On the show today we have… LLC Entity Structure Strategies with Attorney Scott Smith!
Show notes for LLC Entity Structure Strategies with Attorney Scott Smith!
The Vantastic Life is…
– is in Enumclaw WA!
Both Scott and Julie have labradoodles :-)!
Today we have Scott Smith from Austin Texas! Scott’s business is in all 50 states, and we are stoked to talk with him!
Scott how are you doing today?
I’m good, and happy to be with you guys today! And I’m an open book and happy to talk about anything today.
We are going to talk about all kinds of things.
It’s not if, but when you get sued as a real estate investor.
There’s over a 90% chance of getting sued over a 20 year investing career. You should be putting properties in an LLC starting with your first property.
You are special, but the way you build a real estate business is not special.
Where, how did you grow up and get into your profession?
I grew up in Houston and wanted to be an MMA fighter, and I did that for a while. I ended up buying an investment property, and it helped me through law school. I actually left my attorney practice to focus on real estate.
I was focusing on how to structure my real estate entities, because it was getting more and more complicated. So, I learned how to do this for myself. And then I was going to the meetups and people started asking me if I would help them.
And that turned into me starting a new legal business, and started another career.
What do you buy as an investor?
I have a diagram for how I focus on real estate.
You always prioritize money first. Then you try to save it. Then you put the legal structure in place. Then you figure out how to pass it on.
You need to look at how much money you can make, but you also need to look at how much time it will take.
You should look at the things that you can do inside of your lane (what you like to do or what you’re good at).
The Real Estate Nerds Podcast
We find that people get burned when they start swimming out of their lane. They see a shiny object and try to do something new without partnering with someone that can teach you how to do it.
You are almost guaranteed to lose money when you’re going into a new lane.
This is almost exactly what I say to people. Partner with people.
Absolutely! It’s the best thing you can do.
If I came to you can said I own 10 rentals and flip 5 at a time, how would you approach me and advise me?
We have a system.
What happened to me when my real estate exploded into different categories. I was partnering with other clients that were in different lanes.
We have a staff of 17 people right now, and I was exposed to all of these different asset classes.
You need to focus on a few things.
You have one company structure that is going to hold title to all the assets.
Then another company that owns nothing but does everything.
Inside of holding company you’ll want a series LLC (except CA). You want this because you have one set of accounting books, but you can create an infinite number of child LLC’s for free.
You have a parent LLC, then you have an unlimited number of child LLC’s. You hold a property in the child LLC.
Every asset is compartmentalized.
This gives you advantage with people suing you having no leverage over you.
Every flip or asset would go into a child series LLC.
Each child series is only holding one asset.
You have a completely different operating LLC that you push all of the liability into. You do everything in the world through the operating LLC.
Your asset holding company ONLY holds assets. If it does anything it will in-cure liability.
What if you have partners?
You will have the partners own the different LLC’s. You can even have different partners own different child LLC’s.
Is there a threshold of how many deals you’re doing per year?
If you only have one property then you only need one LLC, but if you have more than one, you’ll want to have a series LLC.
So that means that you look at all your assets and detach the ones that have liability.
You can use trusts and have assets owned anonymously. You want to look like you can qualify for food stamps.
Let’s say that I own something in my personal and want to transfer it.
They will see that you transferred that into a trust that you don’t own. Someone will have to pay a lot of money to find a dead end.
That’s why these asset protection structures work.
That’s why we’ve never lost a case. We know how the mechanics of how lawsuits work.
We have to be smart about understanding the business of lawsuits.
So this is very ninja!
From the outside it does sounds like a lot to get this setup.
How much does it cost to set this all up?
The moment that you start using LLC’s is when you have your first property. When you scale you need expert advice.
It’s all out there on the internet, but not for your exact price.
For cost, you need to do an examination first.
I’ve already hit my financial freedom goals. But I’m trying to take as many people as I can to get to $5 million net worth. Because that’s where I see the life shifts happen.
Once you have $50-100k then that’s where it starts to get interesting.
You can see 100% of what you’re going to get from Royal Legal Solutions before you even talk to anyone.
So it’s hard to give a hypothetical number.
I hear what you’re saying.
And you have to think about estate planning.
Yeah, you have to have everything working together.
Let’s talk about insurance for a second.
Insurance only protects you from negligence. It’s ineffective at protecting net worth. Their business is built on collecting premiums and denying claims.
I had a friend who lost over 3 million and didn’t have basic LLC protection.
Insurance doesn’t protect you against emails, or car accidents.
When things become really expensive they always from to claim gross negligence.
What do you personally read/listen to?
Usually in the business mindset at the beginning of the day. Then something more contemplative and journaling at the end of the day.
Well, I feel like I’ve gotten a water hose of info today. Do you have anything to add?
There’s a world beyond the basics that you’re going to find.
We have it all on our website. RoyalLegalSolutions.com. At the banner. Take the quiz. And watch the 1 hour and 45 min video that I did in one take. Then it goes into testimonials and more.
Then we monitor all that with a live chat that you can ask questions to for free when you’re watching this.
That was high class info right there!
Joe, how you doing?
My fingers are aching!
Have you ever been sued yourself?
We’ve had disputes, but that’s it.
If someone sues me they are stepping into a world of pain. I represent all of our client first until we find someone local.
You make a point where hiring an attorney that’s a general attorney is different than hiring an attorney that knows real estate investing.
100%! I only hire professionals that make money the same way that I make money.
If someone hasn’t actually done it and made money doing it, they don’t know the intricacies.
What do you see the most?
You see all kinds of stuff. It can come from so many different things. We can’t plan for all of them, but you can control the structure.
The elegance is in the simplicity.
We can control the structure, but we can’t control what’s going to trigger it.
Have you seen anything from the Covid stuff?
Totally! We’re seeing a lot of stuff!
This happens in every economic downturn. And it’s going to get worse in the next 3-6 months.
People are trying to get money because they don’t have it right now.
It’s not new and different.
If you have all of your properties in your personal name… you will probably pay them off.
But if your setup with your structure properly… it will cost them a ton of money.
What’s your forecast… what’s the talk on how this is going to ruin the economy or not?
I have a top 10 Covid protection strategy ebook, and we have a webinar in a couple of days.
In there I walk through a couple of piece, but the nuts and bolts is that I don’t know, and because of that I don’t think about it.
If it’s not clear what’s going to happen, what can I do to win? I’m maximizing my cash on hand.
Why do I focus on cash… I can do something, and it doesn’t matter what happens. I will either need that cash to live, or use it for opportunities.
You need to be out in front of the market with cash to take advantage of opportunities.
We don’t really know what’s going to happen with Covid.
Works for me.
Everyone that we know out here is drawing down their credit lines to have cash on hand.
Do you think the lending markets are going to shut down?
Our market is still very hot here, and money is cheap. And we have a 50% drop in listings so things are getting bid up.
I don’t think in terms of immediacy. I’m thinking as far out as I can. 3, 6, 9 months down the road, because that’s where the real opportunities are.
I’m going to wait until things have bottomed out, and lose about 10% to make sure we are on a good upswing.
I think you’re going to find credit markets that are going to cease up.
It seems like the jobs that are lost are not going to come back. Where is the actual recovery going to come from… I haven’t seen anyone in the field that’s saying things are going to be fine.
Commercial is going to be hit bad, and we are going to scoop up commercial for tax benefits.
The networks that you have are going to give you the edge, and people need to be hanging on podcasts like this and real estate nerds podcast.
I agree with you. Don’t think about things you can’t control and don’t think short term.
I’m sitting on the dry powder to see what’s going to happen next. Then keep networked from the people that are the smartest.
RoyalLegalSolutions.com website is the best place to find out more.
I also have the 7000 word ebook on the strategies for Covid.