#188 Should You Invest In Syndications Using An LLC?

Hey, everyone. This week we're going to talk about a topic that I get asked about all the time. In fact, it's one of the most common questions I get around. Investing in syndications, real estate funds, whatever passive investments are out there, should you put that in an llc, Meaning that should you use an LLC to invest into those vehicles? We're going to talk about that today, so stay tuned. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff, make sure to hit subscribe. Now, let's get on with the show. Hey, everyone, hope you've had another great week. We get a lot of questions on our platforms, whether it's through Facebook, in our communities, whatever it might be. And we see some questions come up again and again and again. And so we figured we're just going to address a lot of these over the next couple weeks, over the next couple of months. Whatever the most common questions are that we get, we answer them as best as we can on those platforms. But I figured on the podcast we'll go ahead and answer those. If the answer is really short, we'll probably just bunch a few of those together. If it's a little bit longer, then, then we'll try to make an episode out of it. Now, you know, I try to keep these episodes short, actionable, and something that really you have no excuse to get through, whether it's in between cases, whether you're on your dog walk, whatever it might be, just enough to get you enough information for one session while you're sitting there, something you can take away and hopefully learn something from. So this week we're going to talk about LLCs. You probably heard of them. They're called limited liability companies. You may have seen them when it comes to creating something for a business, for an entity. And the question that we get so often is, do I need to form or create an LLC to invest in real estate syndications and funds? What are the pros and cons? Now, before we get started, I want to let you know, you all know this. I'm not a lawyer, I'm not an accountant, I'm not a tax professional. So make sure that you consult with the proper people. I'm just an investor like yourself, who's gone and done these things over time. I've learned from my experience, from talking to different professionals, and figured out what works best for me and my family when it comes to investing in syndications and funds. There are different ways to do it. You can invest as an individual. And for those of you who have invested in syndications and funds, you know, they ask you for your name, your Social Security, how are you going to invest and what your criteria are, or your qualifications for being an accredited investor. And then the question becomes, how should I invest my name, llc? I'll tell you, when I first started, I just invested personally. That was the easiest way to do it. But then in talking to more experienced investors, I found out a lot of them were using these entities to invest in these type of investments. And I just started asking them why. And I assume there was some sort of benefit, right? Usually it has to do with taxes or liability protection. That's why any of us actually usually create these entities. And so I wanted to dig in and find out a little bit more. I'm going to share that with you today. Now, none of us want to complicate the situation. I will tell you the easiest way to do it is, is using your own name. It's simple. You don't have to create anything. You don't have to talk to an asset protection lawyer, get entities made up, pay that cost, go through the paperwork, and it seems kind of daunting. And the whole point of investing in these type of investments is supposed to be easy, meaning that it's supposed to be relatively passive. You do your due diligence, put your money in, and that's it. And you just wait for updates and some distributions and hopefully a nice exit at the end. So why were these people investing in LLCs? I had to find out. And so I asked them, is it for taxes? Is there a better tax strategy involved in LLCs? Do you get some sort of benefit from that? Maybe some of you can educate me. But I found actually there isn't much of a benefit in investing as an LLC versus an individual. Most of these LLCs that you're going to create, you're actually going to take those tax returns on your personal tax returns. Usually it's just going to flow through to you anyways and you're still going to do the paperwork as an individual. So there isn't much of a difference there when it comes to tax treatment of an individual versus an LLC investment. So if that's the case, then people must be investing in these for better protection. And so I asked them about that. Does it offer some more personal liability protection for you as an investor? Is it safer for you? And this is what I found out. Almost every single investment that you make in a syndication or fund will be creating their own LLCs, meaning their own companies that really create a moat around this investment so that you personally, no matter how you're investing, whatever happens within that entity, whatever happens within that investment, that if something happens, somebody trips and falls, somebody gets sued, none of that can actually affect or what they say, cross over into your personal assets. It safeguards your personal assets, but also other investments that you might have, meaning that each of these investments are walled off on their own. So again, if that's the case, why would anybody still invest using an llc? Well, I found out there is possibly some additional asset protection when it comes to investing like this. First of all, as a high net worth individual, you don't want people knowing much about what you're investing in, what your assets are. As we know as healthcare professionals, oftentimes we're targets. I've been part of different lawsuits where everybody was pulled in. I know sometimes things go wrong and there's issues that actually need to be resolved, but oftentimes, a lot of times people will go after every single person involved in type of case and we become targets of sort and pulled into different things. This is also why I don't hang my white coat in my car. I don't have an MD license plate, anything like that. I don't know if any of you do, but I feel like we become targets if people know exactly what's inside our houses. Now there's possibility with lawsuits. Sometimes investor names get out there, especially within entities. I've seen it listed before on different paperwork. Wouldn't it be nice if your name wasn't listed on there personally, meaning that your llc, which should be a name that isn't your name, if that is posted there instead. So you won't find your personal name listed on any of these investments within any of the documentation, any of the paperwork. On the other side, if somebody does try to sue you personally, something happens in your house, somebody slips and falls, there's a major issue. You're in a car accident, somebody tries to sue you personally, they it's also nice to be able to hide or make it harder for people to recognize and see what assets you actually hold. When you hold your assets under the name of an LLC that provides some sort of anonymity protection, like Wyoming or Nevada or Delaware or whatever it might be. I've heard of situations again and I've seen this and I've talked to experts where if they come after your personal assets, it's hard for them to get a judgment against some of your investments, meaning that they can't just go in there and tell the syndicators, you know, the one you made investments in, if something happens to you and they're trying to get your assets, they can't ask them to pay the distributions directly. Oftentimes you can actually keep it within that llc, the anonymous llc, and figure out how to utilize those funds, how to get those funds out without having creditors come after them. The analogy that I've heard is that, you know, if there's a robber outside your house, you don't want to be let them. You don't have a window that's wide open with your lights on inside where people can peer into and figure out what's in there so they can decide whether to go after you or not. You'd like to have the blinds drawn. You'd like to have it so that nobody from the outside can see what's going on inside. And by having this llc, this one that you've created, some people call it a holding LLC or an investment LLC that goes around and invests in all of your different vehicles. It's harder for people to figure out and realize what assets and what investments you're in. It could potentially make you less of a target, make it harder for people to get judgments against you. But another big reason I do that and I use an LLC is for estate planning purposes. Every state can be a little bit different. Imagine having something happen to you personally and then your assets afterwards trying to get passed down to your kids or whatever that might be. If the assets or the investments are in your personal name, oftentimes in many states, you have to go through something called probate court, where those things have to be figured out. Where those assets go, they get passed down through the court and becomes actually a. It could be quite a public type of event. And there have to be decisions made on every single one of your investments when it's done through yourself personally. But if you're able to create an LLC and you're able to put the LLC within something called a trust, which defines where all of your assets go if something happens to you, instead of having to put each of these investments within your trust one by one personal name, you know, move it to the trust. If you just have an LLC that you invest in and that LLC is already owned by under the trust, then everything gets moved under this umbrella at once. So it's super simple and easy. It streamlines the estate planning process. And if something happens to you, makes it super simple. I like the idea of knowing that if something happens to me that if assets need to get passed down to my family, it's all done really cleanly and easily and you don't have to go figuring all this out within court. Now there is a cost to doing some of this. Again, there's some paperwork involved. There is a initial startup cost to create some of these LLCs, so you can definitely shop around to find somebody to help you with this, but it's not as hard as you think. And then once you set it up, you've got this thing good to go and it makes it super simple and easy moving forward. Just to add to this a little bit, I have one of these LLCs for my passive investments for my active investments, like different real estate properties. Each of those gets their own LLCs, especially if they're of a decent size so that they can each be walled off in terms of protection. But again, all my passive investments, real estate syndications, funds, my agent investments, all go under the same umbrella of this holding company or llc. I'm wondering how you guys set it up. Let me know. I'm just curious. There are different ways to do this. There's not only one way. I've heard of different creative ways for the to do this. Otherwise I'd love to hear from you. Do you have any sort of asset protection strategy or estate planning strategy when it comes to these investments? If you don't, it's about time to start thinking about one. That's something you can figure out very simply and easy and it'll help you move forward whenever you make these investments to know everything is tidied up and nice and clean. Okay, hope you have another great week. We have a lot of answers to some cool questions that are coming up. Hope this is bringing some value to your life. If so, let us know. Don't forget to leave a review. 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