taxes, you may effectively manage your income. If you use senior debt to buy your loans, you must ensure that your returns are Fannie Mae and Freddie Mac-optimized since those are the underwriting standards they will use. Andersen Business Advisors assists you with the aforementioned strategies to ensure that you can accomplish more on the financing side.

Types of Liability

You will encounter two types of liabilities when investing. The first is known as “internal responsibility.” This form of liability occurs inside the confines of the LLC that you establish. The second is known as “outside liability.” This is the form of responsibility for which you will be sued on the outside. For example, if you’re a hands-on landlord, you may be liable for any work you do.

By establishing an LLC, you may be assured that if anything goes wrong with the property, such as a fire, you are not held accountable since your insurance will protect you. If you are sued individually, they will not be able to delve inside the LLC. Now, this assumes you’ve set up the LLC correctly in the right states and understand how the operating agreements work.

Setting up an LLC

When establishing an LLC, investors must provide a great deal of information to the firm since they won’t know what to offer clients in terms of security if they don’t tell them where they reside and where they invest. For example, if they reside in California and they’re investing across the country, Clint has to know which state they’re investing in since various structures would be used in different jurisdictions. They do this to guarantee that when they transfer your real estate into that business entity, you do not pay a transfer tax or face a reassessment. To do this, most of the time, their firm would need to consider alternative arrangements such as a land trust or a Series LLC. They will optimize the structure so that all the tax advantages that the clients currently obtain from investing are preserved, and then improve it by placing it in a structure that will make them seem better to lenders while also avoiding any unwanted reassessments or transfer taxes.

Wyoming Statutory Trust (WST)

A Wyoming Statutory Trust, or WST, is similar to an LLC. It is a registered business entity with the state. Except for Florida, it provides asset protection, unlike a living trust or a land trust. If you own a property in those certain types of trusts and that property is the subject of the lawsuit, you are personally accountable for whatever occurs inside your trust. A statutory trust, on the other hand, is treated differently. Since it’s registered with the Secretary of State, it’s a product of legislation rather than common law, like with land trust and living trust, so you have protections.

Transferring Properties

You must disclose a change in ownership when transferring properties. Many individuals make the mistake of assuming that they can simply place the properties in an LLC and then transfer that interest to someone else to avoid paying transfer taxes on the purchase, but this is not the case.

Resources

More from our guest

Clint conducts a tax and asset protection for real estate investors class if you want to learn more about what types of structures you should be using for your investment. You may register for this one-day Saturday session via Zoom by going to this link. In the afternoon, his partner, Toby Mathis, will join and discuss the tax side of real estate, including how to harvest a ton of deductions and how many of these structures, if set up correctly and with the appropriate tax options and techniques, would actually pay for the entire setup.