Epic Real Estate Investing - How To Create Passive Income In Real Estate | 1198

Episode Date: April 29, 2022

Generally, we work from 8-12 hours a day. With that, our earnings are dependent on the number of hours we have rendered. Now, you might want to consider having investments that will allow you to earn without putting much effort and your money is rolling even when you are asleep. In today’s show, Matt shares with you 8 different options on how to create passive income in real estate! BUT BEFORE THAT, you will learn why you should use an LLC for real estate investing! Apart from offering protection and tax benefits to businesses, an LLC can make holdings less stressful for investment property owners, real estate investors, and regular home buyers. Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Why use an LLC for real estate? Is it worth the cost? Is it worth a hassle? And these are great questions. So let's take a look. You ready? Let's go.

Welcome to the all-new, epic real estate investing show. The longest running real estate investing podcast on the interwebs. Your source for housing market updates, creative investing strategies, and everything else you need to retire early. Some audio may be pulled from our weekly video. and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, EpicRRII.TV. If you want to make money in real estate,

sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to reiase.com. Here's Matt. What substantial real estate LLC benefits can investors obtain from incorporating their business? Better yet, how will they enhance the long? term outlook of their business. One of the first questions an up-and-coming real-estate investor

needs to answer is the type of corporate structure they want to establish. If for nothing else, starting a real estate investment LLC is as important of a task as any. Choosing a business formation is important for many reasons, but most importantly, it dictates how your business will pay taxes, the type of regulations you'll be subjected to, as well as your personal liability, and I'm going to address all of those. Oh, and by the way, if you're still looking to get that first deal under your belt, I put together a free training just for you to help you get that first deal done, and then how to earn $5,000 a month flipping contracts and properties working as little as one hour a day. And you can access it at mats free training.com. All right, let's begin

with what is an LLC? Well, an LLC or a limited liability company is a business structure and legal entity that provides asset protection and tax benefits for the business owner. Generally, a person will need to pay a filing fee to start an LLC and an annual fee to renew the status. So secondly, what is a real estate LLC? Well, the real estate LLC is a business entity geared toward ownership of real estate assets. And this kind of structure can make owning real estate holdings far less stressful for entrepreneurs, investment property owners, and real estate investors, and regular homebuyers. An LLC of this kind can be a regular real estate business looking for tax breaks, a multi-member endeavor for people hoping to own investment property,

together or the work of a single first-time property owner to protect their personal finances and assets if legal issues should arise with their real estate. So let's break down the real estate LLC benefits for investors. The legal structure of a limited liability company, which combines the limited liability features of a corporation and the tax efficiencies and the operational flexibility of a partnership, will generally align best with investors' needs. Real estate LLC benefits include shielding investors from any potential liability associated with the business, including their assets, as well as enabling them to obtain significant tax savings and quite a bit more. Benefit number one. The protection of assets. So the strength of a real estate LLC is its ability to

protect investors from liability. The LLC is a separate legal entity from its owners, so it limits personal liability. This is important for investors who want to protect their personal assets in the case a lawsuit arises as a result of the property or their investing efforts. The power of protection from personal liability for business actions is paramount as an investor. This corporate structure enables business owners to be considered a separate legal entity from their company, ensuring that they are not personally liable for debt or lawsuits from the business. For example, if an LLC business failed to pay its debt or was sued, a creditor could only legally hold the company liable, not you personally.

As a result, this protects investors from having creditors seize their personal belongings, such as their house, their cars, or other assets. On the flip side, the LLC business is held accountable, which means money invested into the business would be liable to debt and lawsuits. Although several real estate LLC benefits exist, it's also important to remember there are no foolproof methods of protection in real estate.

And there are, of course, exceptions to limited liability. An LLC owner can be held personally liable if he or she personally and directly injures someone, personally guarantees a bank loan or a business debt on which the LLC defaults, fails to deposit taxes withheld from employees' wages, intentionally does something fraudulent, illegal, or reckless that causes harm to the company or someone else, or treats the LLC as an extension of his or her personal affairs rather than as a separate legal entity. Before getting underway with the real estate LLC benefits,

investors are recommended to speak with a tax and legal professional, as I am not one. Asset protection is one of the more notable real estate LLC benefits and investor can gain. This corporate shield is crucial to growing and succeeding as a real estate investor, especially when buying and selling real estate. Benefit number two, real estate tax benefits. Another real estate LLC benefit is in the form of pass-through taxation. The formation of a real estate LLC enables businesses to avoid being taxed directly, meaning investors aren't reporting the company's profits or losses on their personal tax returns. In most cases, this will result in a lower rate for business owners, as well as the avoidance of double taxation. However, investors do have options on how they want to be taxed.

And here are three general options. First, as a single member LLC. The LLC business is not taxed. The member is taxed through their personal federal tax return. Two, a partner's LLC. Members elect to be taxed as a traditional partnership. And three, corporation LLC. Members elect to be taxed as a corporation.

And done correctly, real estate LLC tax benefits can also include thousands of dollars worth of annual savings. Really, the more you make, the more you will save using a legal structure like an LLC. Now, benefit three, an LLC builds credit for your business. You know, one of the more underrated real estate LLC benefits is the ability to build credit for your business. When an investor determines an LLC is the right corporate structure for them and their business, they can obtain an employer identification number, an EIN. And this essentially allows for your business to build credit without using or impacting

your credit. It can be an excellent tool for investment. as it enables you to build a dominant credit rating for your business, including the ability to qualify for credit lines under your business name. This could essentially provide double the borrowing power for investors with both personal and business credit profiles. Benefit number four, the ability to file in a different state. You can technically file an LLC in a state other than your home state. For instance, state laws in Nevada and Delaware are more lenient with real estate LLCs than the laws of other states. Filing as a real estate LLC in a different state may come with additional fees and paperwork, but it could pay off in more ways than one. Definitely check with a legal expert on this one. Benefit number five, better loan terms. Lenders often offer different loan types and interest rates to businesses than individuals. Since LLCs are technically a type of company, even if they sometimes only represent a single person, you might find you'll receive preferable real estate loan offers if you register as one. Benefit number six, transferring LLC interests.

Now, it is relatively easy to sell an LLC. And through a transfer of membership interests, an LLC can be sold to a new member. The LLC will continue to own the real estate that was previously owned. But a new member will gain ownership of the LLC itself. And as a result, own the real estate within. This benefit can be used in creative situations to cut costs to limit paperwork and process and or preserve anonymity between buyers and sellers. And I'll let you use your imagination on how this particular benefit might be used.

Now, there are some drawbacks to an LLC. LLC. For instance, the due-on-sale clause can be a drawback of LLCs if wanting to put properties you already own into one. You see, the due-on-sale clause of a mortgage can cause issues for an individual wanting to transfer a property in their name to their LLC. So seek out more information from your mortgage lender before attempting to do so, as you may be required to obtain a waiver beforehand. Also, researcher states laws regarding transfer taxes when transferring ownership to an LLC. If you'd like to talk to a professional, other than some guy on YouTube, to help you set up an LLC, and particularly the right kind for you and your business.

I have worked out a deal so my clients get a complimentary consultation with an expert to brainstorm some ideas around helping you keep more of what you make. And then, if it makes sense, they'll set up your business entity for you. And here's the best part. They've even agreed to pick up most of the customary expenses that you'd expect to pay when setting up an entity like this. Why would they do that? What's the catch?

Because there's always a catch, right? Well, they know after they prove to you how good they are and how well they'll take care of you, you'll probably want to do more business with them in the future. That's it. It's the old show them how you can help them by actually helping them trick. They'll look at your situation, they'll take care of all the complex nuances of setting up a business, and then make sure that you are structured the right way. When it's done correctly, you can write off over 250 different deductions, saving you potentially thousands, even if you're just starting out.

Thanks for sitting tight while we pay our light bill. We'll be back. after this. Ever hear someone say, I have too much money? Me neither. Let's get you some more. Back to the show. How to create passive income in real estate.

I mean, it's the alternative to exchanging time for dollars, to making more money than your time allows, and ultimately escaping the rat race. And I'm going to lay out eight different options that you have for pulling it off. passive investing is one of the most common strategies for increasing your income, growing your investment portfolio, and building a healthy nest egg for the future. And done right, it won't have to take lots of your time and energy. Real estate, it's a great choice for building passive income streams, not to mention for the average person, it's the most probable chance they've got

at pulling it off. There is, however, an added risk. You know, as a result, the strategy is not for every investor. So I'm going to review what passive income is, why real estate plays an integral role and how you can use it to reach your financial goals. Let's start with what is real estate passive income. You know, whether you're eyeing early retirement or just want a more secure financial situation, building passive income sources can be the thing that makes it happen. Put simply, passive income is a strategy that allows investors to generate revenue without continuous active involvement. And it's that word involvement. That's the operative one. Many people confuse passive income with uninvolved income. It is not. Your involvement is required to keep the income flowing.

The goal is simply to reduce your involvement to as little as possible. However, it will never be completely eliminated, therefore never 100% passive. Yet, in the interest of efficient communication, I'm going to use the phrase passive income throughout. Now, there are many options to generate this passive income, as some may purchase and manage rental property, while others might opt to invest in commercial properties. And there are many other options, as I'm going to get to. So why passive income matters? You know, no matter your career, your income is inevitably limited by time, whether you work on salary, make an hourly wage, or even have a side hustle that earns extra money, you will eventually run out of hours in the day

in which you are able to generate more income. And that's not even to mention the toll that nonstop work would take on your mental, emotional, and household health. Passive income changes that. While the actual level of involvement will vary from one investment to the next, the The idea is that once your real estate investments are established, they can generate revenue on their own. Essentially, you're able to earn more money while you work your 9 to 5, while you sleep, and even while you're on vacation with your family. People come to me for all of these reasons with the ultimate goal of creating enough passive income for themselves so they don't have to work at all. And that's what we call here at Epic Financial Freedom. Pursuing freedom or not, though, these passively earned funds can be used to boost your savings account, pay off debt,

save for your kids' college, and or supplement your income throughout your retirement. Now, as I mentioned, there are many different avenues to choose from when considering passive income real estate investments. And right now, I've got eight of them for you. The one you should choose will depend on your level of experience, your available capital, and the time you can afford to dedicate to your investment or investments. Yes, you might pick more than one. Now, as promised, I've got eight different passive income real estate investment options to consider. The first one, The single-family home. A single-family home is an individual standalone rental property, such as a house or even a condo unit. These properties can be purchased and then rented out. And this provides both long-term asset growth and when done right, passive monthly income. A single-family home is one of the most common choices for a real estate investment. However, they can also be risky as turnovers and vacancies equate to income lost for landlords. The next one, multi-family units such as a duplex, a triplex or a fourplex. These units allow you to generate income from multiple tenants while only managing one physical property.

This can be easier in some ways considering just one mortgage and one property tax bill, and it generates more revenue than a single family property. It also allows you to spread the risk of vacancy out over multiple units, hedging against the unexpected. However, it also means managing multiple leases, tenants, and potential vacancies at the same time. The next one, apartment buildings. If you're looking at a larger passive income play, apartment buildings, which include properties with five units or more, that may meet your needs better. As with multifamily properties, these investments can be more streamlined in some ways and increase the potential for an amount of passive income. Apartment buildings also require a much more involved management process,

however. You may want to hire a property manager to find tenants to collect the rent and facilitate the repairs, all of which can affect your revenue. The next one, storage units or storage facilities, both urban and rural communities can benefit from storage units, which are in demand in nearly every populated area of the country. I mean, we're all just buying and collecting more stuff. You know, with multiple units and relatively low overhead, storage facilities can be a great way to generate passive income. Your revenue will depend on the number of units you own, as well as factors such as climate control and customer access. You will likely need to consider the cost of property management, security, and also extra insurance. Then there's vacation homes. The

vacation property can be a fun and lucrative option for generating passive income. These properties can be purchased in areas that you and your family already enjoy visiting and then allowing you to use the home certain weeks out of the year and rent it out the rest of the time. In most cases, the property will pay for itself. Your vacation's there and then some. Costs include the usual homeownership expenses, you know, repairs and updates and insurance, stuff like that, as well as management costs, rental platform fees, and housekeeping services. You'll also need to account for tourist trends and seasonal vacancies. Then we've got REITs.

I mean, if you're looking for a hands-off extremely passive investment option, real estate investment trusts or REITs may be the way to go. Reets are essentially companies that own real property or hold the mortgages for properties. And when you invest in REITs, you are purchasing shares of that property and benefiting from the growth of the asset. As the properties appreciate in value, so will your shares, which you can eventually sell for a higher price. You may also receive dividends from your REITs, which provides you with a passive income

stream. And then we've got commercial property. Depending on your available capital, you could consider purchasing a commercial building, industrial complex, or even blended residential commercial, known as mixed use properties. These generally require a much higher initial investment than residential properties. As such, they may be better suited to investors with partners and or significant available capital. Commercial properties, they've got the potential to bring in stable, passive income with long-term tenants. However, be sure to account for lengthier vacancies, and higher remodeling costs. And then you've got P-to-P lending or peer-to-peer lending.

If you have the capital available, but don't necessarily want to deal with the hands-on requirements of landlords or property flippers, peer-to-peer lending could be worth a look. With peer-to-peer platforms, you are able to lend out your capital to other real estate investors. This enables them to remodel, flip, or rehab their own property with your funds.

Your loan will then be repaid with interest, earning you a passive return in a relatively short period of time. those are the most common types of passive real estate investments. Now, how do you actually get started investing in real estate? Well, if you've never purchased an investment property before, I've put together a free training just for you. Go to mats, freetraining.com to access that. And if you've got a little experience under your belt and you might like the idea of working with me one-on-one to help you build a real estate investing business, go to R-E-I-Aase.com. Or if you'd like it all done for you, meaning finding the property, fixing a

it up, placing a tenant, providing management, and even bringing in the funding, check out cashflow savvy.com. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I.

Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream. You didn't know home world, we got to dash low. Okay, only 10 more presents to wrap. You're almost at the finish line. But first? There, the last one.

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