How To Invest In Real Estate
Paris Dean’s aka Like A Caucasian’s guide on investing in Real Estate.
You know when you come across someone that’s not only smart but gets where you are coming from? Paris Dean gets it and gets me more than most of my friends that went to school with me lol. I reached out to him on Facebook August 26th, 2020 and said I love this posts, and would he be ok with me sharing EXACTLY what he wrote? At this point, after reading this and several others, there’s no need for me to write something like this at this time. Have you ever come across something that was so perfectly written that you wish you wrote it yourself? THIS IS IT.
Without further ado.
Disclaimer: This is for learning purposes only. Reading this doesn’t guarantee you will make money.
Guide #2: How to Invest In Real Estate Like A Caucasian
I’m seeing a lot of people talk about how they can’t wait to start investing in real estate but I’m not seeing anybody talk about how to do it.
Sure, you can buy one from the land bank with your own money. But what happens if you’re showing somebody the house and they trip and fall and sue you?
You own the house so you’re responsible.
And what do you do with all that new money you make when you rent it out or sell it? “Imma buy me a Rollie!” Nah fam. You gone buy Uncle Sam a Rollie when your taxes skyrocket.
So what do you do?
I’ll tell you.
Here’s a quick guide (if you’re paying cash) to investing in real estate like a Caucasian (e.g. limited legal and financial exposure and minimal taxes).
*** If you need cash, refer to the last guide on how to Flip Money Like A Caucasian ($5,000 to $25,000+ in one a year). ***
1. Create two LLCs.
One is for personal use (we’ll call it “Ur LLC”; tax reduction purposes) and the other is to hold the property (we’ll call it “123 Any Street LLC”; liability and exposure reduction purposes).
Don’t set it up online though. Instead, have a lawyer help you. And have them create an operating agreement for the LLCs, too — ‘SPECIALLY if you have “partners”.
An operating agreement is a key document because it outlines the business’ financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners.
When you make the one for the property, list Ur LLC as the owner…NOT you.
(If you need a real estate lawyer let me know and I’ll connect you to mine. Full transparency: he’s gonna charge you $1,500 but he’ll do it for $1,250 if you tell him you know me).
2. Get your EIN/tax IDs.
Your Employer Identification Number (EIN) is your federal tax ID. You need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits. It’s free to apply for an EIN, and you should do it right after you register your business.
3. Open bank accounts for each LLC.
It’s preferable to do this at the same bank so transferring money will be easier.
Keeping rental and sale income from 123 Any Street LLC separate from your personal income means you don’t have to report the additional income and pay taxes on it (because PEOPLE pay taxes on ALL INCOME while BUSINESSES pay taxes on PROFITS). Transfer profits from 123 Any Street LLC’s bank account to Ur LLC’s bank account using what’s called an Owner’s Draw.
An owner’s draw IS NOT taxable on the BUSINESS’S income. However, a draw IS taxable as income on the owner’s PERSONAL tax return.
4. Buy the property in 123 Any Street LLC’s name.
This has two benefits: a) it’ll protect the property if you get sued personally and b) it’ll protect your personal assets if something happens and someone sues the LLC.
If you’re riding dirty and get into a car accident, the other person’s car insurance company will sue you and anything you own will be at risk (car, house, bank account, refund check, etc.). But since an LLC is a separate entity, real estate held in an LLC will be protected from anything you do personally.
LLCs also protect you from liability claims. For anything that’s a claim against a property — like if Ezell comes in and slips and starts yelling ”Oh, I’m hurt! Oh, my neck! My back! My neck and my back! I want $150,000!” — an LLC will stand between you and that claim because whoever makes the claim will come after the LLC, not you personally.
But remember, because it’s an entity with its own tax return, LLCs let you write stuff off (e.g., business related expenses like). You can try to write them off on your personal tax return, but it’ll look a little sus to the IRS that a person is trying to claim business expenses. It just makes things cleaner from a financing and tax perspective to write them off under an LLC. So any of 123 Any Street LLC’s expenses should be paid with its own credit card or a check from its bank account (claim those deductions!).
5. Dissolve the LLC.
If you sell the property, it’s no longer your responsibility so dissolve 123 Any Street LLC (you don’t wanna have to pay any fees next year) and close the bank account (you also don’t wanna have to pay any maintenance and overdraft fees when you stop using the account).
Congratulations, Bub. You just closed your first real estate deal without paying any additional personal income taxes.
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Look, if you’re gonna build a real estate business, do it like a Caucasian (run it as a business). Don’t try to do it in your name and then try to move it to an LLC five years later when taxes start eating you alive because it’s way harder and is gonna cost more money.