BiggerPockets Real Estate Podcast - 109: You Will Get Sued. Here’s How To Survive with Attorney Scott Smith

Episode Date: February 12, 2015

No one wants to get sued, but if you plan to build a real estate empire, the question is not so much “if” but “when.” However, we here at BiggerPockets have your back, so today we are bringing on Scott Smith, an incredibly smart and funny asset protection attorney from the great state of Texas! Scott shares with us a variety of tools and tactics you can use in your real estate business to protect yourself from losing the wealth you are working so hard to create. Be prepared to learn new tips you’ve probably never heard before regarding umbrella policies, building your real estate team, LLCs, trust funds and more. Don’t miss out on this information-packed episode! In This Episode We Cover: Forming an LLC right off the bat The ins and outs of Insurance vs. Assets Ten things you need to know to protect your assets What exactly an Umbrella Policy is and why it might not do what you think it will Why you shouldn’t put all your properties under one name What you should know about the Delaware Statutory Trust Scott’s advanced strategies for real estate investors Everything you need to know about LLCs vs. Trust Funds Who you need as part of your team when investing And SO much more. Links from the Show: BiggerPockets Webinar BiggerPockets Wholesaling Calculator Trivia Email 10 Ways to Protect Your Assets — This document was prepared by Scott Smith to accompany this podcast presentation. BiggerPockets Podcast Show 105 with Neal Frankle BiggerPockets’ Investing in Real Estate with No Money Down Books Mentioned in this Show The 4-Hour Workweek by Timothy Ferriss Rich Dad Poor Dad by Robert Kiyosaki Tweetable Topics: “Rich people don’t own things, rich people control things.” Share on Twitter “You don’t really have any friends once you start getting sued.” Share on Twitter Connect with Scott Scott’s BiggerPockets Profile Scott’s Email Address Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 109. Personally, the strategies that I'm recommending to you are usually only given to people that are five to ten million dollars in assets. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from Bigger Pockets. Hits.com. Your home for real estate investing online. What's going on, everybody? This is Josh Dorkin. Host of the Bigger Pockets podcast here with my co-host, Mr. Brandon Turner. What's going on, Brandon? Do you have a Band-Aid? I took some Advil, man. My head is... Yeah, I got like this

hole right there where like, it's bleeding from all the stuff I learned today on this on this podcast. So crazy amount of stuff people are going to learn. You'll get a band-aid ready. It's a good show. Yeah, there's a great show. And there's a great show. And there's So much. Like one thing I noticed, like, the more I get into real estate, the less real estate books I read. Right? We've talked about that before because I've read a lot of real estate books. I still like them, but I don't learn a whole lot from real estate books.

Today, I learned more than I've learned in the past like 20 years combined. I feel like his brain is bleeding. It's bleeding. There's so much going on. So anyway, people are going to love this. It's definitely, yeah, we're talking about asset protection, but it's not boring. This is like entertaining, funny, we're listening to us. I mean, yeah, we keep it real.

But yeah, yeah. And this show, I'll tell you what, this show is for everybody from somebody who's thinking about investing in real estate all the way to somebody who's been doing it, who's got, you know, a hundred of properties. There's something to be learned. There are, I mean, there's some tips in here that blow your mind. Blow your mind. Apparently, there are tips here that your lawyers don't want you to know about. There's some really good stuff. So definitely pay attention.

This is show 109 to the Bigger Pockets podcast, and you can check out the show notes at biggerpockets. com slash show 109. Also, also, we want to make sure that you guys sign up for this week's webinar at biggerpockets.com slash webinar. We did one a few weeks ago on multifamily and it was huge. It was awesome. It was amazing. The feedback was phenomenal. If you have not yet checked out our webinars, we definitely recommend you do that. Again, biggerpockets.com slash webinar. Before we move on, hopefully you guys got a chance to check out the new wholesaling calculator that we launched last week. A couple of weeks ago.

It was, oh, it was covered this two weeks ago. But if not, definitely check it out. BiggerPockets.com slash calc. You could find it there. And I think that's all I've got on that. We've got trivia, don't we? We do. So last week we interviewed Grant Cardone, and it was an incredible podcast.

If you haven't listened yet, go listen to that one right after the game. It's the one show of all the shows that you probably want to listen to it. Yeah, it's amazing. Anyway, so. In that interview, Grant mentioned that two years ago he bought a huge apartment complex in Florida. I think it was like a thousand-some units. And he said he won the bid against 38 other investors, even though he was the lowest bid, because he did two incredibly unique things. So the question today is, what were those two unique things that he did to win that bid? So if you think you know

the answer, send the email answer to trivia at biggerpockets.com for your chance to win the digital version of the book on Investing in Real Estate with No and Low Money Down, written by me. And yeah, if you want to get a copy of that book right now without the trivia, it's on sale actually over on Amazon. So go over there and pick it up or just go to biggerpockets.com slash no money. And we link to the Amazon sale from BiggerPockets slash no money. So you could find it there. Yep. Awesome. Well, I think that's pretty much all the up front. Why don't we get on with today's show? Also, quick heads up. If you have not yet left us ratings or reviews on iTunes, you're a listener and haven't done that. please do that. It really does help us get more listeners to the show. So we definitely

appreciate it if you do that. And you can find the link on the show notes. With that, why don't we get to this? Today's guest is Scott Smith. Scott is a asset protection attorney located in the Austin, Texas area. And Scott's just got some amazing stuff. I just want to kind of get to it. He's got so much to say, so much to share. He's got amazing tips. So So bust out your pen, get a notebook. If you're driving, pull over, park your car, get on a notebook, and take notes because there's a lot to learn today. Here's why savvy real estate investors are obsessed with bonus depreciation.

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and find out how much you could save this tax season. Have you ever lost a DSCR deal because the financing just took too long? Red flags popped up late. The lender needed more time. The deal fell apart. Well, our friends at Dominion Financial just launched a program to help prevent that. With their new express rental loan, you can close in 10 days or less. And they still offer their price beat guarantee so you can get great pricing and a timeline you can count on. Fast, simple, reliable. That's Dominion Financial. Check them out at biggerpockets.com slash dominion. That's biggerpockets.com slash dominion. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late-night fridge

raids. Yeah, when you're gone, your place is basically on unpaid leave. It's sitting there in the dark thinking, I could be contributing right now. Your side room wants a side hustle. Even your Wi-Fi is like, we could be networking. You're on vacation, spending money like it's a sport, while your staircase at home is fully capable of sending your income upwards. Here's the twist. You can go on a trip and actually earn money. Airbnb makes that possible with the co-host network. If you're away for a while or have a secondary property, you can hire a vetted local co-host with real hosting experience to handle it all. A co-host can handle guest communications, it can manage reservations and keep things running smoothly so you don't have to check your phone between

beach days. That means less stress and more time enjoying your trip. You can relax, knowing guests are taken care of and your place is in good hands. You usually, you travel, your house works. Everyone wins. If you're ready to host but could use some help, find a co-host at Airbnb.com slash host. So let's get to it. All right, Scott, welcome to the show, man. It's good to have you here. Yeah, thanks, Josh. Great to be here. Awesome. Well, today we're going to talk about something that maybe some people find a little bit, what's the word? Dunting. D daunting, scary, whatever. I mean, this is the number one question I get from people all the time because it's just so overwhelming. I don't know what to do about it. And that is the concept of asset protection, LLCs, stuff like that.

And I don't know what to tell people. I mean, like, well, they ask me all the time. Hey, should I, should I, should I do an LLC? Should I do? What should I do? And I'm like, talk to your lawyer. I'm not going to tackle that. Don't, don't go asking me because I'm not going to get in trouble for giving you the wrong advice. Today we're going to make Scott here get in trouble because he is a lawyer. Pretty much. Pretty much. Yeah, well, I'm really excited to share with you guys today some the cutting edge strategies for novices all the way up to advanced strategies at some of the really high level

players that are doing. But first and foremost, what we always have to do as attorneys, we always have to hedge our liability. Wow. Wow. Come on, man. That's like the yada, yada, yada. Go ahead. Let's hear it. Obviously, it's like, this is not legal advice.

I'm not your attorney and you should retain counsel before taking any action. And I won't become your attorney until we have a signed retainer agreement. But apart from that, I think I'm going to have some really great concrete strategies that everybody's going to be able to implement in one way or the other to help make sure they're protected and that every dollar that they make and work hard to make in this industry that they're going to be able to keep it from other people trying to

come after it. Hey, Scott, by the way, like, that disclaimer pretty much stands across everything that we do. You know, I mean, you know, and you're a lawyer, so it's probably perfect advice. Like, hey, folks, listening, you know, don't listen to us. Like, you know, you can listen to us. it's great, but like before you go and do stuff, talk to your lawyers, right? I mean, you want to make sure, like, you know, we're an entertainment show. We give good practical advice, but at the end of the day, like before you actually make

decisions that could have ramifications, like talk to your lawyer. Not enough people, not enough real estate investors are willing to invest the money to talk to their lawyers. And it's so important because it could save you so many problems. I just want to kind of get your feedback on that. Yeah, so you're absolutely right, Josh. And here's my thoughts on that topic is, first of all, is if you think that you can give one blanket piece of advice that applies to everybody equally, you're crazy because everybody's business is different. Everybody's situation is different.

And the law is very particular to the circumstances, right? That's why we have facts and we have the law, and that's where legal precedent gets created from. And I think you're right that I find time and time again that the real estate investors that I talk to are trying to. to save money. And I know everybody wants to save money, right? But it's kind of like trying to save money by not buying fire insurance on your house. Say, sure, you can save some money. Or flood insurance. Yeah, flood insurance is another great one, right? That you can wipe out, it'll cost you, you know, $10,000, up to $100,000 to repair a property if you don't have it properly insured. And the same kind of thing ends up happening with what I focus on, which is asset protection

and making sure that people have their businesses structured correctly. So that way, when somebody comes with a lawsuit against them, I get to be as their attorney to go into the other attorney's office and say, good luck trying to sue me because what you're going to collect against is this piece of paper. And this piece of paper has no assets in it. So sue a man. Yes. The way to do it. And it's not as hard as you would think it would be. And just a couple of quick strategies can really get you into a much higher barrier for anybody to come after your assets. So just kind of taking that insurance asset protection kind of issue, there are really two sides of the same coin. Like we should really start thinking about insurance as ways that we protect the property,

like we have blood and fire insurance. And we should think about asset protection, the way that how do we cover our assets? How do we cover ourselves from being able to, if somebody sues us to keep their hands off our money? And that's a way that I kind of like to explain it to a lot of our, a lot of my clients. So the first question I ask, whenever I go into any conference or I go into speak to anybody, is I ask, does anybody here own a piece of investment property in their name personally? And you'll be surprised that even with the power of the Internet, even with a great podcast

and forums of bigger pockets offers, you still find people that are still owning property in their personal name. Because they have this idea that ownership of the property means that they want to be able to have it in their legal title. So I saw them, I said, what you don't want, what rich people do is rich people don't own things. What rich people do is they control things. And that's what I explained that, by the way. Yeah.

So the difference between ownership and control is more like a legal fiction. And a legal fiction is in this sense that's saying that do you really care whether you own a yacht? Or do you care that I just get to go use my yacht whenever I want to? It's not even my yacht. I just get to go use it. Well, nobody, you wouldn't care whether you have ownership at that point or not, right? So let's not. I'll use your yacht.

You can come on any time, Josh. Yeah, it's a pretty small one right now. It's more like a bass boat. It's a little bit. But you can still have a good time on it, I think. So when we talk to him about that is say, you know, let's take the properties and let's put them into trust LLCs and other type of business entities where you get all the benefit and all the money from your properties and the ability to control your properties,

but without all the liability that comes with actually owning something. Makes sense. It makes sense. No, like, I, for the first six years of my investments, like everything was in my own name. I'm in 100% of everything. Oh, yeah. Yeah, and just two years ago or three years ago now, really when I started like full-time here, bigger pockets, that's when I started putting everything to LLCs because I thought,

well, I have a lot more increased, you know, visibility now, and I'm just a little bit worried about that. Now I've shifted everything over. So maybe I can kind of step back a minute before we get too deep into the LLC side of things. I know today one thing you had sent me earlier in an email to talk about you said there's 10 different ways to protect your assets. And that's what we're going to cover today, right? Like all those 10 things. That's correct.

Yeah. Okay. So maybe we'll just start right at the beginning and just hit each one one at a time if that's what you want. I mean, is that easy to do? Yeah. So I think we've kind of already started covering like the first two topics with that. is like how do we use our asset protection strategies and insurance we covered what are the difference between those two things and how they're the same side of the coin to protect you

but just in different ways um but one of the key parts number two on that list is how insurance really isn't sufficient a lot of people think that being able to get a um an umbrella policy for this dog is barking here let me damn that dog we're having technical difficulties Brennan and I will sing a song for you. That's all right. Yeah, my dog was barking in the background a minute ago. I had to mute my mic, not mute him. I'm really bad at muting my dog. Well, well, Scott said, I mean, you know, this is stuff that, you know, you and I talk a fair amount about.

And like we said, guys, like, there's so many of you who have these questions. I really, really urge you to bust out a pen, start taking notes on this because there's a lot of great stuff. And as a quick heads up, if you're listening and you have questions, you can ask questions on the show notes at biggerpockets.com slash show 109. That's biggerpockets.com slash show 109. And Scott will be happy to assist where he can. He'll probably tell you to talk to your lawyer. But, you know, I'm sure he'll jump in. I always tell you to talk to your lawyer, but I'll also give you a little hint about, you know, this is probably the kinds of things that you should be thinking about to research for your state because every state's different. Yep. Yep. So, you know, now that he's. back from smacking his dog around. Let's get back to it. It always picks the perfect time.

So getting back to when we're talking about insurance and how insurance really isn't sufficient, a lot of people think if I have a couple million dollars umbrella policy, that's going to be able to cover me. But the real fact of the matter is that you can have a lawsuit filed against you from the very first communication that you undertook with a buyer or seller. And those lawsuits can be based on allegations of fraud. Any up the statements that you make gives a basis of a lawsuit. And what happens is the court looks at a statement and says, oh, that's an intentional act. And if it's an intentional act, the insurance company says, we're not going to cover you in the case that you intentionally did some wrongdoing.

So I don't think that insurance is actually going to get you there. What you really have to do is be able to make a set up a structure that allows anybody to, that would look to sue you to not be able to collect against your assets. But to really understand the real danger that we walk into as investors by owning various properties, too many properties grouped into an LLC as well as owning property in our own name is what the real power of a judgment is.

Before you go there, I want to kind of circle back on the insurance thing. So even prior to going into a contract with somebody, if I'm communicating them via my text or via the phone, not by the phone, by email, those communications are part and parcel to any evidence against me in some kind of intentional act to mislead somebody. Is that correct? Take, for example, the instance that you wrote somebody in email and you told them that you had replaced, you know, all of the plumbing underneath the house, right? If it ever, even though it didn't state

in the contract, and even though it's not in the deed, the mere fact that you told them that would be considered an element of fraud. So that's the way that those kinds of things are attached. And the worst thing you can do is put those kinds of things in writing. So the insurance, I mean, I'm trying to understand this and I apologize. Like my thought on this, the insurance companies want nothing more than to have nothing to do with this case. Right. I mean, they won't cover.

Well, right. So it's in their interest to deny coverage as much as possible because then otherwise they got to pay out of their pocket, right? That's why they make money. They collect premiums and deny coverage. Right. So that's where this comes into play, right? I mean, yes, you have insurance, but don't count on that, right?

You know, realize that the second that you start communicating with people and the second they can find a way out, they're going to wiggle their way out of it and they don't have your back anymore. Is that pretty much a fair assessment? Yeah, you don't really have any friends once you start getting sued. Everybody tries to one away from you as fast as. as possible. And especially in these types of situations because all of a sudden, once you get sued, you say, well, it wasn't really my fault. It was actually somebody else that told me to do this

or instructed me to do this. And so everybody else will, every attorney will say, if you know anybody that's sitting sued and you're in any way involved in what they did, try to distance yourself as much as possible from that. So what I find is fascinating. I mean, the whole thing is fascinating. but what I find fascinating is there's this advice that goes around all the time I see it, that people say, you know, don't worry about an LLC. I see this a lot. Don't worry about an LLC, just get an umbrella policy. And I've never heard anybody say it the way you did that an umbrella policy alone isn't going to cover you. So you would flat out say that that's bad advice to say don't worry about any kind of asset protection, just get a good umbrella policy, you'll be fine.

Yeah, I would say that unless your umbrella policy is going to cover for an intentional acts of fraud and other intentional acts that are in violation of the law, that your umbrella policy is not going to be sufficient. And I've never reviewed a policy where any insurance company was willing to take on that kind of liability because that means that you could do anything you wanted to and do it intentionally. You know, you could go punch the mailman in the face because he keeps knocking on your door and say, oh, no, my insurance policy is going to cover me for that. So are most of these frauds, the quote intentional frauds, presumably they're unintentional, right? I mean, it's people just kind of doing their thing and trying to get by and

Exactly, right? Being accused of fraud doesn't actually mean you're a bad person. In fact, most everybody, in fact, all of my clients are all good people. They're all honest business people. It's usually a miscommunication. But when there's money on the line and you're talking about $30,000 or $40,000 in replacement costs, when one person had one idea, one person had another idea, well, then you have a lawsuit, even though you have two great honest people that were trying to do a business transaction together.

So don't think that just because you're honest and just because you're as up front as possible, that you're not subject to a lawsuit because it's just not the case. And honestly, the one takeaway that I usually start all these presentations with is the real estate industry is the most, is the hottest litigated area of law. So if you're serious about this business, it is not a question of if you're going to get sued. It's a question of when and in what condition you're going to be to defend yourself when that happens. Oh, yeah. I've never heard of anybody put it quite like that bluntly, but I mean, it makes sense, right? Like, I don't know. It's so scary, right? It's like, I'm going to get sued

someday. And that's why we have you on here. So like, if insurance is not good enough, you know, it helps, but it's not good enough. What else do we do? So, um, the, there's a, what we want to do is be able to have a proper asset protection strategy. Um, and the reason that it's worth investing in a proper asset protection strategy is because take this hypothetical example where you have a $100,000 house with an $80,000 mortgage on it. And a plaintiff ends up suing you. Maybe it's one of your tenants. Maybe it's a contractor.

Maybe it's anybody that's suing you for any work they did on the property. Well, you only have $20,000 in equity, and they have a $50,000 judgment. So they get to foreclose on your house and take that house. Well, they still have $30,000 left over in their judgment. So they can go to your next house and foreclose. and foreclose on that house, and keep doing that to all of your properties until all of the attorney's fees are satisfied and until they get all the money back out of the judgment. And the attorneys get to keep charging for every foreclosure they do.

So what do you think actually ends up happening in the judgment? It goes down a little bit by little bit by a little bit, and they take more and more of your things. But you don't have to be that exposed if you properly structure things inside of LLCs. So there's a couple of different ways to be able to do that. The first, just to kind of give you like as a here's a worst case scenario is to hold all your property in a sole proprietorship. That's the worst because everybody knows you own the property and everybody can get to it

because it's not protected. That means like you own it in a sole, that means you just own it with your name, right? Correct. Me and my wife bought a property. It's in our name. That's a vast majority I'd say of new investors do it. Okay. Exactly, right, because that's the easiest.

There's no setup costs. there's no extra tax treatment that you end up having to do. So with the LLCs, what you end up having to do is you have to end up spending a little bit more time and money, right? You have to file the LLCs and you have to keep the corporate formalities, meaning you have to keep the corporate minutes, you have to issue shareholder agreements, you have to have operating agreements. All of the paperwork in there has to be done. It actually has to be done perfectly because any defect inside of the paperwork, there is an allegation. there that you weren't really treating it as a corporation.

So then they're going to treat it as if it was your personal asset, being the manager. Okay. Interesting. So you're going to want to make, that's why it's worth it to pay the, we'll call it like attorney insurance, to be able to pay your attorney insurance to have somebody else that's a professional look at it and make sure that it's, you're prepared in the event that you end up getting sued. Yeah.

So, and there's a couple, there's a quick tangent I want to take with the LLCs. that for in Texas and a lot of other states, there's what's called a series LLC, and you'll see this a lot on bigger pockets. People are talking about how cool series LLCs are. And they're really cool because you get one tax filing, which makes it really easy to manage. But you get the asset protection because you can separate all your properties out into what would look like different LLCs. And so each house then would be owned by a separate LLC underneath the series. So even though you only have one legal entity, the court and,

the legislature kind of made almost like a fiction to say, well, okay, but we're really going to let people treat it as if they're separate entities. So they look, so if one of the LLCs and the series of LLC gets sued, it doesn't spread to the other LLCs. Correct. Right. You're going to be able to isolate your assets that way. Okay. So it's like owning an entity that owns another entity within it, like an S-Core that owns an LLC, you know, their independent entities. Of course, as long as you're not commingling, right? So you want to make sure that. that you're personally not making deposits of the company's cash into your own name and, you know, playing around. You really have to make sure that you're keeping these entities separate, which I know in your notes is something we're going to get to.

Yeah, you have to make sure that everything is separate when you're moving money around owned to accounts. You really have to kind of like step back and say like as if these were separate companies that were owned by different people, how would things need to be treated here? Yeah. And so that should be your assumption when you're starting to work in that type of structure. So I'm new. Okay, I'm new to the series thing. I don't know really anything about it other than that I've seen it mentioned. So in my business, I have, you know, I think five or six, seven LLCs that are all just separate because I have one for each of my partnership, like ownership structures essentially.

Right. So like the ones that I have with this partner, I have an LLC. This partner have an LLC. Can like, is that something you're talking about? I should have those in a series LLC. so the taxes are easier to do? Yeah, that would be a way that you could do the tax is easier inside of a series LLC. But depending upon the complexity that you're doing, there's also the option of creating what's

known as a Delaware statutory trust that operates very similar to a series LLC in that you can create different series inside of a trust agreement. And so a trust is just like a filing that ends up happening in Delaware with an attorney and an agent in Delaware, but it's another way that you can separate it out. And those are arguably more protective than even an LLC because Delaware actually created it to be in response to people moving their money offshore. So they wanted to create an entity that was arguably as strong as having an offshore bank account. So all the money wouldn't flow out. Well, Delaware is always at the forefront of, you know, entities and structures, aren't they? Absolutely. Yeah, Delaware likes

to keep the money positioned in their banks and inside of their control so they can charge their taxes on it, which is admirable. Yeah, that's great. That's good political business. If you can make money off of taxes for other people's money, then you get to give it to your constituents. So it's a beautiful thing. So they like to protect themselves with that. So this is called a Delaware statutory trust.

Correct, yeah. Or DST for short. Do we want to cover that now or do you have that later on planned to talk about? I have that a little later on. There's only a couple of things that we can jump to that and kind of backtrack a little bit. Sure, if you want to. The things that you're going to want to know about a DST is, apart from what I've already told you, is that it's really easy to create new business entities in a DST,

and they don't actually have to be recorded with the state of Delaware. It's almost like as if you were to create an LLC for an investment package for recruiting potential investors, but the only piece is a piece of paper that's inside of your desk. Hey, so I'm going to ask you to repeat yourself because I'm sure that I'm not the only one who's, you know, like, well, yeah, I get like 50% of that. Yeah. Okay. Yeah. So tell me, tell me really quickly.

Why would I pick? I think this is the question that people want to ask. Why would I choose a DST over an LLC or a series LLC? I think that's the fundamental question. Yeah. So granted, this type of strategy is usually for like bigger players that are end up happening, right? Don't insult me, man. Give a real fun.

And what ends up going to happen with that is, one, it's the upfront cost to create it are expensive because it's got to be done right. But after that, you can create what would almost be like any of these investment structures underneath it really quickly and easily. Like within a matter of hours, you'd be able to create a whole new legal investment package to be able to shoot to investors. And it's really tough to get at the money once it's inside a DST for any type of court action. So if you're looking at, you know, EB-5 money or foreign investment money and you're worried about

what could happen in another country or what could happen with somebody else that looks like they're a little shaky in their legal position and what's happening in other places, a DST is a great way to kind of shelter what the money is because it's really difficult for people to find out that the money is there and even more difficult for them to be able to get a judgment inside of Delaware to enforce to be able to get out that money. So did that answer your question, Josh? Yeah, I think it did. It's still, I will tell you.

I'll listen to this episode like three times. Well, yeah. I mean, A, you know, this all, you know, make sense. But at the same time, you know, I know I'm not alone in, wow, I'm still going to have to go and sit down with an attorney. I mean, you know, this is a broad overview, right? That's what this is. You're not here to tell us what to do.

And I know that listening to this, I'm like, oh, man, I mean, I know I know I'm I'm going to have to take notes on all the different, you know, structures. And I'm going to bring it in and say, hey, which one of these are the ones for my situation are going to be best? And when I say me, I mean me being our listeners. I'm assuming that's probably going to be what they're going to need to do. And I have actually a suggestion. Here's my thought. Scott, would you mind?

I mean, I know we're going to talk about all the rest of this. But would you mind maybe you and I sit down and we'll outline like a PDF. Like we'll go through all the stuff like outline the notes of what we just talked about today. And we'll put it in the show notes so people can download it. Is that cool? Yeah, that's absolutely cool. And I'm having plans to be able to do, I've done some posting on the Bigger Pockets blog on some issues that end up coming up along these things.

And my plan is to keep creating those type of reference documents for people. So it's really easy for me when I'm in the forums that I can be like, hey, I just wrote a post about how you can use trust in LLC structures. Yeah. I love that. Yeah. So if people are listening, want to go to BiggerPockets.com, so show 109, we will have a PDF that you can download with a lot more detail.

on what we're talking about today, just throwing that out there. Perfect. And me and Scott will put that together. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late night fridge raids. Yeah, when you're gone, your place is basically on unpaid leave. It's sitting there in the dark thinking, I could be contributing right now.

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Just go to Indeed.com slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. So anyway, okay, going back to where we were just talking about the DSTs. and that was based because we were talking on the series LLC thing. Yep. So, I mean, maybe I can just ask you because I got you on here and I like taking advantage of my position. Oh, here we go. If I've got, I mean, I've got, like I said, six or seven LLCs.

Should I do a DST, based on what you know of me, I know this is quick. Should I do a DST or a series LLC? Are you having lots of other, are they all different types of asset classes or are they all real estate? They're all real estate. Yeah. So you're probably okay. And they're all the same types of real estate. Like you don't have really huge commercial transactions combined with single family homes and whatnot.

Some are single, some are like small multis and there's a 24 unit. Right. So I'd say what you could probably be okay with is a series LLC in that case. And just go ahead and take the same types of assets and group them together. So don't keep your fix and flips with your buying holds. And there's a really good reason to do that. Why is that? There's got to be a reason.

Yeah. So the reason that you end up that you separate those out is because it's tax treatment that the IRS will do. If the IRS, those types of investments are taxed at different rates. So if the IRS were out of audit you, they actually get to choose when they see that type of income, which tax rate they want to tax you at. And I've never known the IRS to tax people at the lower rate if they have the option. So don't give them the option. Separate things out. And if you have different kinds of companies that you're running or really big projects where you have,

having a big fundraising that has to go with it, then it makes sense to go ahead and spend the money for the legal work to be able to establish your DST. But for whatever you're doing with that, it's so cheap in reality to hire an attorney to be able to give you that initial advice of what you need to do as compared to what it's going to cost you in taxes if you ever get audited or if you ever in having a lawsuit get filed against you. Because a lawsuit alone is really expensive and that's just for attorney's fees, much less having a judgment. Well, you and I are talking after the show more. I was like, is that Bill?

I don't know. Here you go, Scott, I think it is. Just saying, man. All right. Not to sabotage Brandon or anything, but dude, really? Okay, I do have one more question. I do have one more question then. This is important, right?

So people who already have LLC set up, can they still jump into a series LLC or do you have to start all over? It's a new filing. So you can file a new and just and move your assets over. That's not a problem. Okay, so it's not like I have to go and open up seven new LLCs within that series. No, in fact, you would just do maybe one or two series and then move the assets over into that. So all of these things are remedied.

You're never stuck in any of these things that you do as long as you're proactive about it. I'm going to take over because, you know, I see my co-host. Can't really be trusted. My goodness. My goodness. I wanted to introduce an advanced strategy if I could. Yeah, please. Here's like another point that you won't ever hear from any other attorneys

because they kind of keep it inside of their secret desk drawer of things to do. So you think it's like really cool that I'd be able to have an LLC that says, okay, this separates my business from me. And so that way if I'm ever sued, you know, it's only going to go, you know, they can't get to my business. my business is sued. They can't really get to that either. But there's another level of that says, okay, well, what if they can't even find out what I own? Like, how cool is that? They can't even find out that I own an LLC or they can't even find out that I even own a property. And there's two ways

that you can end up doing, that you can do that commonly. The first way that a lot of people don't know about is what actually happens in the formation of the LLC. That, I don't know if you guys knew this, but did you know that a trust instrument can actually be the registered manager? You don't actually have to have your name attached to an LLC filing personally. The trust is the name that's on the LLC filing. But you could find out who owns a trust, though, can't you? No, because a trust doesn't have to be registered with the state. So there's no research that somebody can do to be able to discover it because that

trust document literally is a document that I drafted that's on my computer. and that we see. So there's unless somebody can break into my house and get into my computer somehow, they're never going to be able to find out that you actually own that property or own that company. And the second way that this ends up being another advanced strategy for anonymity comes in to say when you want to be able to hold the actual property itself

on the deed in the name of a trust instrument. Because again, remember the trust don't have to be filed. So if I have an address that's called 6210, you know, Winewood, for example. And I have on the trust instrument or on the deed instrument that says, who is the owner of this property? Well, it's just the 6210 Winewood Trust. Now, when it comes time to sell that property, you'll actually have to go to the title company, produce the trust document, verify that you're the trustee of that to be able to execute the sale. But anybody looking through the county clerk records or anybody that's looking through the Secretary of State to

be able to find what you own won't be able to find your name. Fascinating. So, Why? I mean, it seems brilliant. Absolutely brilliant. And my question is, why have, you know, why do lawyers keep that in their back pocket? I mean, it seems kind of like a, you know, obvious, you know, obviously. Or is it because the more people that do it, you know, suddenly they're going to clamp down and not allow that to happen. Now that everybody in bigger pockets knows, hold on, it's out there. You're going to get hate mail from lots of lawyers. I know. That's what I told everybody. I was going to open up the kimono and show off all our stuff. secrets here about what we end up doing in the industry. It's a really good question. Personally, the strategies that I'm recommending to you are usually only given to people that are five to $10 million in assets. And I think, and they're paying really big bucks to have people that are really invested inside of asset protection. And because it's a limited industry, and asset protection is what I do. It's the only thing that I really focus on,

to be able to know everything there is to know about that. And that's why I want to come on. I think it's great that these type of strategies everybody should be using and they're not too expensive. That's fascinating. Okay, I want to go back to, and I want to dive into the trust thing a little bit. First of all, because that's a word you hear a lot in the real estate space, but I know very little about. So what exactly is a trust? And what are you talking about when you do that?

And really quickly, I believe it was show six with Neil. Yes. We talked about Franklin. Frankl. Frankl. Oh my goodness. He's going to kill me. Neil Frankel, we did a show on preparing for death.

And it was all about like, hey, how do you prep yourself for when you're going to die and you want to pass everything along? And we do cover this stuff a little bit. So if you're interested, you know, it's definitely a complimentary show to probably check out a little bit. But I'll let you get to it. Yeah. So trust. What is that? Yeah.

So I think what you're referring to there is estate planning. And that's when you're talking about having a living trust, but probably. in combination with a poor overwill to be able to manage your asset. And that's exactly what I recommend to anybody that comes to me that has a lot of real estate property because what you don't want to happen is things to get caught in probate. So it's a lot easier to have things in trust. But here are the types of trust that I'm talking about that we're using. There's two different types.

There's either revocable or irrevocable trusts. And it gets somewhat complex regarding what the what way you want to hold the property. If you're just using a trust for anonymity alone, you're fine using just a revocable trust. And I say that you're fine using that because a revocable trust actually provides no asset protection at all. So it's only being used to be able to obscure the names from people being able to search for them.

An irrevocable trust, on the other hand, actually takes the property out of your ownership and places it inside of this fictitious instrument called a trust. And the trust, again, it's just a piece of paper. There's no filing that it goes with it. But a trust can have bank accounts. It can have tax numbers. It can basically, you can operate a business outside of a trust. And if it's an irrevocable trust, that means that if anybody sues you personally, they're not able to get at the trust assets. But nor are you though, correct? I mean, aren't you typically using like an outside trustee,

somebody that you trust to kind of manage said trust? It's hard, you know, and answer a question. with that word six times, but isn't that what we need to do? Yeah, so it gets pretty complicated about exactly the way to do it, but a trust will only fail if the trustee is the same as the beneficiary. So there's a couple of ways that you can get around that, and it depends upon your state's laws regarding the issue, but if you have a beneficiary that is an LLC, for example, you can own the property inside of a trust, and since the beneficiary is an LLC, then you could actually be the trustee.

Or in the example, as I can appoint Brandon Turner to be the trustee. That idea. In the trust instrument, Brandon Turner can go ahead and refer control of the trust corpus, whatever's inside of the trust, to my operating company. Scott Smith's operating company is actually going to do it. And so there's ways around the legal technicalities of how that gets established. And that's why it's a good idea to have an attorney look over that, to make sure that you're going to have that structured correctly.

Got it. So, not really, but yeah. I got to, I'm getting, I'm getting a good foundation, at least. So there's a couple questions that I related to that. First of all, LLC, I'm going to throw out both questions now, even though they're completely different. LLC versus trust. That's my first question is, what should I do or what should a person do and why?

And then the second question is, how much does this cost? I know that's a very weird question, but like, am I looking at, if I need a lawyer to help me set this up, am I looking at $1,000 or $10? $10,000 or $50,000. So those two questions. So I'll take them in reverse order. In reverse order, you're thinking in terms of like thousands, but probably not tens of thousands. Unless you have a really big organization, like really, really big organization that you're doing.

And by really big, I mean like 50 plus properties and upwards in that range. Okay. But to the answer to the first question is that I'm going to have to give you almost like a non-answer. in the sense that it really depends on what state you're living in, but I'll tell you that just to be able to say here's a blanket thing, that if you want to say here's a jumping off point for most people, is you can start off with looking at a series LLC. If you have the ability to be able to do a series LLC,

go ahead and do it. If you don't, then start looking at multiple LLCs with holding properties and trust underneath the LLCs. And if you're acquiring property, another way to be able to do it is to have the trust instrument itself actually acquire the property because remember the trust is just a piece of paper, right?

And we can create that in 15 minutes on your computer to be able to print out and the trust can be the one that's actually negotiating all the contracts and holds all the liability for what could result from them. Go ahead, Josh. All right, so as I raised my hand.

Yeah, me, me, me. Okay, so I think one of the questions that I recall hearing a fair amount on the site have to do with being able to purchase a property with a company or a trust LLC that has no credit, no business. So let's take an example. I want to go and buy rental property on 1, 2, 3 Main Street, right? I have Josh's credit and I've established my credit and I want to purchase this property. So I go, now do I need to write the offer in the name of the trust or can I write the offer in my name? That's the first question. The second is if I write it in my name, can I close in the name of the trust or LSC or whatever it is?

And third, you know, if I close in my name and I've moved it over to a trust, is it now protected or was it not protected because there's the public exposure of me having previously purchased it in my name, you know, makes me open to the world. I guess those are my questions. Yeah, so starting from the beginning of that, so the trust can purchase the property. But taking a step back even from that point is that, Josh, you shouldn't be doing anything in your name. That's how you get exposure. Everything you should be doing should be in the name of another entity, as is Josh as a trustee of this trust.

And yes, even the offer. Even the offer. Anything you do can be in the name or in the name of an LLC even, is that you're a representative of this LLC. There's an LLC manager has probably more protections than a trustee because a trustee could still be sued by mismanagement for the trust. But let's just go ahead and take it so far as the assets of the,

if you were a manager of an LLC conducting the business. or in an instance of a trust, the trust can enter into the contract and can negotiate the contract. Then when you actually have the contract at the final stages of what you want to do, you make it where the contract is assignable. And so when it's assignable at the time that you end up signing for, it's immediately assigned over into your holding company of whatever way you want to have, whatever holding asset that you have for it. And how does the loan work on that?

I mean, are you signing loan docs through the trust? Will lenders even lend money to a trust, or do I have to do that in my personal name? If lenders would be willing to lend me money based upon a document that I drafted up on my computer, it would be the most amazing thing I could ever imagine. And I'd probably get in a lot of trouble for that. Yeah, I'd say you'd be in jail, wouldn't you? I'd probably be in jail pretty quick. No, so remember we have to separate out, like, what,

is the, a loan really has nothing to do with the property. The only thing that a loan has to do with the property is that the property is security for the loan. So the loan is actually going and being established by Josh's credit. But the bank is going to say, okay, regardless of what's ever, if there's ever a default on this note, we're going to make sure that we can foreclose on that piece of property. But in my experience, what I've always seen is, I mean, if I went to a bank and said, hey, I'm buying this property. It's in an LLC. They would say, well, you need to talk to our commercial department and put down 30% and

blah, blah, blah. Like, they don't like lending on properties in LLC from what I've seen. Have you seen that in your experience as well? What are your thoughts on that? I think it's really particular to, you know, what banks you're working with and whatnot. And how well you can educate the people and that are the underwriters for the bank about what type of legal structure you're doing. And the reality of the situation is, is that it can take some handholding.

with them and your attorney to be able to negotiate with them about what you're doing is really for asset protection purposes, that you're not really trying to hold a property that's really in your name. The flip side to it, what I see is that people will have property in their own name and they don't want to transfer it into an LLC because they're really afraid of what's called a due on sale clause, right? Me and my network of attorneys that I collaborate with on asset protection work. We've never seen a due on sale clause getting forced inside of recent history unless the note wasn't performing. So as long as not performing, a lot of times the banks just say, hey, listen, it's still a good investment. The asset class is still strong. We don't have to,

you know, the whole secondary market for them is still looking good and they're not losing money. So why would they rock the boat? So as far as practical terms go, by the way there's a monster I mean this topic what you're talking about due on sale clause has led to some epic epic debates on the site

and it's interesting to hear an attorney say what you just said which and you're not saying go ahead and you know violate some agreement you're just saying you know you've never seen it happen I've never seen it happen and I'm not advising anybody to break their contracts or to do anything

like that but when you sit down with your attorney journey, like think about the practicalities of the situation as much as you're thinking about what is the actual, you know, black letter law. Yeah. Gotcha. My, go ahead. And that brings up a good point too is even if you are violating a do on sale clause. And this just, I mean, we can do a whole show on just that. But in, in all my like research and what I've done, it's not breaking the law anyway. It's not necessarily a legal thing, right? It's a contractual thing, which I guess you good than say down the line that there's legal implications. But there's no law that says you can't

break a due on sale clause. It's a clause. It's just a contract between two parties. Yeah. So like in my, I mean, again, I'm not giving advice on what people should do, but like I had them in my personal name and then I transferred my property into an LLC. That probably technically violated a due on sale clause. Yet I did it anyway with the assumption that I've never heard of somebody getting called their note due. And that's a risk that I'm okay taking. If one of the banks decided to be a jerk and pull it on me, that's why I only buy incredible deals. So, worst case scenario, I buy incredible real estate deals to give me exit strategies in case the one and a million shot happened where they're going to get mad at me for transferring into an

LLC. And Brandon, I think your approach is actually the proper approach that investors should be taking. The investor should be thinking about how can I make the most amount of money possible and then hiring out other people that are experts to handle their insurance and to handle the way that they're going to hold and manage the technical, legal aspects of what they're doing. Because if you're good at making money, why in the world are you racking your brain trying to figure out all the other minutia details that go on in these kinds of things? You know, that brings up, I mean, something I hear all the time. People use, and I want to know your thoughts on this, people use the LLC question as a,

I don't know what you'd call it, like the psychological blockage from them actually to get started. Oh, they won't even start. Yeah. So people are like, yeah, I've been wanting to invest in real estate for. years, but I don't know what to do about an LLC. Like, that's always where they stop. And I'm like... But remember, those are the people, Brandon, who weren't going to start in the first place. I agree.

They didn't have the... A lot of them don't have the money to put down. A lot of them, you know, are trying to start on the cheap. You need money to invest in real estate? What? You need money? What? My name is Jastalk, and I got a course for you for $997. You buy that course, but you need

no money to get... What? You can do it, but it's not easy. Low money is more reliable, but you know, whatever. Okay, anyway, moving on. Hey, all right, good. So did I cut you off? No, no, no, no. He was going to answer.

One last piece here, but off the deal before we were going. Yeah. Is that a lot of times you wanted up wrapping up what's going on with the, the due on sale clause also is very important, but there's also an issue what happens with insurance, whether it's personal insurance, or commercial insurance, and there's different pricing that can happen with that.

However, if what you do is, is you establish a trust that's called the Joshua Dorkin Trust and you move your property into that trust, now all of a sudden, an insurance company as well as a title company and the bank all think you've only done something for asset protection that you actually haven't made a sale.

So it's a way that you can have some, and you can have some of the asset protection elements without actually triggering some of those contractual issues as well as the insurance issues, depending upon how they're structured and it gets very technical. So we're not going to ask. No, but I've heard that the, like, and again, again, it's more technical than I'm sure we can go into, but that trusts are, like somebody, at least I mentioned one time I read in a book, that trusts do not violate the due on sale clause typically because they're protected by U.S. law

that says that a bank can't foreclose on somebody who transfers it into a trust. Right. And I believe just shooting from the hip over here, I think that applies to you like one to four unit properties. Okay. Gotcha. Gotcha. By the way, if you're trying to establish an entity for the purpose of hiding from potential folks who might want to sue you, I'm assuming naming it that Josh Dork and trust is a bad idea. Well, you wouldn't get the anonymity with that, right? Right. I'm just checking because, you know, like, you wouldn't get the end of it. Hey, I want to, I don't want, you know, these people who want to litigate it against me to, to find it. So I'm going to name mine, you know, the Brandon Turner Trust, the Heather Turner, you know, like, you probably want to be a little more anonymous in your naming.

You want to be a little more anonymous. But the great thing about is once you have a property, say, like, in a land trust. Yeah. I don't know what happening is that if you own like an apartment building, apartment building, and you wanted to, sell out particular shares of that apartment building that would end up happening because you want to diversify your portfolio a little bit more. Those are other ways that really makes sense to be able to hold the property inside of a trust and still be able to have some of the management that would go on with that. Boy, that's like a whole topic, man. I mean, that's a show in itself right there.

Yeah, and it's definitely a whole other hour on what you can do with some types of creative trust instruments for investors. Yeah, nice. Talk about family office. I think that was the last thing in your list of things. What is a family office? I've got an office in my basement. Excellent. Yeah. I don't know if your family office is doing the same thing that my family office does, but my family office is the service that you can use for attorneys to be able to review all your paperwork for you. So even if you have all of your LLCs and Brandon has his six LLCs that he has, I would bet dollars to donuts that unless he has an attorney reviewing all that paperwork, that I could find a defect in there somewhere.

Probably. Something that he hasn't, has some eye, he hasn't dotted, or T, he hasn't crossed, and what he's doing. So one of the things I always tell people I say, you know, it's part of your attorney insurance. It's part of your asset protection plan that you should be looking at saying, like, what does it cost for me to make sure that I'm solid whenever a lawsuit arises? Because once you get even threatened to get sued, it's already too late. because you can get frozen inside being able to transfer assets around by what's known as a fraudulent transfers act that can look back up to two years from the time that the lawsuit gets filed or even threatened to get filed to be able to claw back. What's called claw back where the court will actually annul the sale and pull the property back from whoever you sold it to.

So what's the family office ends up coming to say like, listen, set up your LLCs, get all your structure right, but don't. don't just stop there because if you spend all your money to be able to soup up your car, it doesn't really make sense unless you have enough money to be able to keep putting gas in it so you can keep using it. All your structured business entities can almost become worthless unless you're paying the money to have somebody that knows what they're doing to be able to review it properly. Okay, so family office literally just means a law firm to review stuff at some periodic basis. Is that what it is? Right, exactly. And it's called a family office because it's the type of law firm that usually only the really wealthy could afford.

The people that have the 5, 10 million plus in assets would be able to spend the money to protect their assets with the law firm. So it's part of, but I don't think that that's necessary. My research and my work, I think, shows that there's a way that the average investor who only maybe has a few properties can be able to afford these same types of protections that that were usually used to be only exclusive to the really wealthy. Who are also now really pissed off at bigger pockets because we just cut the rug out from all that money that they've been spending to get all that information.

So awesome. Absolutely. Yeah. Nice. Nice. Okay, cool. And I think there was one more thing. Brandon had shot me a note here that we forgot to cover, which was two member LLCs.

Yeah. So the two member LLCs, what can happen is that if you have a, you have a, you have a, you have, particularly in the state of Texas, if you have an LLC that you establish and that you're actually the sole member of, that can look like you actually try to create a business entity, but it's really just you. I mean, there's nobody else there. So the way that we get around that issue from the court looking at that and saying, ah, it's really just Brandon. It's not really, you know, Brandon Turner LLC that's really conducting this thing, is to go ahead and throw in another member. You can throw in a member member and say, you know, I really want to give,

Josh has been really great to me this year. I'm going to give him 1% of my company. But I'm not going to allow it access to any of the distributions. He can't vote. He can't sell his interest. So it's a really crappy gift. It's a cheap bastard. But it works out well for him for being able to make sure that the court is going to look at that LLC appropriately. Now, one thing that does do, though, is, and correct me if I'm wrong, but if you have a single member, LLC, it's just you. Taxes are passed through, which means you don't have to file business tax returns. If you add a second member, now you got to file business tax returns. So, taxes become more expensive. Do you know if that's, does that sound right? Yeah, that does sound right. And that can be

the case. But the question really becomes is, you know, that's like, it's one of those things you have to balance between what are your costs and taxes. And then what is your, what can you lose if you get a lawsuit against you? And remember, like, these lawsuits come up, not because you really did anything wrong. I mean, I've seen really great people that didn't do anything that I thought was wrong, get huge judgments against them. And when you're talking about, you know, an average house here in Austin costs 400,000, 500,000,000, you're talking about, what is that, $100,000 in equity right off the bat.

That's enough for me or any other litigator that works out in the field to have a good enough reason to file a lawsuit because there's enough money there to be able to get at and depending on how many other properties are there. You're a shark, man. Look at you. John, pick people apart. I'm the opposite of that. Trying to make sure that these guys don't have any leg to stand on when they come looking at the bigger pockets investors. Nice. So, okay, so just to add on to that, the reason I brought that up and the reason that I know about the single member versus multi-member tax issue is an issue I had like two years ago. And I might have mentioned this on an earlier show. But when I file, so back five years ago or something like that, I formed a LLC with some partners of mine. Like we were going to buy a property together. And so we formed it.

We all excited because that's what you do when you went on legal Zoom or whatever and formed it. And then we just didn't do anything with it. We just ignored it basically. And I never transferred a property into it. I didn't, I just kind of forgot about it. I didn't even touch it. So anyway, a few years later, we get a bill from the IRS for $10,000 for back payments on that. Because even if you don't have any business income or even if you don't even touch your LLC, you have to still file business tax return if there's two members in it. That's not your spouse. And so we had a $10,000 bill from the IRS for back penalties.

Anyway, I got it waves. I used Amanda Hahn and she worked me kind of through the process of getting that fixed up. But that was a stressful time. So anyway, I guess my point is, if you're going to do the LLC thing and the asset protection thing, which you definitely should, don't forget about the tax side of it either. You know, consult with the CPI and what it means about all this stuff. So anyway, that's my quick tip. So I was going to say that's, and that kind of leads into like a point that I wasn't planning on discussing,

but I get a lot in bigger pockets when people are starting off to say, like, who do I need as part of my team? And there's three people you need is you need somebody that does your insurance and you need a CPA that's going to be able to tell you what tax implications are going to look like and you need an attorney to be able to make sure your documents are going to be the way they need to go. because the average investor will go on to legal Zoom and do exactly what you did. And I think it sounds like you were fortunate enough to know somebody that could help you get out of that situation. But in the reality for most people, if they don't have that kind of network of people that have own favors, they're talking about paying thousands of dollars to attorney at least, I would say at least like $3,000 to $5,000 to be able to get out of something like that with the IRS. And the IRS is not forgiving on a lot of these issues. choose, you know. So it's a, I had a quick five takeaway items that I want to be able to tell

everybody. Love it. So the takeaway item number one is that if you're not insured, get insured. Protect your property. If there's going to be a flood or fire, whatever's gone there, there's too much money that you have invested to try to skimp on having insurance. Action number two is to say, for most investors, go ahead and set up at least three LLCs or start using an LLC series LLC structure. You should be having one company that's going to hold your flips, one company that's going to be holding your buy and holds, and one operating company that you're going to be used to enter into contracts, to purchase property, collect rents, etc. That's going to be your operating company is the one that's actually performing all the business.

The holding companies don't do anything besides just hold the assets. And we separate those out for IRS tax reasons. Real quick on that one while you're on there, because this, again, I'm picking your brain because you're here. So we did that. We have an operating, like, an, LLC. One of ours is just for operating. Yet I assume now that, I mean, my plan was to separate everything, separate bank accounts for every LLC, separate, you know, like when the rent comes in, I have to go to that bank and drop off the rent there. Is that not the case? Can I actually still use that one LLC for everything and just distribute? If you have any of the contracts that are coming in to the operating company, the way you can also end up doing is setting up different DBAs or assume

names for that one operating company that's an LLC. So you can have checks. coming in all underneath different names, but for who's actually holding revenue from the property, you don't want any type of privity established between an asset holding company and somebody that is paying money to you. So you want one face to your company, and you don't actually want anybody to know

who your other asset holding LLCs are at all. that should be not having anything inside of the public sphere because that's the last thing that you want somebody to be able to find out that they could try to collect against. Okay. Oh, anyway, that's great. That was number two, right? That was two, right? Yeah, that was number two. So number three is that you should never have any assets in your name unless they're statutorily protected like Texas has homestead protections, which makes Texas one of the best states to be able to do asset protection in.

And in fact, you can have a company in Texas, an LLC in Texas, that can own property anywhere in the United States. And Texas has like a hundred, multiple hundred year tradition of this. And in fact, it's an old saying that so and so went off to Texas because our debtor laws and our consumer protection laws are some of the strongest in the United States. Do you have to have physical residence in Texas in order to open a Texas company? To open up a Texas LLC, you don't have to be a resident of Texas. So you'll have to have a Texas address and stuff like that. But us attorneys have already figured out all the ways that all the checklist of things that you need to be able to have there to be able to be in compliance. But remember that we don't have any assets in our name because when we have assets in our name, it increases our exposure and that wealthy people don't have assets.

They only control properties and get the benefit of the properties. So when we get to number four is the family office, is that you, And that if anything is not being properly maintained inside of your corporate paperwork, it makes your asset protection plan vulnerable to having an aggressive litigator come at it and be able to dissolve your corporate structure. So we should be thinking about the money that we're paying out to be able to maintain our structures, kind of like maintenance on a house. You never think that you could build a house once and that it would be good for forever. So there's always additional updates that you need to do. and we all know every year Congress tries to act, even though they've had a hard time recently with that,

but to pass laws that are always changing and that you would need to be able to keep it. Well, we have to work together to pass laws? Well, right? Like, why can't we all just be friends? So number five is a takeaway when we talk about looking at cost, the cost of a good asset protection plan is approximately, in my experience,

has been about the half the cost of the attorney. fees alone in a single lawsuit. So apart from saying that you had a judgment against you or anything like that, we're talking about even if you were to go get sued and win, the cost of that is half the amount to be able to have an asset protection plan as it would be the cost of having a lawsuit. So you can look at having as a 50% savings right off the bat by go ahead and being proactive about this.

And remember that real estate is the hottest litigated industry. And it really shouldn't be an issue of, of when you're going to get sued. I mean, it shouldn't be an issue of if you're going to get sued. It's really just a matter of when. And that being a nice and an honest person doesn't protect you from lawsuits. It's not a legal defense. Hey, Scott, how do I go about finding a guy like you?

I mean, obviously, we know you're open and available, you know, yada, yada. You know, you guys hit up Scott. He's the man. Yeah, yeah, yeah. But like, hey, you know, I'm in Maine and I want a guy who's in my area. How do I find a good attorney who knows his stuff like you, Cole, in this stuff in this field, the asset protection.

It's kind of the same question of asking, like, do you have a good doctor, right? Have you ever asked somebody if they know a good doctor? They always say, oh, no, no, my doctor is the best because nobody wants to believe they have a crappy doctor. It's the same thing that happens with attorneys, right? If you ask your buddy, do you have a good attorney? Well, hell yeah, I have the best attorney that end up happening here.

And it's also the same type of thing about saying, like, how do you know if a certain doctor is good? Yeah. Well, we don't really, as I'm not a doctor, I don't really know the criteria of what makes a good doctor and really know how to judge, like, the quality of work they do. So I would say that if you're really looking, if you're looking for somebody that's in your area, which isn't necessary, that you don't have to have somebody in your area.

So if you can find somebody that you like that's not in your area, you can still use them, potentially. They can't practice law in your state, but there's other ways around that. But I would go take out your smartest. attorney friend for a really nice dinner and have them do some work for you to vet some people on your behalf. And perhaps you can skate out of there for the price of a nice steak and a great bottle of wine. There you go. There you go. Good advice. Good advice. I have one more question before we head out of here. Of course you do. I know, I do. Me, me, me, me. No, this is not me. This is not me.

So I'm a brand new investor. I've never started investing in real estate yet. Does any of this matter to me? like why should I care? I don't even have a single property yet, you know, other than my own house. Why should I care? Yeah. So if you own nothing, then, and you own nothing and you have no money and you're trying to get started, then you don't really have any assets to protect. But so, but say if you're really anybody else that owns any property at all, whether it's a car,

a home or anything, that means you have exposure whenever you're entering into any type of business arrangement. And that's really just what real estate boils at. down to is just now you're operating your own company and you have all the exposures that anybody that starts a company would have and no no good company starts with out having some type of structure in place makes sense great sense i love it fantastic well i don't know about the rest of you guys but i'm probably going to have to rewind this and listen a couple times to myself and and uh so hopefully you guys enjoyed this we we haven't done a ton of shows like this and

and I do think they're extremely valuable. And before we head out of here, I think we need to, you know, hit you around. First of all, you're doing real estate yourself as well, right? You're focusing on commercial. Yeah, I do some work with some commercial real estate, residential real estate, and doing some notes. My focus recently has been on developing these type of cutting-edge strategies

that end up happening with asset protection and less on the investment side, apart from structuring a lot of the bigger development deals that come around across my plate. Gotcha. All right. Why don't we get to this Famous Four? Famous Four.

All right. These are the questions we ask everyone. And we're skipping the fire around today because I didn't want to drill you with a whole bunch more questions because I already asked you like a bunch of specific legal questions. So we're just going to go right to the famous four. So you got to ask your questions, but people on the side... People didn't get to ask there.

Wow. Look at you. ingredient stuff, man. Well, my thinking was one, like, every question is going to be like, it depends, like on a lot of those little things. Because we don't know anything about these people, what they're talking about. They're all short questions. So anyway, that's why. All right, moving on. Famous for giving me a hard time. Thanks. What is your favorite real estate book? My favorite real estate book would actually, it probably have to be the one I started with was rich dad, poor dad. And I know that's really cliche. But it was, it was actually,

part and parcel of that, he actually made this game called the rat race that ended up coming about, where it was actually a board game that would teach you about the way. It's a very expensive board game, too, wasn't it? He's very proud of that board game, Robert Isaki is, for a piece of cardboard and a couple of cutouts. Because in that sense it talks, or that board game shows a lot about saying that, you know, when you're younger, you can start taking a lot more risk with capital gain issues to build up your stack of money. So you might be able to retire early and live the dream life. and kind of coaching about saying, well, does it really make sense that you would only look at, you know, minimal cash flow properties if it takes you eight years to develop the capital to buy one property?

And kind of just retooling the way that you approach what your strategy is depending on where you are in your life. Yeah. Right on. What about business books? What's your favorite business book? Yeah. So one of my favorite business books of all time that I always go back to reading is The 4-R Workweek by Tim Ferriss, which I'm sure is also a book that a lot of people reference in here.

And the reason I like it is because I think it distills down a lot of principles that I've read another book. So recently I've been applying the principle of the one thing. In my personal life, in my health, and in my business, I've noticed that it's really made so much of an impact where I'm just being able to have that single focus, that Steve Jobs-esque kind of obsession of making sure that your one thing that day is prepared for, done correctly. and by doing that one thing, everything else in your life

either becomes easier or unnecessary. There you go. Yeah, Brandon doesn't shut up about that one other. Yeah, it's actually, look, great. It's like sitting within arm's reach of me. That's how I like this book. There you go. There you go.

All right, hobbies, what do you do for fun, man? Yeah, so I live here in Austin. So I rock climb, I run around the lake. I do some boating that's around here. And I actually have been doing a lot of boxing recently, which has been a lot of fun. Really? No kidding. Yeah, we suit up with the headgear and stuff. So my brain still stays intact. I don't take you a boxer. Okay. You know, Brandon, whenever somebody is that what you're saying, Josh?

I'm just too pretty. Well, you would never hit a guy with glasses. So yeah. Yeah, me and Scott are going to fight at the next Bigger Fockets conference. Yep. You know, meet up. Brandon's going to box you. Yeah, we're going to, we're going to fight. It's going to be good. All right. All right. My last question for you, what do you believe sets apart successful real estate investors from those who give up fail or never get started. Yeah, so I think what really happens here and what this question really delves down to is much more of a personal question. So I think what actually is separating out the successful people from the unsuccessful people is the ones that really know how to develop systems with themselves that they can be successful

with. So for me, for example, I have to, I tried to work, you know, a traditional eight, nine hour block out of the day and segment all of that at one time. And I realized that I was just wasting a lot of my time during the day on Facebook or whatever, just something to distract myself. So I was like, okay, well, that doesn't work for me. So it works for me is to say, do I know myself well enough to say that every three hours I need to go do some form of exercise? And so I think when you're talking about what makes a successful person or successful real estate investor is to know, know yourself well enough to know what type of business you can run and be successful at. And don't try to be

Brandon Turner. Don't try to be Joshua Dorkin. Try to be you and running your type of business. That's great advice. You know, it's funny. I was, I know me. I'm like an addictive personality and pretty much everything that I do, right? I go, I go balls to the wall, so to speak. And, and, you know, I used to, you know, I like playing games. I like playing like video games. And, and I used to have all these video games on my cell phone. And what I discovered was, and it took a long time to figure this out, I discovered, I was, like, I mean, I'm in the bathroom on this game. I'm in bed on this game. I'm at work in between working on this game. You know, I'm constantly doing it. I'm like, what am I doing? Like, if I take this game off my phone, I'm going to save hours and

hours and hours a week, you know, and I'm going to be more productive. I'm going to be more successful. And you know what? I love the game, but at the end of the day, oh my God, this is such a distraction. And I think that's kind of what you're talking about. Find what in you helps you get to where you need to be. Get rid of the things that distract you and kind of cause issue and just go forward. Absolutely. I don't think anybody can be, nobody can be a machine. If I offered you $20 million to work 24 hours a day for the next six months, it doesn't matter. You couldn't do that. And no matter what I was offering you as a carrot to be able to change your behavior. So you really have to dial it back to say, you know, all right, so my video game is a waste of time. It's distracting me.

So what is it that I can replace that ish? Or what's really going on with me that I'm using this video game to kind of use as a crutch? You know, the same way some people use smoking or eating snacks or chewing gum or something like that. I don't have a problem, man. You know, the first step in the process. Oh, right, right, all right. All right, man. Scott, it's been a pleasure, man. Really fascinating. I thought most lawyers were jerks. You're not that jerky. But, you know, no, I'm just kidding. Absolute pleasure. Where can people find out about you? I know you've got a website. How do we get in touch? Yeah, so I offer myself up, you know, to everybody here personally. Just go ahead. Give me a call. My number is 512-757-39-94.

the phone just started blown up, by the way. Yeah, let it blow up here. I have all kinds of you'll likely get my voicemail, but I always return calls the same day, or if not the latest, it's going to be the next day, and we can set up a time to talk and be able to look at exactly, you know, what kind of things, if anything, you're going to need.

Or you can always shoot me an email at Scott S-O-T-T-T-T at Royal Legal Solutions.com. Or you can find me on bigger podcast. I usually try to post up a lot into the forms and whatnot, and it always has my contact information underneath everything that I post as a pro member. So everybody should sign up for a pro account to have access to that. Nice. Well done. A promo works both ways, doesn't it? Yeah, baby. Yeah, baby. No, you do realize your 24-hour response rate is going to change after today. So it may take him two or three, guys. It may take him two or three. There's going to be lots of calls. well Scott thank you so so much man we again we really appreciate it and it's it's it's been a pleasure

oh look forward to guys if there's anything i can help out with in the future with uh anybody out here or to come back and talk more about any these topics i'm always available and happy to uh do the research on the back end to be able to help out uh whatever we can do uh for the BP members love it great great stuff thanks Scott thanks Scott all right guys that was Scott Smith the man, the myth, the guy who's going to save your ass sets, Scott Smith. Thanks again. We really do appreciate it. Otherwise, guys, thanks for listening. Hopefully, you guys are loving the content that we're bringing you. Hopefully you're getting a lot of value out of it.

And if your brain's still bleeding, you still hurting? Yeah, a little bit. Yeah? Nice. Nice. But thanks guys for being our listeners. If you're not a part of our world, community. Jump in, join BiggerPockets.com today. It's the greatest thing since sliced bread, actually the greatest thing since a slice of pizza. It is good. It is yummy. It is delicious. I don't know. But it is good. Yeah. Yeah, join up. Join up. Get some pizza right now. Do it. Do it. All right, guys, it's been a pleasure. Check us out on biggerpockets.com. Check us out on Facebook. Jump in, get involved, and make moves. And we want to thank you.

And wish you a good week till the next show. We'll see it. 110. I'm Josh Dorkin. Sign in all. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast. you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

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