ULTIMATE Leasing Strategy for Rental Real Estate Investing!

– Hi Clint Coons here and in
this video I’m gonna share with you my ultimate leasing strategy for your rental real estate. So with that, let’s get started. (light rock music) Okay so when it comes to
leasing out your property you’re probably doing the
thing that many people do and that is you enter into
a contract with your tenant to lease a property
for a year or two years or however long you can get
them to stay in that house. Well that works. So most people do this. We set up our LLC and we
put a property inside of it like this and then we
lease it out to our tenants that are going to rent
the property from us. Perfect, I get it, works. So these tenants then if
you have multiple LLC’s that you’ve created, many
times I see individuals where they have tenants paying
each of the limited liability companies rent on a monthly basis. And so they got multiple
bank accounts going on, all the money’s coming in,
you’re balancing out the books like you should. Well that’s fine but I
think there’s a better way of doing it that I like to do
in that it’s gonna give you some tax benefits by
setting it up this way, it’s gonna give you greater
control over your income and it’s gonna change the
relationship between you and your tenants. So rather than having
the tenants deal directly with these individual entities, what you may consider doing is setting up, I’m gonna use a different color here, set up a C corporation,
nope that doesn’t work. Let’s set up a C corporation up top. Set up a C corp. Now with your LLC’s that own
the properties like this, enter in to a master lease arrangement between the corporation and the
various LLC’s that you own. If you haven’t used that
term before basically what we’re going to do is
we’re gonna have your LLC agree to lease the property
to the corporation. So it’s leasing the
property to the company. So the company’s entered
in to a lease agreement. Now remember, you’re on both
sides of these transactions here so don’t sweat it, don’t
think hey if I don’t pay myself I’m gonna sue myself. No we know that’s not gonna happen. If you want hey two calls
we’ll help you out there. So the point is is that you’re
going to lease the property from the LLC so you have
this lease agreement. So let’s say we put this
lease agreement in place where I’m leasing this property
from this LLC at $700 a month. And this one at six, and this one’s at 1K. Now, your corporation is gonna turn around and sublease this property back out. So for each of these tenants, this is tenant number
one for LLC number one, tenant number two right
here, tenant number three. I’m gonna have my corporation
enter into separate lease agreements with these tenants to live in these properties right here. So the tenants now are dealing
with the company itself, they’re not actually dealing with the property holding entity. So my corporation, let’s
say on property number one right here that I have
this sublease agreement or I mean this master
lease agreement for $700, let’s say I’m renting
it out to this tenant for $1000 a month, great. So I’m renting it for 700, so
what happens is my corporation earns $300 here. That is the difference from
what the tenants paying and what I have to pay back to my LLC. You might be wondering why
would you wanna do that, why would I wanna have an extra $300 rolling into a corporation? Well to put it simply, tax breaks. By having that money roll
into the corporation, you then have the ability
to start picking up on tax deductions that you
may not be capitalizing on right now with your
current investing structure. We see a lot of individual
real estate customers who come to us and they have
this number one complaint, how do I reduce my taxes? Now if you watch my
other videos you’ll know that in certain situations
reducing your taxes is not a great idea if
you’re looking to qualify for larger loans that are income based. But if that is not one of your motivations then yeah definitely
tax planning should be on the radar screen, all part
of real estate investing, asset protection, tax planning,
and business planning. So my partner Toby Matthis
does a phenomenal job on discussing the various
tax benefits that come from investing or having
money flow into a corporation. But I’m gonna hit on just one topic here. You get the $300 that
comes in so what could I do with that? Well basically you should expense it out. You can expense it out with medical, say you had medical expenses,
you could pay it out that way out of your corporation
tax free to yourself. Vehicle, so a vehicle expense
we could be picking up through that corporation. You have entertainment
expenses or meals actually is what we could be running through there. So you have ways to deduct
these expenses from the income you’re earning at the corporation level. Now let’s say that you
don’t pull the money out or you don’ expense it all out. Well what’s wrong with that? Because at the corporation it pays taxes at a flat 21%. If you live in California
I can imagine right now you’re sitting back thinking
wow I pay taxes combined state and federal of 39% or 45%. Well you just cut your tax
rate in half so any money that you keep inside of that company, let’s say I’ve got 300 here
off of this lease here, I’m renting this one out
for 900 so there’s another 300 there and this one
over here is $1500 a month so there’s another 500
there, what you have here is $1100 a month. You multiply that out
over a year that’s over $12,000 a year, what could
you do with an additional $12,000 in your pocket? Either you’re pulling it
out tax free or it’s only gonna be taxed at 21%. Maybe it’s to send your kids to school, maybe it’s to get another vehicle, maybe it’s to fund a retirement account. Point is now you have options
because now the money’s coming in it’s being
taxed at the lower rate and more importantly
you have control of it. Whereas in the previous
structure where your tenants are paying the LLC’s and it’s
flowing right down to you, you have no control over that income. It’s gonna be taxed to
you at the end of the year in your individual tax bracket. So using a corporation
adds a different element to your investing structure,
I like this because it gives me the control putting
together these master lease agreements. Also I think it provides
an additional layer of asset protection if you
have any problems with tenants they wanna bring any claims against you, those claims are not going
against the property owners they’re going against
the property managers. Let’s say it’s a shakedown
discrimination type claim that they wanna assert
because you evicted someone or you wouldn’t rent to someone, those are common occurrences
or somebody happens slips on this sidewalk that
wasn’t salted properly. Boom let the corporation pick that up. Corporation doesn’t have a lot of assets so there’s not a lot of lose there, we wanna keep our assets
protected down here and away from our tenants reach. (contemporary music)

9 thoughts on “ULTIMATE Leasing Strategy for Rental Real Estate Investing!

  1. "Hey…, If I don't pay myself, I'm gonna sue myself" …. I don't know why but that totally cracked me up ! πŸ˜‚πŸ˜‚πŸ˜‚

  2. Now I'm confused. Everything I've seen or read (including from you and Toby) has suggested that active income would result in higher taxes than passive. When you route this income through the C-Corp, won't that be active income?

  3. I have a commercial location 1,900 sq ft convenience store location. I have a national company that is interested in renting the location but they want a 15 +5 year lease for a total of 20 years. What are the downsides of such long term leases?

  4. I really like this guyπŸ€ΈπŸΎβ€β™€οΈπŸ€ΈπŸΎβ€β™€οΈπŸ€ΈπŸΎβ€β™€οΈπŸ˜πŸ˜πŸ˜

  5. Hi Clint! If we already have a C-Corp for our Wholesale business, should we set up a new C-Corp to act as the property manager or just reuse the pre-existing one?

Leave a Reply

Your email address will not be published. Required fields are marked *