When Doing Deals, Should I Use An LLC or Land Trust?


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When Doing Deals, Should I Use An LLC or Land Trust?

Joe: Hey, it’s Joe. This question is from Fernando Diaz. He says, “When you plan to do a lease option assignment, do you recommend doing it under an LLC or a land trust?”

Joe: When you do a lease option and you don’t have a license, and you’re buying the lease option in order to sell it to someone else, what you need to do is take it under your own name rather than an LLC. You have to be the principal in the transaction or you have to have a license in order to do this legally. So, you can take these under your own name, and then you can turn around and sell them and you could put all the money through your LLC, which I think still makes sense to do that.

Joe: If you put the money through your LLC then you can save some money on taxes, you can also have some asset protection. My CPA tells me that it doesn’t really save you a lot on taxes until you get to about $75K a year income, which won’t take you long if you’re doing a deal or two a month, especially if you’re doing the for rent method deals. So, do it under your own name when you take the lease option memo and then put it through an LLC once you start making enough money to make that profitable.

Joe: The other reason to use an LLC is if you have a lot of other assets that you’re trying to protect and you don’t want them to get tied up in a transaction that might go bad. Most of the time when you do deals the way I’m teaching, the transactions are not going to go bad, but sometimes they do and if you have a lot of assets then maybe it makes sense to set up an LLC and do it that way.

Joe: Just remember there’s going to be a cost for the LLC and you’re going to have taxes done every year in the LLC. So at the beginning, you can do all your taxes through as Schedule C on your 1040’s, you know, through your personal account, you know, as you’re starting to build your business and you can still take all your business deductions and do all that stuff through a 1040. But eventually you’re going to want to switch it over to an LLC because it’s going to be less likely that you’re going to get audited with an LLC than it will be with your personal returns and doing it through a Schedule C.

Joe: The people that cheat the most on their taxes, or they get caught at least, on their taxes, are people that are doing Schedule C’s, they’re doing their own home business and they’re taking deductions that they shouldn’t be taking and that’s why the IRS looks those people more carefully and they often do more audits. I was audited twice while I was doing 1040. Since I’ve been doing LLC and an S corporation, I’ve not been audited. I understand my audit risk is down to like, three percent, but, I’ve not been audited yet. So that’s something to keep in mind as you’re doing this.

Joe: As far as land trust, you may be thinking about something that you might have heard about taking a subject to property through a land trust in order to hide who owns the property and have it essentially in the name of the person who sold it to you so that it doesn’t look like you own it, so if you go to the bank the bank won’t take that property back. I don’t find that necessary. I have a lot of subject to properties and they’re all in my name and recorded and I haven’t had any problems with the due on sale clause and if you look at some of my other videos I talk about due on sale clause and why it might make sense to pay attention to that. But it’s not terribly important when it comes to deciding what kind of structure, business structure you’re going to use when you’re doing deals.

Joe: All right. Hope that answers the question.

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