Advice for Legal Real Estate Asset Protection

When you immerse yourself in the real estate world, you need to make sure you cover all your legal bases. Indeed, guarding your wealth, and protecting your assets from future creditors, is an important task for any investor—regardless of experience.

To accomplish this effectively, it is crucial to seek counsel from trustworthy sources. There is a lot of real estate legal advice floating around the internet that can lead you down the wrong path. Likewise, there is no shortage of people in the industry who shell out poor information.

As I have built my real estate portfolio, I have been careful to seek advice from those I can trust. And, over time, that guidance has helped me understand how to effectively protect my wide range of properties.

In this section, I will use my experience to help you gain the peace of mind that you need to reach your potential. There is no better feeling than thriving as an investor with the knowledge that you are doing so in accordance with the law.

In the articles below, I will break down the reasons why you need to hire the best real estate CPA, and how to do it. I will lay out effective tax strategies, which, over time, can help you save thousands upon thousands of dollars. I'll also explain the steps you need to take to avoid lawsuits, fines, and even jail time.

If you are looking for more real estate legal advice, you can find it in the archives of my podcast, The Best Ever Show. The best way to keep up with the podcast and to locate the episodes you are searching for is to download my mobile application, which can be downloaded from Google Play as well as Apple’s App Store.

How to Asset Manage a Newly Acquired Apartment Syndication Deal

How to Asset Manage a Newly Acquired Apartment Syndication Deal

You’ve just closed your multifamily apartment syndication deal. You should take a moment to celebrate. Then the real work can begin.

Yes, apartment management — and all commercial real estate management — is highly complex. And it demands a long-range commitment. Expect to be asset managing for at least the next five to 10 years.

The secret is to break this role into smaller, more digestible tasks. Below, we’ll examine four of those crucial responsibilities.


Business Plan Execution

This step is more of a guiding principle — one that encompasses every other step. Essentially, you should keep making sure that every part of your business plan is being enacted.

For starters, keep close tabs on your budget. Are your operating expenses staying within an acceptable range? Are your projected premiums on target?

Your property management company should list all of your income and expenses in a software program. If you have access to that software, check it periodically. If not, the company should send you a financial report at the end of every month or even more often.

Thus, you can keep comparing financial projections to reality. And you can discuss any discrepancies with the management company. Find out what caused them and how you can overcome unexpected losses.


Weekly Performance Reviews

Weekly performance reviews can help you stick to your plan. To begin, establish your key performance indicators (KPIs), the data points you wish to monitor. If you’d like, your management company can help you determine your KPIs.

Using the acronym MOM, you can organize your KPIs into three categories: money, occupancy, and management.

The money category could include the following:

  • Gross potential income, the amount you’d earn if you rented all your units at market rates.
  • Gross occupied income, the money you’re actually making.
  • The amount of money collected the previous week.
  • The money collected month to date.
  • The month-to-date delinquent number.

If this last number seems high, find out why and how your management company is addressing the issue.

For its part, your occupancy category might feature these seven KPIs:

  • The number of pre-leased units.
    This group can include vacant units and units with leases expiring at the end of the month, so long as they have new leases already signed.
  • The number of eviction notices distributed in the past week.
  • The total number of eviction notices on the books.
  • The number of scheduled setouts.
  • The number of denied tenant applications, which indicates the quality of the leads your management company is supplying you.
  • The number of lease renewals.
  • The number of people on your waiting list.

You want this final number to be as large as possible. Properties with excellent reputations tend to have long waiting lists. A long waiting list will also give you extra security whenever evictions or move-outs are numerous.

The management group, meanwhile, could include these stats:

  • The current occupancy rate percentage.
  • The total number of units occupied during the past week.
  • The number of move-ins in the last week.
  • The projected number of occupied units — including those that are pre-leased — along with a projected occupancy percentage for the end of the month.
  • The number of filed evictions.
  • The number of skips, people who don’t move in when they told you they would.
  • The number of transfers, those who move from one of your units to another.
  • The total number of vacant units.
  • The number of vacant units that are rent-ready and not rent-ready.

With all of these numbers, look out for trends. If, for instance, the number of evictions or vacant units keeps going up, create an action plan with your property management company to deal with the issue.

Moreover, early on, set expectations for these data points. And share those expectations with your management company so that everyone’s working toward the same goals.


Investor Distributions

As an asset manager, you’re in charge of investor distributions, paying your investors at the frequency you’ve established. It might be once a month, once a quarter, or once a year.

However often they go out, it helps if your management company sends the distributions. Then you could just oversee the process.

Also, your investors will decide how to receive their payments: by check, direct deposit, or another means. Be sure to check with your management company to see if they can send payments via those methods. If not, you, your investors, and the company can work out an alternative.


Renovation Management

Apartment syndication asset managers ensure that all interior renovations, exterior renovations, and building upgrades are completed on schedule and on budget. Once again, your management company will take care of the day-to-day work.

You’ll fund your renovations with your existing capital, or you’ll secure a loan from a bank.

If you have a lender, you’ll communicate with it throughout the renovation. That’s because your lender will likely supply you with payments as you go along rather than handing you a lump sum at the outset. If you didn’t reach certain budgetary and scheduling benchmarks, that lender would likely cease payments.

In all of this, try not to be overly aggressive as far as how many renovations you request or how fast you want them done. Instead, collaborate with your management company to set a rigorous yet realistic schedule, one that doesn’t overtax its resources.

How do you renovate a multifamily complex with residents, though? Well, you might begin with your vacant units. You could then transfer certain tenants to those upgraded vacant units while you renovate their residences. Or you could just raise rents, inducing some people to move out.

Additionally, you might ask people if you could renovate their homes while they’re still living there. In exchange, you might put them up at a hotel or offer them the upgraded unit at no extra cost. You could devise your own creative solutions as well.

In short, by handling these tasks, your management should be more manageable.


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8 Tips for Protecting Your Assets

8 Tips for Protecting Your Assets

As real estate investors, most of us are primarily focused on how we can make more money. However, it’s also important that we give some thought to asset protection. You can have all the money in the world, but if you’re not protecting your assets, it means very little.

We spoke with Brian T. Bradley, an asset protection attorney, about what we all need to be doing to protect our assets in case we’re faced with the rest. Read on to learn more about protecting your assets.


Who Should Protect Their Assets?

Whether you own one property or 100, you should always ensure that your assets are protected. If you are new to investing you may feel that you don’t have much to lose, but if you’ve put a lot of your personal money into your investments, even a small hit to your assets could be a staggering loss.


Why Protect Your Assets?

You should protect your assets because you never know what may happen. You may feel invincible or think that there’s no possibility of getting sued, but no one is immune. If you’re investing in real estate, there are all sorts of things that can go wrong. However, even if nothing goes wrong with one of your investments, if for whatever reason you are sued for something related to your day job or in your home, assets in your name could be in danger.


When to Protect Your Assets

You should start thinking about asset protection as soon as you acquire assets. One of Brian’s biggest recommendations to his clients is to start protecting their assets before there’s an issue. It’s much easier to protect your assets when nothing is going on.

Once there’s an issue or you’re in the middle of being sued, it’s still possible to protect your assets, but it can be much more challenging and much costlier. It’s always better to do damage control before the damage is actually done.



Brian and his firm use a method called ECCM (Effective Control Cost and Maintenance) to help their clients protect their assets. The idea is to set up effective systems like getting your assets out of your name with exemption planning and eventually setting up a trust like an LLC.

Control refers to making sure you control your assets without actually having them in your name. The cost to protect your assets is also essential. You need to be able to afford to make the necessary actions. The overall goal here is maintenance — you want to be able to maintain your current lifestyle even if the worst happens.


2. Choose an Asset Attorney

One of Brian’s biggest suggestions for investors is to spend some time looking for an asset attorney. Many people choose the first firm they find, but not all attorneys are the same. You should vet your attorney to make sure they can meet your unique set of needs. It’s too late to find out you have the wrong attorney once your assets are in danger.


3. Asset Diagnostic

The first thing your lawyer should do is run through an asset diagnostic. This tool will allow them to see exactly what you have, what it’s worth, and what is most vulnerable. From there, the lawyer should be able to figure out which of your assets can be put into an exemption. Then you can work on protecting what’s left.


4. Set Up Trusts or an LLC

Once you’ve figured out which assets need protection, you’ll want to either create an LLC or set up a trust. The one you choose will depend on exactly what you have and what you’re planning for the future of your investment business.


5. Choose a Jurisdiction

When setting up a trust, you have the option of going with a domestic or foreign trust. In most situations, you’ll want to establish a foreign trust, because you won’t be subject to U.S. tax and liability laws. Brian’s company often goes with a bridge trust, which is a domestic trust with the potential to move foreign if need be. This process allows investors to keep costs minimal as long as possible.

However, you want to make sure you choose a location that’s stable and advanced enough to maintain banking standards. Brian recommends the Cook Islands because they’re completely out of the U.S. jurisdiction and it’s difficult for someone in the U.S. to file a lawsuit there.


6. Use the Wealthy as a Model

Even if you don’t consider yourself among the wealthy, you can use them as a model for how to manage your assets. You may notice that the wealthy have very little in their name, but still reap the benefits of their assets. This is a wise move to follow.


7. Don’t Assume You’ll Never Be Sued

According to Brian, one of the biggest mistakes he sees many of his clients make is assuming that they’ll never be sued. They feel that the nature of their particular business or investments precludes them from a lawsuit.

More than 50% of the people who contact him are already in the middle of a lawsuit. You should always consider that you could be sued and make every effort to protect your assets before something happens.


8. Fraud and Fraudulent Transfer

One of the biggest issues comes with fraudulent transfer/conveyance. If you’re not in the middle of litigation, tax audit, etc., then the transfer of assets is typically considered benign.

The problem comes when you are in the middle of one of these situations and you attempt to transfer your assets. The court may see this move as an attempt to get around the law and may not rule in your favor.

However, a fraudulent transfer is not the same as fraud. Fraud is more intentional and means to cause harm. Fraud is illegal, while the fraudulent transfer is not.


Parting Thoughts

No matter where you are in your investment journey, it’s important to be proactive when it comes to protecting your assets. No one is immune, and it’s possible to lose everything. If you put a plan in place before something happens, you’ll be much more likely to come out on top.


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3 Perfect Storms Facing Wealth in America

3 Perfect Storms Facing Wealth in America

In just a few years, the wealthiest generation in history known as the Baby Boomer generation will be between the ages of 60 and 70. These Boomers are set to pass down their assets to their heirs and it will be the largest intergenerational wealth transfer in history. According to Cerulli Associates, by 2043, an estimated $68 trillion will pass to succeeding generations. Industry experts have dubbed this “The Great Wealth Transfer.” This is the first of three storms. The two remaining are economic and political.

Picture this. You’ve built your wealth for 40 years. You own a large primary home, investment real estate, cryptocurrency, stock, or a business and now are faced with selling and transferring this wealth to your heirs. With such a large amount of wealth set to transfer, high-net-worth individuals, families, and their advisers must be prepared for the changes and responsibilities associated with this wealth transfer.

Are We in the Eye of the Hurricane?

Consider the following proposed policy game-changing statistics regarding capital gains, stepped-up basis, and dividends taxes.

  • The American Families Plan would:
    • Tax long-term capital gains and dividends as ordinary income for taxpayers with taxable income above $1 million.
    • Tax capital gains at death for unrealized gains above $1 million ($2 million for joint filers).
    • Limit 1031 like-kind exchanges by eliminating deferral of gains above $500,000.
    • Tax carried interest as ordinary income.
  • The STEP (Sensible Taxation and Equity Promotion) Act would eliminate the step-up in cost basis. A step-up in basis means that upon death, an asset has its cost basis reset to the date of death.

Considering a storm may be coming to shift us from all-time economic highs in the stock market, real estate market, and cryptocurrency, does it make sense to sell your highly appreciated assets now?


When to Sell a Highly Appreciated Asset

According to a blog post by Financial Samurai, “Sometimes, selling is better to simplify life and earn a higher rate of return elsewhere … At the end of the day, your investment property’s main purpose is to generate cash flow in as painless a fashion as possible. Once the pain of owning becomes greater than the joy of earning, it’s time to sell. Continuously work towards that income stream that provides the highest return with the least amount of work … I believe the best holding period for real estate is forever. By not selling, real estate owners ride the unstoppable inflation wave. Further, by holding on, you never have to pay any onerous commissions and long-term capital gains tax. But forever is a long time.”

What if forever is too long for you, however, because you are facing large capital gains tax and the asset you are selling is deferrable using a 1031 exchange?


Using a Deferred Sales Trust to Weather a Storm

A Deferred Sales Trust™ (“DST”) offers an elegant way to move wealth into a safe harbor during the three storms facing wealth in America. It unlocks an exit plan for you if you are selling highly appreciated assets of any kind and eliminates the need for a 1031 exchange. Armed with this information and insight, you can position your wealth plan for yourself and your family’s future like never before.

What is a Deferred Sales Trust?

The Deferred Sales Trust has a long track record of success and has withstood scrutiny from both the IRS and FINRA since 1996. It is a tax strategy based on IRC §453, which allows the deferment of capital gains realization on assets sold using the installment method prescribed in IRC §453.

In simple words, if you sell an asset for $10 million using an installment sale contract, and finance the sale, you as the seller may not have received full constructive receipt of the cash. You have become the lender. You do not pay tax on what you have not received if you follow IRC §453 since it allows you to pay tax as you receive payments.

The buyer you lent money to will typically pay an agreed-upon amount of down payment to you upfront —for which you would pay tax — and then pay the rest of the purchase price to you plus interest in installments over a specific period of time. The deferral takes place as you wait to receive payment, which is typically three to five years.

What are the differences between the Deferred Sales Trust and 1031 exchange here? The answer is flexibility and timing. You can learn more about this in a recent interview from the Best Real Estate Investing Advice Ever Show.

Why Use the Deferred Sales Trust?

A Deferred Sales Trust unlocks the sale of any kind of asset and allows you to lower your risk by diversifying your investments and dollar-cost averaging back in the market at any time.

Examples of this include:

  • The sale of a primary residence
  • The sales of active investment real estate (this includes saving failed 1031 exchanges)
  • The sale of a business
  • The sale of cryptocurrency or stock (public or private)
  • The sale of artwork, collectibles, or rare automobiles
  • The sales of carried interest
  • The sale of GP or LP positions in your existing syndications
  • The sale of any kind of asset that is subject to U.S. capital gains tax

Three Questions to Determine if the DST Is a Good Fit for You

1. Do you have highly appreciated assets of any kind you would like to sell, defer the tax, invest the funds into real estate, and diversify the funds into a diverse set of investments, all tax-deferred? By a diverse set of investments, I’m referring to those who own asset types other than real estates such as cryptocurrency, businesses, artwork, collectibles, and public stock, all of which are not 1031 eligible. Yes, all kinds of asset types, not just real estate.

2. What would it mean to you to convert your highly appreciated asset — which may not be producing cash flow of any kind — to cash flow from passive or active real estate?

3. What is the return on equity in your asset?

I believe you are more likely to consider selling when you have a clear plan and solution to your capital gains tax, as well as a clear plan to increase your cash flow and lower/diversify your risk.

Here’s to helping you make the best decision for your family during the three perfect storms facing wealth in America!



About the Author:

Brett Swarts is considered one of the most well-rounded Capital Gains Tax Deferral Experts and informative speakers in the U.S. He is the Founder of Capital Gains Tax Solutions and host of the Capital Gains Tax Solutions podcast.


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a hand is inserted into a row of dominoes, protecting them from continuing to fall

How to Save Your Commercial Real Estate Company From Catastrophe

Real estate is a wonderful way to make lasting relationships, create wealth, and provide society with something it needs in the form of housing.

These are things people say when things are going well, and everyone is making money. However, what happens when things go bad? I am not talking about the kind of small “b” bad. I am talking about the big “B” bad. The kind of bad where you and your partner(s) are saber-rattling and lawyers are being called, big litigation budgets are in the offing, and you can see this very profitable business venture nose diving over things that should have been dealt with on the front end of this venture.


The Agreement

I cannot count the number of times I have met with a client who has been sued by a partner or is ready to sue their partner. From a partner refusing to allow access to the books and records, to one partner taking too much money, to cutting off a partner’s distributions, these are the issues that a little pain on the front end with a lawyer would have obviated.

How so? By writing a partnership agreement or operating agreement detailing who will do what, when. The best place to start drafting your problem-solving document is at the end of that document. What does this mean? This means that you draft a partnership agreement or operating agreement by breaking up the company first. It is best to agree on how to close the company and split the assets and profits when you and your partner(s) are getting along and everything is rainbows and butterflies with a pot of gold at the end of that rainbow.

Dissolution agreements or clauses help you construct the front end of the document. It is here that you can find out who is going to put some skin in the game. At the beginning of a venture, it is easier to have everyone agree that they will only get out their pro-rata share of what they put into the company. Thus, when the venture buys that apartment building, everyone knows: 1) how much equity everyone has, 2) how much each person paid for their equity, and 3) how much each person will get back if this venture ends.


Discuss the Details

Far too often good friends, business colleagues, and/or family decide it would be a good idea to be business partners and fail to approach business as the transactional matter it is. Not only will this naivete lead to hurt feelings and irreparably damaged relationships, but it will also lead you to the courthouse steps.

A partnership or other business venture that has not had the foresight to discuss the hard issues about its inner workings will ultimately find itself strangled to death by lawyers and the legal system. Notwithstanding the legal fees each party will pay their attorneys, the Judge has the ability to order a receiver to take over the business, wind up its affairs, and sell the assets. This means that your largest investment could go on the market against your wishes, sold for less than you and your partners think the business is worth, and you will only get what you can prove your equity is or was.


Understand Your Dynamic

In the context of syndication, it is important to know and understand these issues very well, either as a general partner or a limited partner. What do the documents say? What do those clauses mean? How much do you get if things go sideways?

Typically, a syndication deal is very well papered with documents, and you should be able to know how you get from A to Z. If you do not know your exit strategy or how you get your equity/money out, then you have some homework to do.

Syndication is successful because of the general partners who put the deal together. But those deals cannot work without limited partners who fund the projects. GPs and LPs need to understand their dynamic in a syndication relationship. Take the time to sit down with a pen and go over your partnership agreement. Know what you can expect in good times and bad.



About the Author:

Brian T. Boyd, JD, LLM,


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4 Tax Code Changes and 1031 Exchange Help

5 Proposed Tax Code Changes and How the Deferred Sales Trust Can Help

Will the tax reform be a commercial real estate game-changer? With the change of guard in the United States government, now is the time to put the tax proposal in perspective and learn how the Deferred Sales Trust can help you prepare for the federal capital gains tax rate moving from 20% to 39.6%, elimination or reduction of the 1031 exchange, elimination of the stepped-up basis, carried interest to be considered ordinary income, and the $11.58M estate tax exemption decreasing to $3M.



1. Federal Capital Gains Tax Rate Increase by Almost Double

The American Families Plan proposal would double the long-term capital gains rate from the current 20% to 39.6%, not including the existing Net Investment Income tax of 3.8% and any state taxes payable.


2. Eliminate the Stepped-Up Basis for Inherited Property

The American Families Plan proposes major changes to the way estates treat capital gains. Currently, the value of assets in the estate, including investment property, is “stepped up” to fair market value at the real estate investor’s date of death. In that way, the inheritors do not have to pay capital gains tax on the capital appreciation of the decedent’s assets. If the Families Plan is passed, this step-up would be eliminated for gains in excess of $1 million ($2.5 million for couples when also considering the existing exemption for their primary residence).

If the step-up in basis were eliminated, inheritors would have to pay capital gains whenever they sold the assets, including millions of dollars worth of investment properties or a family home.

If the asset had been purchased for a low price many years ago and held, then the tax basis vs gain (the property’s current market value at the asset owner’s death) would trigger a large tax, leaving much of a family’s real estate wealth legacy to pass to the government. This will be a game-changer for many investment real estate owners who were underwriting their cash flow and wealth model based on, “swap (1031) until you drop and drop until you drop.” Inheritors may feel compelled to sell inherited property in potentially unfavorable market conditions just to pay the tax. This is kind of like letting the government tax bill wag the selling of the investment dog.


3. Sunsetting Estate Tax Exemption

The $11.58M estate tax exemption could decrease to $3M. The federal estate tax exemption is the amount you may give away during your lifetime and own at your death without subjecting it to a 40% estate tax. In other words, any assets you own at your death in excess of the current estate tax exemption will be subject to a 40% tax on its fair market value.


4. Carried Interest & Promotes To Be Treated as Ordinary Income

Many CRE investment projects are sponsored by a general partner who can earn a share of the profits associated with the investment based on certain performance hurdles. This share of the profit is known as the sponsor’s carried interest or “promote.” Currently, “promotes” in real estate partnerships are generally taxed at the long-term capital gains tax rate. The proposal would treat “promote” interests as ordinary income. As a result, the sponsors would receive fewer net profits and would have less incentive to invest in improving real properties or hitting performance hurdles.


5. Elimination or Reduction of the 1031 Exchange

The American Family Plan partially repeals the remainder of IRC Sec. 1031, limiting the amount of the gains deferral to $500,000, which practically eliminates the 1031 exchange for anyone selling property with a gain of $500,000. To clarify, you could still use the 1031 exchange for properties of any value, however, if the capital gain on the sale of property exceeds $500,000, the excess gains would be taxable at the new higher individual income tax rate.

What the Deferred Sales Trust Can Do for You

Consider selling assets before you die and moving them into the Deferred Sales Trust or Deferred Sales Trust Plus in order to: 

  1. Defer higher capital gains tax.
  2. Move equity outside of your taxable estate to eliminate the 40% estate tax.
  3. Maintain deferral of capital gains tax, which your inheritors can continue to defer.
  4. Defer your carried interest to prevent it from being taxed at ordinary income rates.
  5. Eliminate the need for a 1031 exchange.


Sorting out capital gains tax deferral strategies can be confusing. Also, finding a tax deferral strategy with a proven track record that gives you debt freedom, liquidity, diversification, and the ability to move funds outside of your taxable estate, all without using a 1031 exchange at the same time, is difficult. That’s why we’ve started Capital Gains Tax Solutions and offer The Deferred Sales Trust™ (“DST”). So you or your clients never have to feel trapped by capital gains tax or a 1031 exchange ever again.

Here’s to making the best decision for you, your family, and your estate, no matter what the final decision will be for the Biden administration on the 1031 exchange.


About the Author

Brett Swarts is the founder of Capital Gains Tax Solutions and host of the Capital Gains Tax Solutions podcast.


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How to Invest in Real Estate with a Self-Directed IRA

Self-Directed IRAs are great ways to buy real estate by tapping into your retirement nest egg. If you have a 401(k) you will have to roll that investment vehicle to a Self-Directed IRA before you can use those funds to purchase real estate. Below is a thumbnail sketch of this Investment Strategy. I encourage anyone interested in this approach to talk with your financial advisor, CPA, and attorney.

With a Self-Directed IRA you can purchase single-family, multifamily, apartments, commercial properties, raw land, and other types of real property. While not as easy as buying shares of a mutual fund on your retirement brokerage’s platform, it is easy enough if you know the rules and can navigate those properly.

It Must Be A Self-Directed IRA

Before you can do anything, you must first have a Self-Directed IRA. Alternative forms of investments are allowed under this type of investment vehicle. (Alternative forms of investment for purposes of this blog post means real estate.) A self-directed IRA is independent of a brokerage, e.g. Schwab or Fidelity, etc., so the restrictions that generally preclude investing in real estate are not hindering you from now investing in that apartment building you have had your eye on.

In order to buy real estate you must have a custodian, which is an entity that specializes in self-directed accounts that will manage the transaction, paperwork, and financial reporting compliance. The custodian is your gate-keeper and protector to keep you between the lines and away from any rule violations. These custodians charge a fee for their administrative service.

Of note about this type of property purchase is that you don’t actually own the real estate- your Self-Directed IRA does. Real estate purchased through a Self-Directed IRA will be titled “ABC Trust Company Custodian FBO Jane Doe IRA.”  Thus, the property is not titled in your name, but in the name of your IRA since it is an asset of your new Self-Directed IRA.

Qualified vs. Disqualified

Critically important to know about the property is that it cannot be your vacation home. It MUST be held purely for investment. This is true even for your family who are considered by the IRS as “disqualified persons.” The following is a list of those “disqualified persons.”

  • Your Husband or Wife
  • Parents, Grandparents, and great-grandparents
  • Children and spouses, grandchildren, great-grandchildren
  • Any service vendor to your IRA
  • Any entity that owns more than 50% of the property

Additionally, you CANNOT buy from these people either. They are “disqualified” in every sense of the word for this investment vehicle. Should you buy from one of these individuals, you will get flagged for self-dealing. Violating this cardinal rule of Self-Directed IRA ownership could subject your entire Self-Directed IRA funds to immediate taxation.

Buying The Property

It is important to know that Self-Directed IRAs have a difficult time obtaining mortgages. So, most investments will be cash purchases or investments. Make sure to factor this into your rate of return when analyzing a deal.  Leveraging deals gets tricky and oftentimes not possible thereby impacting your return on investment.

If you can find a bank to finance a deal for you, it is important you speak to your CPA about §511 of the Tax Code. This particular section of the code is related to unrelated business taxable income (UBTI). The revenue from this property could fall into the purview of this code section.

No Deductions

A Self-Directed IRA is not taxed. If the entity is not taxed, it logically follows that the entity cannot take deductions. One of the lures to owning real estate, in my opinion, are the tax benefits of ownership. This tax benefit is all but eliminated by the use of the Self-Directed IRA. In short, there is no depreciation, no interest deduction, no property tax deduction, no maintenance deductions, etc.

The bright side to this ugly truth is that you don’t have to pay for the associated costs of ownership. Your IRA will pay for all of those costs. But, what happens if the IRA doesn’t have enough funds to cover those costs? Unfortunately, you cannot pay for those out of pocket. Instead, you have to contribute to the IRA and if you have exceeded your contribution amount for the year, you will have to incur the penalties associated with that contribution.

Selling The Property

All sales of the property are conducted through the custodian. Any funds received will go back into your IRA tax-deferred or tax-free, depending on your IRA’s constitution. As with most property sales, it is never fast. Bear that in mind as you consider this type of ownership.

There are benefits and drawbacks to this type of ownership. It is not for everyone. In fact, there are some people who have completely liquidated their 401(k)s and other investment vehicles to take the penalties and taxes so they are free to use the remaining funds more freely. You will need to read more about Self-Directed IRAs to understand the details more fully. Also, speak with your investment advisor, CPA, and Lawyer.

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What Legal Entity to Use to Hold Real Estate Investments

How should I hold my real estate investments, in an entity or in my individual name?

This is the single most asked question I get as a lawyer. There is no “right” way to hold real estate and it is up to the individuals who are buying the real estate. BUT, make sure that you have looked at all options and that you understand all those options. To better understand the options it is important to ask one question: What is your goal?

To many people, this question may seem to have an obvious answer, but it really does not. This question has layers to it that peel away like the layers of an onion. There are tax consequences to consider, asset protection concerns, and even municipal/city code considerations that have to be taken into account for holding real estate in your individual name or in an entity. Below are the most common entities that real estate investors utilize to hold their investment properties. The descriptions are not exhaustive and each one is akin to running down a rabbit hole of nuance and intricacies. These descriptions are simply an overview.

Limited Liability Company

A limited liability company (“LLC”) is a popular method of buying, selling, and holding real estate. Why? Because the owners (Members) are not personally responsible for the company’s debts or liabilities. LLCs are a hybrid of the corporate protections afforded to Corporations and the tax benefits of a partnership. Regulations pertaining to LLCs vary from state to state. Below is a primer on the basics of LLCs.


A Single Member Limited Liability Company is considered a disregarded entity for tax purposes. What does that mean? Well, in short, it means that the protections of the Limited Liability Company are provided to the Single Member (YOU) while the tax consequences pass through the entity to the appropriate schedule on your 1040 tax return. In essence, the IRS looks at this form of entity as though it is not there.


A Multi Member Limited Liability Company is simply a Limited Liability company with multiple members, individuals or other entities. The taxation of this entity is still treated as a “pass through” entity with the MMLLC providing a K-1 to the members that shows them their interest, share or percentage, of the profits and losses to be reported on their respective tax returns.

Series LLC

A Series Limited Liability Company is a Limited Liability Company that was created to create more efficiency in the LLC regime by allowing one entity to hold multiple properties under the umbrella of a single LLC. Within that single LLC there are series that assign to each property tranche its own tax identification, books, and bank accounts. The same protections apply to this entity as to the other types of LLCs but instead of paying multiple annual fees to the state agencies, it would pay one.

S Corporation

An S Corporation that enjoys limited liability and is a Pass-Through entity that is itself not subject to tax BUT it is limited to 100 stockholders that cannot be partnerships, corporations or non-resident alien shareholders. This type of entity has only one class of stock and is a domestic corporation. The profits and losses pass through to the individual shareholders on a K-1. This entity files a Form 1120S return with the IRS and the shareholders must report their profits and losses reported to them on their K-1s on the appropriate schedule on their 1040 tax returns.

C Corporation

A C Corporation is an entity that is taxed at the corporate level and enjoys limited liability. However, it is NOT a pass-through entity. Thus, the profits and losses of the Corporation do not pass through to the shareholders.


A trust can be of several forms but to simplify it I will simply categorize them as Revocable and Irrevocable. Revocable trusts are those that the Grantor (You) can control and would still be included in your estate upon your passing. There are few protections with this form of trust. An Irrevocable Trust is one that you do not control, generally, and have no direct control over since you have assigned the ownership of property to that Trust. Since the property is no longer in your name, you do not own it and are not liable for it any longer. Books have been written about trusts and this area of law actually is a niche unto itself. Trusts are very clean and effective ways to enjoy the benefits of asset protection, estate planning, and to receive the proceeds of the largesse of the trust. Trusts file their own returns and the beneficiaries report their income from trusts on their tax returns.


A partnership is an agreement by more than one person to endeavor to make money together in a business enterprise. Partnerships can be general, limited, limited liability partnership and LLC Partnership.

General Partnership

Typically, the partners manage the business and assume responsibility for the partnership’s debts. Personal assets are at risk in a general partnership and the partners are responsible for the each other’s actions.

Limited Partnership

These partnerships are more structured and have both general and limited partners. Limited partners are usually only investors while the General Partners are those that own and operate the company and assume the liabilities for the partnership.

Limited Liability Partnership

This type of partnership are those that the partners are not held liable for the debts of the of the partnership and have not responsibility for the actions of the other partners. The protections vary from state to state so make sure you check with a lawyer.

Limited Liability Company Partnership

LLCs can be and usually are taxed as partnerships. In most cases, the members cannot be sued for the business’s actions or debts, however, the members can be liable for the actions of other members.

None of the Above

Another option, is to hold the property in your individual name, buy insurance and be cautious. This exposes your personal assets in the event you are sued.

Entity choice is dependent on the investor. Speak with your team about what is best for you. As you can see, there are a variety of ways to hold real estate. It’s a business decision and one that should be considered and chosen with the help of professionals.

Brian is a licensed attorney in Tennessee who handles commercial, real estate, construction, and business issues for clients. He and his wife also invest in real estate. To learn more about Brian, visit

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Two Common Real Estate Scenarios: Communication and Protection

Two Common Real Estate Scenarios: Communication and Protection

In this blog post, we’re going to be looking at two niche real estate scenarios that can happen to just about any investors.

The first scenario involves dealing with older potential clients and original buildings. If you’ve been in this situation before, you know that it can be quite a delicate process getting older owners to sell.

Communication Issues

Imagine this: You just found a potentially amazing off-market apartment building deal. It has 150 units and a $4 billion portfolio. It was purchased back in 1978, just over the 39-year expiration of the depreciation tax benefits law. The owner is in his late 80’s and purchased these buildings when they were first built at the time. You give him a call and ask him if he has any interest in selling, but he has trouble hearing you. He hands the phone to his caregiver, who abruptly says no and hangs up. What solution is there?

What one should do in this situation is to get curious. Start asking yourself some questions, then draft a letter to them. This is how you can learn more about their situation while introducing yourself to them. This is your chance to say, “I’m not sure where you’re at in this stage of owning these properties, but I can tell you that you might be worried about tax liability when you sell them. I have experience purchasing these types of buildings and I’d be happy to talk about some solutions any challenges you might be having.”

Penning a handwritten letter shows care and integrity. Keep in mind that many people of a certain age are struggling to keep up with the constant innovations and growth in the tech and digital world. A handwritten letter could be a breath of fresh air and a means to communicate that potential sellers may appreciate.

Protection From Embezzlement

Now, think of this scenario: You’re embarking on a general partnership in the real estate industry. It is your first time committing to such a project, and you’ve heard horror stories from colleagues involving embezzlement, fraud, and massive loss of funds. The general partner controls the business plan as well as the financial account connected to the project. You’re wondering how you can protect yourself from them embezzling funds from the operational account, and what auditing protocol you can use to protect yourself as a passive investor from theft.

There are several ways to approach this, but we can look at the most tried and true method.

You can have some checks and balances before the deal is done, which won’t be very much. After the deal is closed, though, you can do a lot more. For this scenario, we’ll look mostly at what a beginner real estate investor can do preemptively to stay safe in a general partnership.

There is no money for a potentially untrustworthy or shady general partner to take before the deal, but you can do some due diligence prior to a deal. If a shady partner is going to steal money from the entity itself, then they would have to do it afterward. This is because that is when the money is physically in the bank account.

Before the deal closes, there are a few things you should do. First off, you should absolutely take the time to look at the overall structure of the deal to make sure that there is at least an 8% preferred return. Make sure that the general partner is getting paid an asset management fee if and only if they are actually performing. If they’re proving themselves and they’re returning the preferred return, they can get that asset management fee. Otherwise, they get nothing.

Obviously, these are things that aren’t going to outright prevent someone from stealing money in a general partnership. When it comes down to it, they’re just small things you can do to ensure that the deal itself is set up in the mutual favor of you and your general partner, so that you have an alignment of interest.

Those are some things you can do before the deal. Another thing you should absolutely be doing before signing on anything with a general partner is to check those references. You can absolutely not go into a general partnership blind with no knowledge of who you’re working with. Even if the hearsay is overwhelmingly positive, you absolutely need to still check in with the partner’s references. By doing so, you’re going to get a really good picture of what the partner is all about.

Call their references and listen to what they have to say. We’re talking about past partners, firms, project managers, any business colleagues or people who have worked with this particular partner. Even if you get glowing reviews, you should then Google your partner. Those are things you’re probably already doing, but it really can’t be optional if you’re a baby real estate investor. You can be seen as an easy target because you don’t necessarily know the signs and symptoms of a parasite real estate partner. When you Google them, look for the partner’s name or firm title. And don’t be afraid to dig deep.

This doesn’t directly answer the question of how to make sure they’re not embezzling money, and we’re aware of that. However, there is some prep work that needs to be done on the front end to mitigate the risk of getting in with a group that is known for criminal activity. Sometimes that front end research is really all you need to check out.

What do you think about these two scenarios in real estate? Have you experienced either situation in your career? Tell us your real estate story in the comments below!

Image courtesy of Pixabay

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Why and How to Hire the Best Real Estate CPA

If you don’t want to have a heart attack in ten years, or maybe even sooner, I highly recommend hiring a CPA and bookkeeper.

When searching for an investment CPA, first and foremost, you want to make sure they already work with clients who are doing what you are doing, which in my case are apartment investors, or more specifically, apartment syndicators. Therefore, the first question I would ask in an introductory email or phone call is, do you currently work with other apartment syndicators?*


*If you aren’t an apartment syndicator, whenever it is referenced in this post, exchange it out with your focus. The process can be applied to hiring a real estate CPA in any niche.


If they don’t know what apartment syndications is, that’s obviously an indicator that they don’t work with syndicators.

If they know what apartment syndication is, but they don’t work with any syndicators, that’s not necessarily a deal breaker. However, I would recommend finding someone else because you don’t want them learning the ins-and-outs of apartment syndication on your dime. You want an investment CPA who already knows the types of tax deductions you can take and knows the apartment syndication business model.

If they do know what apartment syndication is AND they currently represent syndicators, then the next step is scheduling an in-person interview, with the purpose of getting into their tactics. To accomplish this goal, ask the following 9 questions:


  • How are your fees structured? Get an understanding of exactly how you will be charged. Will there be fees for each time you call in? Can you give them a quick call every now and then and not be charged? Do their fees include the tax return at the end of the year or is that separate? Do they charge a monthly retainer for conversations? How do they structure bookkeeping fees?
  • Who will be your point person? When you sign up for their services, who will you be engaging with? Will it be someone right out of college, a partner, or a mid-level real estate CPA?
  • How conservative or aggressive are you with the tax positions you take? Additionally, does the conservative/aggressive nature of the CPA align with your desires? If taking aggressive stances, how will that be communicated to you for you to understand and accept? You may rely on the investment CPA to prepare your tax returns but, ultimately, when you sign your tax return, you are taking responsibility for it.
  • Does the CPA offer a secure portal to transfer sensitive files back and forth? Tax documents contain a lot of personally identifiable information (social security numbers, adjusted gross income, etc.) via regular email. Stolen identities can wreak havoc on your personal and professional lives for years
  • How proactive are you with tax planning and how to your tax planning services work?
  • Are you able to file tax returns for all state and local governments in the country?
  • If you previously had a failed relationship with another real estate CPA, be upfront with your new prospective CPA about why it failed.
  • What is expected of me as a client? Expectations should be set early and communicated clearly
  • May I have some references? No matter how great the interview goes, always ask for references in order to make sure they are legitimate.


After interviewing a handful of investment CPAs, analyze their responses, determine which one aligns with your interests and goals the most and move forward with using their services.

One final note about CPAs/bookkeepers: as your business grows, your needs evolve. Moreover, a real estate CPA who you selected as a beginner wholesaler may not be the best CPA after your wholesale business has grown dramatically, or if your business model has expanded to include other niches. So, as these changes occur, it may make sense to conduct additional interviews – even if only to confirm that you’re current CPA is still the proper choice – and make any personnel changes if necessary.

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4 Legal Ways to Get Paid Raising Capital for Apartment Deals


A question I receive all the time is how can I make money from connecting syndicators with high net worth individuals? Unfortunately, it is not as simple as going out into the market and just doing it. There are rules and regulations around the money-raising business, and the main issue is making sure you aren’t performing broker dealer activities. If you are doing so without the proper certification, you are breaking the law.


Amy Wan, a crowdfunding lawyer who was named one of 10 women to watch in the legal technology industry by the American Bar Association Journal, is an expert on the rules that regulate the money raising industry. In our recent conversation, she provided four ways you can legally raise money without being a broker or a dealer.


Disclaimer: The purpose of this blog is educational purposes only. This is not legal advice. Consult with an attorney before taking any action!


What is a Broker Dealer?


There are four things that regulators look at when determining whether someone is engaging in unlicensed broker activities. Amy said those four things are:


  • “Are they taking transaction-based compensation? Transaction-based compensation is basically payments based on the transaction amount – how much money they’re bringing to the table. [For example], commissions, straight up commissions – that’s definitely transaction-based compensation.”
  • “Are they soliciting or going out and trying to find potential investors?”
  • “Is that person providing advice or engaging in negotiations? Are they helping to structure this deal in any way?”
  • “Do they have previous securities deals experience or history of disciplinary action?”


If you are involved in the activities outlined above, you are engaging in broker dealer activities.


Assuming you want to raise money without getting your broker dealer’s license, here are four options to pursue.


#1 – Become the Issuer


As a broker dealer, by definition you are selling securities to other people. So one option is to sell securities to yourself by becoming a part of the issuer. Amy said, “If you become part of the issuer, and what that means is you’re not just raising money, you need to be doing other things that area a little bit more day-to-day. But if you are part of the management or the GP or whatever it is who’s the active sponsor, then suddenly you’re not selling securities for others, you’re selling securities for yourself.”


The key here, and to most of the other options I will outline below, is to perform additional duties on top of raising the money. Amy said, for example, “maybe the guy helps them set up their bank account. Maybe he advises them on what strategies they should use for student housing, or any other area that maybe he can contribute. Maybe he’s helping out with property management, or helping with monthly distributions. Something that’s not purely just the raising capital. If he is involved actively in some of the day-to-day AND he’s raising capital, suddenly we’re not raising money for other people. We’re raising for the money for ourselves and that’s okay.”


Related: 6 Creative Ways to Break Into Multifamily Syndication


#2 – Give Class B Interest


Your second option is similar to the first, but instead of being a part of the issuer or management, you’re a part of a separate entity. The syndication can be structured with two classes of ownership interests. One is class A, which is for the investors, and another is class B, which goes to you.


When following this strategy, Amy said, “instead of them being a part of management, they’re not actually a part of the owner or the issuer anymore. They are a separate entity. You are giving them some of the class B shares, even though they’re not actually part of the management.”


However, just like option #1, you want to perform additional duties on top of raising money, and the compensation cannot be based on how much money was raised. “If you give a guy maybe 5% of whatever the class B interest is, if you make it not transactional-based compensation – maybe he gets 5% regardless of whether he brings in a million dollars or a hundred thousand – that starts looking a lot less like being a broker dealer,” Amy explained.
“And again, just as with the last example, even if they’re not a part of the management, it’d be nice if they could provide some sort of additional service. Maybe it’s them personally guaranteeing the loan. So even if they’re not bringing capital, they’re helping you get capital from the bank because they’ve signed the loan documents.”


#3 – Charge a Finder’s Fee


For a more creative option, you can charge a finder’s fee. However, just like the previous two options, you need to be careful to not tie the fee to the amount of money raised so it’s not transactional-based compensation. It should be a flat fee.


You also need to be careful when soliciting investors, which applies to all four options. Amy said, “when we’re soliciting investors, what we don’t want to do is to pre-screen or to recommend an investment or anything of the sort. But if it’s a mere e-mail introduction to someone who’s just interested in learning about multifamily apartments generally, and the person happens to know that this guy also happens to be interested in investing in real estate, that on its face is okay.”


When doing investor outreach, you don’t want to say something like, “Hey, Joe has this amazing 250-unit apartment complex that he’s raising five million dollars for. You should take a look at this.” You want to do soft introductions and nothing more.


#4 – Become a Consultant


The last option that Amy sees a lot is to negotiate with the issuer to become their consultant. And again (sounding like a broken record), the compensation structure cannot be based on the amount of money raised.


As a consultant, Amy said, “they’ll sign a consulting agreement. The consultant has to do a number of things. One of them could be going out and helping to raise capital or make those introductions. But it has to be that this consulting agreement is not merely raising. What we’re paying the consultant is not based on how much capital this person brings in, and as is the general theme here, they should have some sort of other job too.”




In order to make money by raising capital for apartment deals, you must avoid performing broker dealer duties. Your four options are:


  • Become part of the issuer
  • Give class B interest
  • Charge a finder’s fee
  • Become a consultant


Finally, before doing anything, run your plan by an attorney. Amy offered to provide advice or connect you with an attorney. You can find her at


Related: 4 Skillsets Needed Prior to Raising Private Money for Apartment Deals



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Three Tax Strategies You Didn’t Know About to Save You Thousands


When was the last time your accountant brought you an idea that saved you thousands of dollars in taxes?


That was the question that pushed Travis Jennings, who has educated the wealthy on better techniques to improve their finances, investments, and taxes for over a decade, to launch an automated online platform to share the solutions of the top 1 percent with beginner investors. In our recent conversation, he provided three techniques to save thousands of dollars on this year’s taxes.


Technique #1 – Rent your house to your business


If you create a LLC, then by definition, you are a business owner. As a business owner, there are many different ways to decrease your tax bill. One well known example is deducting the square footage of your home office. However, what most investors don’t know is that they can rent their entire house for business events.


Travis said, “let’s say that I threw a pool party and I invited a friend of mine that was potentially going to become a client. Well, as long as we discuss business and we take notes, I get to rent my home to my business for that day.”


To determine how much in rent you can deduct, go to a site like, look up your homes estimated monthly rent, divide by 30, and that is how much you can write off for each event. For example, let’s say Zillow says your home could potentially be rented for $3,000 a month. That’s $100 per day. If you host a business event once a month, that’s a $1200 savings.


Travis said, “there’s some structure to that. You want to take notes. You want to have [meeting] minutes. You kind of want to briefly write down what you discussed that was business, and just in case one day you ever get audited, you’ll have some proof as to what you did.”


I host a monthly poker event with some friends and investors, so I plan on implementing this strategy immediately, and you should too!


Technique #2 – Hire your kids


Do you have kids? Put them to work and realize even more tax savings. Travis has three kids, and he puts all three to work at his home office. Once your kids turn seven, which is the age of Travis’s youngest, you can hire them.


Travis said, “you may have heard of this, but I’m going to give you a twist that’s even more fun. So what if we hired our kids at the 0% tax rate? What if we paid them $6,300 a year? Well, then effectively what we would be doing is shifting dollars off of my tax return and putting it onto their tax return. And if we’re paying them just enough to be in the 0% tax rate, if I’m in the 40% tax rate, I’ve just saved 40%. So on 3 kids at $6,300 a piece, I’ve just saved myself about $8,000 in taxes.”


Technique #3 – See if you have the right CPA


The biggest mistake a typical real estate investor makes from a tax standpoint is never upgrading accountants. “I would say that most investors – real estate included – don’t start off with the ten million dollar projects,” Travis said. “They build up to it. So then the accounting professional or your tax advisor is typically the advisor that you had in the beginning. I would say that most people don’t grow or they don’t reevaluate their trusted advisors enough. They just roll with what they’re comfortable with.”


The CPA that specializes in new development and a standard CPA, for example, have two completely different skill sets. If you have the wrong CPA for your niche, you could be missing out on huge tax savings.


A great way to determine if your CPA is the right fit, and if they are capable of getting you the most tax savings, Travis said to ask them “Can you tell me about one of the solutions in the last month or so that you implemented with a different client to save them a bunch of money in taxes?” He said, “if they stutter, if they seem unsure how to answer it, then they’re probably not doing a lot of proactive tax planning.”


Related: How to Save Thousands of Dollars on Your Taxes Via Cost Segregation



Which of these three tax strategies will you implement? Leave you answer in the comments below.


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The 4-Pronged Test to Raise Money Legally and Avoid Fines, Lawsuits, and Jail Time

Have you ever thought about raising money from private investors and buying large multifamily buildings? If so, it’s important to know if you must adhere to the SEC guidelines. If you fail to do so, you will be susceptible to fines, lawsuits, and maybe even jail time.


In fact, the SEC’s main revenue stream comes from pursuing syndicators who break the “rules.”


In a recent conversation with Jillian Sidoti, an attorney who’s an expert on money raising techniques for real estate investors, said the SEC “runs on fines. That’s how they make money. That’s how they justify their existence, by generating revenue through fines. They’re looking for people who are not following the rules.”


Luckily, she told us all about the Howey Test and how investors may use it to avoid issues with the SEC.

Sticking to the Rules

Fines from the SEC can be problematic, but Jillian said the larger threat, in regards to breaking SEC guidelines, are your investors. “If you don’t do right by your investors, that not doing right by your investors [and] not following the law in the first place is going to be exhibit A against you in the trial against you when your investors come to see you [in court],” she said. “It could just be you having a falling out with an investor, or an investor needs their money back in the middle of the project. How are they going to get it back if you’re not very willing to give it to them [or you can’t give it to them]? They’re going to sue you and they’re going to use all of this evidence against you in order to get their money back.”


How can you avoid the wrath of both your investors and the SEC? It’s fairly simple: Don’t make the biggest legal mistake Jillian comes across – not understanding the difference between a security and a joint venture. And there is a lot of misinformation out there.


“I often hear people say to me, ‘Well, if I just use a joint venture agreement or call it a joint venture, then that’s not securities and I’m in the clear,’” Jillian said. “I’ve sat in a seminar where people say, ‘If you just use a joint venture agreement then you don’t have to worry about any of these securities laws and you can do whatever you want,’ and that is simply not true.”


Raising money for a deal and believing that securities laws do not apply to you (because you think it’s a joint venture) can land you in a lot of legal trouble down the road. It is not worth pursuing the short-term benefits of a joint venture.

Applying the 4 Prong Test

How to you know if securities laws apply to you? Jillian provided a simple 4 prong test, commonly known as the Howey Test. If these “prongs” apply to your situation, then you must adhere to SEC securities laws, which means it would highly benefit you to find a good securities attorney like Jillian.


Here is the 4-prong Howey test to differentiate between a security and a joint venture:

  • Investment of Money: this will be a given since investors are giving you money to invest in a deal
  • Expectation of Profit: of course, your investors expect to make money, which is why they are investing with you, so this will apply to your situation
  • More than One Investor (i.e. common enterprise): This doesn’t mean “do you have one investor?” If you have only one investor period, you and that investor form the common enterprise. Again this will apply to your situation
  • Through the Efforts of a Promoter: This is the “prong” that mainly differentiates a security from a joint venture. If you doing all the work and your investor or investors are passive, it qualifies as a security.

If your situation meets these four-prongs, it is an investment contract and you are required to follow SEC guidelines. According to the SEC, the definition of an investment contract is “an investment of money (#1) in a common enterprise (#3), with an expectation of profits (#2) based solely on the efforts of the promoter (#4).”

For more on the differences between a security and joint venture, read Joint Ventures or Securities – What’s the Difference? And of course, consult with a securities attorney.


When raising money for deals, in order to avoid fines from the SEC or losing potential lawsuits from your investors, you must understand whether or not your situation is regulated by the SEC. This is determined by the 4-pronged Howey Test:

  • Is there an investment of money?
  • Is there an expectation of profit?
  • Is there more than one investor?
  • Is everything done through the efforts of a promoter?

If the answer is “yes” to these four questions, you are regulated by the SEC and must adhere to their rules.

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How to Avoid Lawsuits When Offering Real Estate Related Services


If you have been a follower of this blog, you know that I am a huge advocate of thought leadership platforms, whether it’s a blog, podcast, YouTube channel, etc. At some point, you may want to monetize your platform. For example, you offer a consulting program where you charge investors $10 a month to access premium content. Or you can sell an eBook.


Related: Click here to learn how to monetize your thought leadership platform in my interview with millionaire consultant Sam Ovens  


Once you begin offering services for money on your website, you are entering a whole new realm from a legal standpoint. In order to avoid getting sued, additional steps are required.


David Chapo, who has 24 years of experience in providing legal services, specializes in Internet law. In our recent conversation, Richard explained the three clauses to include in your terms and conditions in order to eliminate 85% to 90% of the potential lawsuits against your online business.


Disclaimer: I am not a lawyer. For legal advice, please consult with an attorney. Reach out to David here and mention this blog post for a free consultation.


#1 – Choice of Forum Clause


The first clause to include in your terms and conditions is the choice of forum clause.


With the choice of forum clause, if someone were to file a lawsuit against you, you are able to select the location where the issue will be heard. “That clause simply says any and all legal disputes are going to be heard in Florida, or wherever [you are] located,” Richard said.


The great thing about the Internet is that it’s worldwide. From a legal perspective, the danger of the Internet is that it’s worldwide. Therefore, without the choice of forum clause, if you live in Florida and a someone from Seattle files a lawsuit against you, it may occur in Seattle. However, if your choice of forum clause states that all proceedings will occur in your state (Florida in this example), that individual is less likely to pursue a lawsuit since they’ll have travel to your state.


“Google uses this, Twitter, and they’re upheld about 75% of the time there’s an equity evaluation that a court will do,” Richard said. “Just having a single clause and binding users to it can often eliminate lawsuits.”


#2 – Mandatory Arbitration Clause


Based on the outcome of a 2011 case, “you can now include an arbitration clause,” Richard said. “The reason this is important is arbitrations tend to be very pro-business. They are not decided by juries. They are decided by retired judges or attorneys, so technical arguments are the defenses that business make – and this would be true in real estate – are received better. They’re more persuasive and can lead to better results.”


With this clause, consumers cannot take you to actual court. Instead, it goes to arbitration, which as Richard said, are much more business friendly.


#3 – Class Action Waiver Clause


Most transactions online are fairly small. You are charging tens or hundreds of dollars a month for consulting, you are selling a $9.99 eBook, etc. Since the dollar values are so small, most people aren’t going to sue you. However, the way to get around this “problem” is through a class action lawsuit. “Instead of just one person filing … an individual lawsuit, they’re all grouped together, so you end up with what’s called a class,” Richard said. “With terms and conditions now, you can include a class action waiver clause, which says … that you can’t pursue a class action lawsuit.”


This clause will likely not apply to many of you because Richard said that the minimum amount of people in a class has to be 5,000 people. Unless you have a huge consulting business, sell thousands of books, etc., this won’t affect you. But, might as well include it just in case.


Check the Box Clause


In order for all three of these clauses, as well as your entire terms and conditions, to be enforced, you must have your customers agree via a signature or a checkbox. Richard said, “that check the box provision is really essentially a signature from the user, saying ‘Okay, I’ve read this.’ Realistically, they haven’t read it still, but they know that it’s there and they know they’re agreeing. So if [you] are using a site where they’re causing somebody to do something, be it a purchase, be it joining a membership for advice or something of the sort where the user has to take an affirmative action, you want to use that [check the box] clause.”




Based on my conversation with Internet attorney David Chapo, there are three clauses to include in your terms and conditions in order to avoid 85% to 90% of potential lawsuits.


  • Choice of Forum Clause: you chose the location of where potential lawsuits will be heard
  • Mandatory Arbitration Clause: users cannot take you to court. Instead, any lawsuit will be through an arbitration
  • Class Action Waiver Clause: a group or class cannot pursue a class action lawsuit against you


For these clauses to apply, you must have users “check the box” to agree to your terms and conditions.


Again, I am not a lawyer so before doing anything, consult with an Internet attorney like David.



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How a “Rich Dad Advisor” Directs Investors to Transfer Title to an LLC


Garrett Sutton, who is a member of the elite group of “Rich Dad Advisors” for Robert Kiyosaki, assists entrepreneurs and real estate investors to protect their assets and maximize their financial goals. He accomplishes this by leveraging legal loopholes from a tax and legal standpoint. In fact, his best ever advice is, “With loopholes for the tax side, you want to open those and take advantage of them, and on the legal side, you want to close them and protect yourself.”

In our recent conversation, he explained one legal loophole that helps investors accomplish LLC asset protection, which is transferring assets from a personal name into an LLC.

Why Transfer Real Estate Into an LLC?

If you purchase a piece of real estate as an investment and keep it in your personal name, from a legal standpoint, you are leaving yourself and your personal assets open to attack.

For example, “When someone’s looking to sue over the property at 123 Elm St.,” Garrett said, “and they go to the county recorder and it’s in your name, that’s an easy path for them to get at your personal assets.”

On the other hand, Garrett said, “When the county recorder says 123 Elm St. is held by [fill in the blank] LLC, an attorney is going to think twice about suing, especially on a personal claim against you.”

The reason why LLC asset protection works is because they’ll go after a property under a personal name rather than an LLC, and, if the business is structured properly, it’s going to be difficult for the attorney to penetrate and get to the asset.

How Do You Transfer Real Estate Into an LLC?

A common concern to transferring property titles to an LLC is, “Well Joe, what if I have a loan against a property? Won’t transferring the title to an LLC be considered a transaction and trigger the due on sale clause?”

According to Garrett, it is not considered a sale. “You’ve just transferred it from your name to your LLC. You haven’t sold the property,” Garrett said. “And in most cases, 999,000 out of a million, it’s just not going to be an issue. The bank will not call the note.”

In order to ensure that you don’t fall into the 1,000 out of a million who has their note called, Garrett says, “Here’s the magic language you use if it’s an issue… It’s called continuity of obligation.”

What continuity of obligation means is when you purchase, let’s say, a duplex in your personal name, you were required to sign a personal guarantee on the loan. Also, you had to give the bank a first deed of trust against the property. When you transfer the title to the LLC, there’s a continuity of obligation. The bank still has your personal guarantee, and they still have the first deed of trust against the property, so the obligation has not been diminished through the process of LLC asset protection

Continuity of obligation, Garrett said, is “the language you’ll use. But it’s rare when you see a bank actually call a note.”

Continuing, he said, “Banks are getting more understanding of people holding title to their real estate in an LLC. What my clients say and what I’ve had in my experience is the banker will say, ‘Well, I can’t tell you that you can do that, but if you do that, we’re not going to bother you.’ That’s what they’ll say. They’ll say, ‘I’m not going to advocate it. We want you to take the title when you buy the property in your individual name, but you know, after you buy the property and transfer it into an LLC, we’re not going to bother you.”

Overall, Garrett recommends transferring property titles to an LLC after purchasing the property, pay your mortgage payments on time, and explain “continuity of obligation” if the lender has an issue with receiving checks in the name of the business.


One Extra Step…

One additional step you’ll need to take after the LLC asset protection process is to notify your insurance company, because the policy will remain in your personal name unless you change it.

Garrett had a client denied coverage because they failed to notify the insurance company about the title transfer. He said, “We had a client [who] before they came to us, they were in Los Angeles. They had a duplex. The insurance was in their individual name. They transferred title to the LLC. There was a fire, and the insurance company said, ‘Well, we’re not insuring the LLC. We’re insuring you,” and they denied coverage.”

Now, when you’re asking the insurance company to ensure the LLC, they may say they’ll have to charge you a higher premium. Garrett said that is nonsense. “It’s the same risk. Here’s how you skin the cat. You tell the insurance company, ‘I’m going to keep the insurance in my individual name (so you get the lower premium), but I want you to list the LLC as an additional insured.’ That’s how you do it.”


By transferring an investment property’s title from your personal name to a business, it provides an extra layer of legal protection if you were to be sued by a tenant (or someone else).

Upon purchasing a property, Garrett always recommends transferring property titles to an LLC. If the lender has an issue, your rebuttal is the magical phrase “continuity of obligation.”

Make sure to notify the insurance company about the title transfer. If they try to charge you a higher premium to insure an LLC, ask to keep the insurance in your personal name and add the business as an additional insured entity.

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Multifamily Syndication Tip: When Do I Need to Form my LLC?

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A question I get asked a lot is “as a multifamily syndicator who is just starting out, when do I need to form my LLC?” which I answer in the video above.

However, the short answer: Not right now.

I am not a lawyer, so I recommend speaking with one before forming an LLC, but based on my experience, here are a few things I do know:

  1. You don’t need to form an LLC until you have a deal for your investors.
  2. Once you have a property identified, you can form your LLC
  3. Whatever your company LLC is, your property LLC will be different. In doing so, you are protecting your investors and yourself from the domino effect where every entity is tied to your company
  4. Every property is going to be it’s own individual LLC (same reason as point 3)
  5. Focus on the step-by-step process of multifamily syndication before anything else (i.e. how to run the numbers, how to approach investor conversations, create your brand, have a thought leadership platform, etc.). Visit for articles and videos on the apartment syndication process


Again, I am not an attorney and I do not specialize in LLCs, so I recommend speaking with one. But I do know that we don’t need to spend thousands of dollars and/or our precious time on forming an LLC before we have a deal or understand the multifamily syndication process.


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Attorneys Advice: Control Everything in a Real Estate Transaction

In a conversation I had with Clint Coons, who is a real estate investor that owns over $12 million in real estate and an attorney that specializes in asset protect, he provided me with his best real estate investing advice ever, which is to control everything in a deal.


As an investor and an attorney, Clint sees many people go into joint ventures and then get involved in real estate deals, big and small. After a few years, everything seems to be running smoothly and both partners are happy. Then, eventually something goes wrong in the partnership where their hands are tied and they don’t know what to do, at which point, they come to Clint asking, “What can we do?” Unfortunately, the majority of the time, there is nothing that can be done when neither party controls everything.


Clint has a close colleague (let’s call him Joe) who faced this exact situation, when he entered into a development deal with someone. Together, they built a hotel development in Mexico, and Joe put in $1 million of his own capital. However, since this was a partnership deal, Joe didn’t have control of everything in the deal.


Everything was going great, until 4 years later, when Joe’s partner pushed him out of the deal! Joe thought that his only recourse was to sue. At a backyard BBQ, Joe asked three attorneys, including Clint, for advice on how he should handle the situation. The other two attorneys recommended that Joe should sue; however, Clint told him that he should walk away. He told Joe, “all you will do is spend a ton of money on attorney fees, but you won’t get a dime because you didn’t have control of everything in the deal.” Since Clint was outnumbered 2 to 1, Joe took the advice of the other two attorneys and took his ex-partner to court.


Flash forward to recently, and Clint ran into Joe again, where he learned that Joe had spent over $275,000 on attorney fees and got NOTHING!


The moral of the story: be extremely careful or don’t even go into deals if you don’t have control, because you can be pushed out by your partner and you won’t have any recourse to get your money, or more importantly, time back.


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Here’s a Dirty Secret

One thing I don’t ever hear talked about is if you stay in real estate long enough then you’ll likely be sued.

That’s what happens when you deal with a lot of people over a long period of time. I haven’t been sued personally but I’m prepared should that happen. Hopefully it doesn’t! But, I am prepared and you should be too. Plan for the worst, hope for the best type thing.

The good news? There are two solutions to protect yourself. This video tells you both of them…


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To Create or Not Create an LLC

The question comes up a lot on if you should use an LLC to buy a real estate property. The reasoning behind it is an LLC protects the buyer from a liability standpoint.

Well, you might not have a choice actually. If you are getting a traditional mortgage on a single family home then the lender won’t let you buy it with an LLC because they want to go after the borrower if there’s a default. And, an LLC protects the borrower (you) from being held accountable.

As a result, the mortgage lender will require you to purchase the property under your name. Not an LLC.

I’ve been told by other investors and accountants that you can transfer the property into an LLC after the purchase. But, the attorneys I’ve spoken to said that would technically be a transfer of deed and the lender could require you to pay them all the money that’s left on the mortgage. I mention that to the accountants and investors and they say “everyone is doing it.” I mentioned that “everyone is doing it” to my attorney and he said “yeah but you probably don’t want to be a case study, do you?”


So, no, you don’t need an LLC to buy a single family home. How I’m able to sleep at night from a liability standpoint is I have a separate insurance policy on my homes that covers them in case something bad happens.

That gives me a piece of mind and keeps me away from case-study material.

Do you have any other ways of limiting your liability with your properties?

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Isn’t that Risky?

I was on a date the other night and she asked me what I do. After explaining that I raise money from investors and buy apartment complexes she said, “Isn’t that risky?

Fair question.

She said that she’d be concerned about losing people’s money. That’s a lot of responsibility.

And good point.

I responded by saying that it comes down to education (i.e. knowing what you’re doing) and experience (i.e. having done it and/or surrounding yourself with team members who are experts). But I’ve thought about it a lot more since then and I don’t think I fully answered the question.

Let’s talk about risk. When we think of risk we tend to think of the BAD. Right?

“Well that sounds risky…” or “Are you sure you want to take on all that risk?”

And that’s a healthy and necessary thought process. We must evaluate the BAD. But, what about the GOOD? And, better yet, what about the loss of POTENTIAL GOOD?

POTENTIAL GOOD is all the nice, wonderful experiences and outcomes that result from us choosing to do something outside our comfort zone. Be comfortable being uncomfortable. Isn’t that true? Isn’t there something you’ve done in your life that initially made you uncomfortable but once you got past that the rewards far outweighed the risk?

When I evaluate things in life I look at the BAD, GOOD and LOSS of POTENTIAL GOOD. Then make a decision on if I should proceed. Let’s do an example:

EVALUATE: Should I eat a king size Snickers bar?


–        High in saturated fat – will not be happy with myself

–        Not healthy

–        Cancels out my workout


–        Mmmmmmm


–        Nuthin


–        Usually I resist.

But now let’s look at another example:

EVALUATE: Should I have a business that raises money from investors and buys apartment complexes? (hmm, this sounds familiar)


–        There’s no guarantee in ANY investment so there’s always a chance it doesn’t work out as projected. In that scenario, my reputation is ruined, my business crumbles and I am a disgrace.


–        Providing investors a conservative opportunity to make more money than what they currently get from other sources

LOSS of POTENTIAL GOOD (here’s the kicker for me):

–        The relationships I make during the investment process with my investors and team members.

–        The ability to be the go-to person to help others reach their financial goals

–        The ability to help others learn this business so they too can spend their time how they want to spend it. We all deserve that.

–        The freedom to spend time with my family (when I have one) so I can focus on the important things in life vs. having to work 9 – 5 for someone else and hope I get enough vacation time to attend all my kid’s activities.


–        Well, you know what I decided. But I only decided that after mitigating the BAD with education + experienced team members. Then, after doing that, I’m focused on the GOOD and POTENTIAL GOOD. That’s what drives me every day and that’s what makes me do what I do.

Next time someone asks me about my job and mentions risk here’s how I’ll respond:

“Risky? Yes, there is so much risk if I don’t do it.”

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