Paperwork with buyers can be remarkably similar to that for your sellers, so long as you don’t forget to remove many of the protective features you might want to see in there as a buyer. You don’t want to extend the same flexibility to your buyers unless it is absolutely necessary and just remember that how you buy and how you sell are not the same. Other types of “sales” contracts include those used for rental properties or for creatively financed deals like lease options. Examples of such documentation include:

• Residential leases
• Options to purchase
• Land contracts
• Promissory Notes
• Mortgage

When you are working with a tenant, a lease form that is approved for your area is advisable, since tenant/landlord rules can vary from place to place. Some tenants are very savvy, and a poorly drafted lease can haunt you later. Creative financing documents come in several forms and your choice may just be a matter of personal preference.

The key thing to remember is that the paperwork may change but the basic idea remains the same. A lease option is basically a lease that is accompanied by an option to purchase agreement that gives the occupant an effective first right of refusal to buy the property for a set price. A land contract (also referred to as a contract for deed in some places) is basically a purchase contract that stipulates the completion of the terms between a buyer and seller will result in a transfer of ownership to the buyer. A promissory note is the written promise that one party agrees to repay the other party. A mortgage is the legal instrument that is publically recorded and officially attaches the note to the property as collateral.

I strongly suggest that you always have your attorney close your standard closings and your lease option agreements with your clients. No “table-top” closings. Why you may ask? There are multiple reasons; (1) the fact that you use a professional attorney exhibits a tremendous amount of trustworthiness with the people you do business with. (2) It should cost you nothing because you are going to have your buyer pay the attorney fee. (3) You have your attorney’s blessing when they close your deals. (4) You’ll find no better witness if somebody wants to come back and cry foul about something in the agreement down the road. (5) Your chances of people doing what they say they will do are much greater than they would be if you signed closing paperwork with them at a coffee shop. Bottom line, let the professionals do what they do best so that you can do what you do best.

Supporting Paperwork

The paperwork that is more ‘behind the scenes’ is often as important as the basic contracts you will use, because they serve two primary functions. First, this type of paperwork helps glue your deals together by answering questions your clients may have and disclosing various other specifics to a deal that your contract might not expand on. Second, this type of paperwork protects you. Whether it’s to authorize you to do something pivotal to the completion of the deal or simply what I call a ‘CYA’ form (CYA standing for “covering your assets”), sometimes the simplest of forms can go a long way by keeping you from getting into hassles or even legal entanglements with your clients.

Examples of supporting documentation might include the following:

• Authorization to release information (allowing you to contact a client’s lender)
• Affidavits of agreement (allowing you to file the existence of your purchase contract against the title of the property in question, securing your interest in it)
• Disclosure forms (good for foreclosures and creative financing deals)
• Waiver forms (disclosing what you are and are not responsible for)
• Short sale package documentation

Any of these types of documents are available in many real estate software or contracts packages and a real estate attorney can also create them. The more you educate yourself in the business, the more apparent it will be when and where these types of forms need to be used, so pay attention, keep learning, and you’ll know better how to use these documents properly.

Always have your attorney review your paperwork to make sure that 1. It is your state friendly and 2. your attorney is comfortable with everything.

My suggestion to help you get past a basic ‘contractophobia’ is to first sit down and really take a close look at the documents you will be using with your clients. No, you don’t have to know them line-by-line and I have yet to work with a client who wanted to go through one line by line. That doesn’t mean skipping through major sections with no explanation. What it does mean is that you should try and capture the gist of each section and be able to explain this gist in layman’s terms to your clients. This will satisfy most and, if they have issues or questions you can’t address or answer, then have them consult with an attorney. This way, you’re never on the spot or feel like you need to elaborate on something you don’t have the professional qualifications to address.

I would also encourage you to sit down with your real estate attorney as you are getting your business going. Have them review your paperwork, make suggestions for changes, make them your state friendly, and as needed, help you understand what the content means. This one-time expense can give you a lot more confidence and also permit you to announce when appropriate that your attorney has reviewed your paperwork. You’ll also naturally become more comfortable with your paperwork as time goes on so that should be of some reassurance as well. Take this seriously, but also take it easy on yourself and the paperwork dilemma you may be facing right now should work out just fine over time.

One of the things that can strike fear in the heart of the novice investor is the idea of doing paperwork. Call it lack of familiarity or just fear of fine print, but this issue can be very intimidating and it also can have a big impact on your perception with others. Your clients will expect that you have some basic understanding of the paperwork you present to them and the alternative of just running everything through an attorney can get expensive real quick so where does that leave us? I suggest a happy medium and that medium is the subject of this article.

Paperwork Overview

Let’s start with a basic overview of what it means to effectively use paperwork in a real estate transaction. Unlike other commodities, real estate can be structured and greatly leveraged when you have a strong command and understanding of the paperwork with your deals. This is also why paperwork is sometimes intimidating for most people. However intimidating it may seem to you or people you do business with, it is imperative that you strive to fully understand the paperwork you use. The good news is that having a thorough knowledge of paperwork is something that can be simplified and that can be learned over time.

As far as simplifying paperwork, my basic suggestion is to create packages of forms for each type of deal you commonly do. For example, subject to deals vs. short sales.

The hard way is to obtain a new client, scramble around feverishly to gather and print the forms you’ll need (hoping you don’t forget something), and then go meet with them. The easy way is to get the same phone call, grab a packet of pre-prepared forms off your shelf, and go. Which way seems easier to you? Which way will be less stressful? I think you see my point. Beyond that, let’s discuss this further by highlighting the three main kinds of paperwork you’ll need.

• Paperwork with sellers (purchase contracts)
• Paperwork with buyers or tenants (sales contracts, leases, etc.)
• Supporting paperwork

Purchase Contracts

First of all, remember that I don’t say the words “purchase contracts” with anyone I do business with. Instead, I say, “this is the piece of paper that says you are selling and I am buying.” This is less threatening to the other party. For some reason, the word “contract” scares people.

The types of purchase contracts you may wish to use for your deals may vary considerably and I’m not one to hang my hat on one in particular and suggest it will work well in any situation. First, I’m not in a position to rightfully do so, and second, it just wouldn’t be fair for you to be thinking this is the way to go. Every situation is different and your choice of contracts should reflect this. Some basic choices to consider include the following:

• A formal Realtor contract
• A private contract that is “full-length’
• A private contract that is intentionally short

When selecting a purchase contract, remember that beauty is in the eye of the beholder. It’s not just about what you prefer to use; it’s also a function of what the recipient will think. For example, you may have learned the business from someone who subscribes to the theory that you should use your own paperwork at all times. This is a decent theory but what happens when you want to pursue listed properties such as a bank repossessed property? Realtors will often avoid and discourage contracts they are unfamiliar with so you need to be prepared to use something that is not your own for certain situations.

I tend to have a more liberal view of contract selection and can easily adapt contracts that aren’t from my own ‘library’ by adding certain key addendums if necessary. Addendums to consider might include a right to show, right to assign, or a right to inspect the property and can include whatever you want to include. In this way, any prohibitive features of a foreign contract can be “undone” by the addendums you choose and make the contract more like one you would more normally use. Keep in mind that too many addendums and contingencies in a contract can and will very often kill a deal because it scares the other party away. Keep it simple and only add when necessary.

Some sellers are accustomed to receiving contracts that are of the full-length variety and might object to something that is unusually brief. That said, for simple transactions like cash purchase wholesale (contract assignment) deals, a brief contract is all that is really needed and you can sell the simplicity to your clients as a reason why you are easy to work with. This can add integrity in the right situation. For other more traditional deals, even the simple addition of addendums or specific terms can show that you are on the top of your game and give you a defined amount of professionalism.

In my next post, I’ll discuss contracts with buyers/tenants and supporting paperwork.

In my previous post, I alluded to the retail concept of customer service and that the adage often used there is some reference to the customer always being right or otherwise bending over backwards to accommodate a customer. In real estate, my version of customer service is a little different. I want to be pleasant and congenial but also exhibit a level of professional authority when necessary.

A ‘the customer is always right’ approach to managing tenants is a recipe for disaster, as is going the extra mile to make a seller happy with your asking price. You can be accommodating, but must still operate according to the principles that will make us successful as real estate investors. Perhaps the best way to achieve this happy medium is to be armed and ready with other concessions that can be offered in lieu of giving up something more fundamental like price or monthly rent.

Recall what I said earlier that Murphy lives everywhere. Unfortunately things do not always go as planned with clients or tenants and problems do come up when you least expect them. The most important thing you can do when problems arise is to first identify the root of the problem. Second, be proactive to solve the problem. The longer you let the problem fester the worse the problem gets and the more it keeps you awake at night. If you are unsure how to solve the problem to a particular situation then get advice from someone who does. No, I’m not referring to your brother. I’m referring to your attorney. Sure you’ll have to pay for this advice but, depending on the problem, it could be cheap insurance to avoid a bigger financial hit down the road.

Another way to look at the customer service issue in real estate is that you aren’t usually dealing with a lot of repeat customers. That’s not to say you should take a rigid stance because of this but look at the facts. If you have a property for sale, you want the ideal buyer and, if you’re marketing it properly, you should have plenty of interest. Why bend over backwards to accommodate one client as if they were your only viable buying prospect? Treat clients equally, in terms of how you approach them, but you can only sell to one and you must make the decision that is best for your business.

To be clear, however, every one of your clients should feel like they are important to you. This is when the mission of customer service as an investor is accomplished. Even if you don’t buy a property from Client X or sell a property to Client Y, their experience in working with you should be a positive one. That gives you a level of professional authority that is unmistakable, especially since your competition will not likely be doing the same thing.

How you interact with team members or other business professionals is really where you have a chance to shine. Different than your regular clients, you may be dealing with team members more often so how you approach customer service and time management will likely be very apparent to them than to a client who is selling a property. Some of the basic essentials ring true for any type of customer service but there are also some elements that are more unique to this type of client relationship.

Common thread elements include prompt returns of phone calls or emails, showing up on time for scheduled meetings, and effective follow up when it comes to checking on progress a particular team member should be making for one or more of your deals. These elements are just good business and you should expect it of yourself as much as your clients will expect it from you.

What makes interacting with team members a little different is that the same customer service elements that apply to you should also apply to them. You should expect that they return phone calls or emails promptly. You should expect that they be on time for meetings and be prepared for them when you arrive. You should expect that they follow up with you if they need something. This is also good customer service on their part and you have every right to expect that of them. After all, they are also professional businesspeople and their business, just like yours, also has reliance upon good customer service.

I can share a great example of how lack of customer service from professional team members really affected not only a specific deal, but also our business relationship. I had hired a professional, for the sake of privacy; let’s say a marketing team. Even though I had stated all my expectations up front, I couldn’t get these team members to understand how important it was to make a sales call using my suggestions and techniques I wanted to try. Not only was the follow up lacking, but I couldn’t get any reports from them showing results. They continually sent me long, drawn out emails that frankly didn’t make much sense and when they said they would call to talk with me, I only got email responses. Now, don’t get me wrong, emails have their place in the business world and it can be a quick and easy way to confirm what was discussed. But, most of the time a phone call is still the best way to communicate with a business partner if a face-to-face meeting can’t take place. My expectations weren’t being met. You see, I hired them! But, I wasn’t getting the customer service or the professional services I was paying for. So, I terminated the relationship and needless to say won’t be involved with that particular business team ever again.

KEY POINT: Only do business with people that want to do business with you. Manage your relationships with this attitude and things will be much simpler.

When this aspect falls short (or at least does so too often), you have the prerogative to change the person you use and sometimes they need to know that. You don’t want to have a quick trigger with team members but you also shouldn’t settle for poor service, as your ability to do business can be affected (your time, money, and reputation) by how well they perform.

Remember your business relies on not only you as an entrepreneur or small business owner being a strong leader, but your professional team members and their ability to provide you and your clients top notch customer service!

So, you’ve got a property that’s ready for sale and you can already count the dollars that will be going into your bank account when it’s all said and done. It’s an exciting time and one of the many things that keeps investors inspired in this business. It can also be a challenging time and one that can put you at risk, especially when you are new to the business. Why, you ask? It’s because at this point, you run the risk of becoming motivated yourself and that can lead to impulsive or hasty decisions that can cost your business if you aren’t careful.

There are some simple ways to manage the sales process that will help keep your business and profits in line with where they should be. First, consider using a realtor if you have a good one, and would rather not tackle this yourself. I don’t recommend this for all situations but it can be an effective route to at least consider. If you’re going to handle the sale yourself, there are things you’ll want to keep in mind that will help reduce your stress level and also maximize your profits.

If you are brave enough, avoid showing your houses, however if you must, try to focus on group showings or open houses as these can save huge amounts of time, show that you are in charge, and also create friendly competition among buying prospects. If you get in to the habit of showing to individuals, it can consume your time quickly, leaving less of you to go around. Make sure serious buyers are willing to leave a small deposit to secure their ‘place in line’ and handle it like you’re in charge of every step and you’ll have the most success here.

When it comes time to seal the deal, and involve paperwork with a buyer, remember that you don’t have to sell to them. Rather, you simply want to stay in charge of the contracts and paperwork. There’s no reason to give up control of this critical part of the process and, when you stay in command of the flow of the deal, your professionalism and customer service will both be respected. Buyers (whether they admit it or not) like working with someone who is aware and in charge of the process more so than someone who simply gives them what they think they want.

When meeting with buyers, you need to know your paperwork so that you can outline everything confidently and easily. It is not necessary to go line by line through each document, but being able to efficiently hit the highpoints with ease and expertise goes a long way with your client and they will feel comfortable working with you.

Retail businesses are constantly promoting their commitment to customer service and for good reason. Customers are the life-blood of the business and they must be protected at all costs. You are operating a slightly different kind of business as real estate investors but that does not mean customer service is any less important. The ways in which you provide customer service are just different but the general idea remains the same.

The way you service your customers or clients as an investor has changed a bit over the years. In old school real estate investing, investors usually meant landlords and that was about as popular a role as the local tax collector. Landlords were allowed a lot more flexibility when it came to evictions, problems with tenants, etc. Their form of customer service was to rule with authority and people respected it or moved on.

The modern investor has to look at the business a little differently. Laws are generally favorable to consumers and you are one misstep away from being sued in a very litigious society. In short, investors are asked to often tread on eggshells and that has softened the approach many of us take when working with our clients, be they sellers, buyers, or tenants. I’m not suggesting that you need to be soft or shouldn’t pursue remedies to problems that are available to us. What I am saying is that there is more of an expectation that you as an investor can relate better to your clients and that can translate into greater profits at reduced risk if you play your cards right.

Investor-related customer service often falls into one of the following categories:

• Relations with sellers
• Negotiating with buyers
• Managing tenants
• Working with team members and other professionals
• Dealing with problems

I will discuss some of the key points you need to keep in mind with each of these categories and you too will soon see how customer service is more than just a concept and is something that spreads throughout your entire business operation.

Relations With Sellers

Sellers are some of the most important clients you’ll work with, because they set the table for the rest of your business. They are often uncertain about what you can do for them and may be experiencing highly charged circumstances in their lives. Because of these things, you need to be prepared to guide, educate, encourage, and clarify, sometimes all with the same client. The bottom line is that sellers want to work with you and you just need to avoid giving them a reason to think otherwise.

The key with sellers is that those who are highly motivated may be placing a lot of stock in what you can do for them. They will be paying close attention to what you are doing and you need to be setting a good example. For example, call back when you say you’re going to, be at meetings on time, and be ready to take charge of your meetings, as these will all be expectations from your client. None of this falls into the ‘above and beyond the call of duty’ category, but too many investors fall short of the basics and end up disenchanting a client who was otherwise ready to go.

Remember too that a client will often be seeking guidance from you and it is not at all improper to give them a list of things they need to do on their own behalf. For example, assembly of financial information, lender documentation, etc. is all too reasonable to ask a seller to provide and, if you are doing your part to stay on top of customer service, they are much more likely to cooperate with you.

The best thing you can do when working with sellers is to be personable, professional, and try to gain some perspective by putting yourself in their position. Think about what they might be going through and what you would be thinking and doing if you were them. This alone can help craft how you approach a particular seller and the effort, however silent, will give you huge respect because it will display to the client that you are able to really identify with where they are coming from.

We will continue this discussion in my next post. Want to learn more now? I encourage you to contact my team to see how we can help!  http://www.brianevanssupport.com

Don’t waste another day thinking about what you can do to make your real estate investing plans come to fruition. Take action NOW!

In addition to simply forming a business entity, there are some other useful vehicles for saving on taxes. This is not a discussion of business write-offs, but rather of techniques or tools for keeping more of your revenue. Examples include:

• 1031 tax exchanges
• Use of living trusts
• Dividend paying whole life insurance
• Retirement accounts
• Self Directed IRA

In the case of exchanges and trusts, these tools allow for transfers or upgrades of assets without being subject to substantial capital gains taxes. Sure, there are rules and regulations for how to do this properly, but again that is a better question for an accountant or estate attorney.

In the case of whole life insurance or retirement accounts, these tools allow you to use capital housed in them to invest in real estate or other commodities. The return that is paid back to them can be structured to where it is tax deferred or, in some cases, even tax-free. Be sure to ask your team members about these kinds of tools for your business and also keep your eyes peeled at your local REIA meetings because these also are common discussion topics.

Winning the game of business and tax savings is not about beating or outsmarting the IRS. This is old school thinking. If you have to write a big ugly check to Uncle Sam then this means that you had a decent year. Go make more money and hope that you’ll have to write a bigger check next year.

Key Point: Remember, your duty, as a business owner and real estate investor is to focus on revenue, not cost control.

Many of us have the mindset that sticking it to the ‘tax man’ is good, which implies an adversarial relationship with the government’s tax system. That just isn’t the case when it comes to running a business. Without a doubt, the best way to minimize your taxes is to be a business owner. Companies are taxed at a lower bracket than individual earners and, to boot, are taxed on net income, not gross income like everyone else. That itself is a huge plus for bringing more organization to your business.

When it comes to how you are viewed in the eyes of the IRS, the exact stats are staggering. Corporations and LLCs that claim certain business deductions are some 7-10 times less likely to be audited than a sole proprietor who makes the same deduction claims. Why? A corporation is a business that usually has its own tax identity and thus is less likely to throw up red flags to auditors. Individuals have every right to run their own businesses without the use of an entity, but they also must be more cautious when it comes to deducting expenses. The IRS simply keeps a closer eye on sole proprietorships, due to past and present abuse of the business deductions that are allowed. Whatever you do, keep good financial records and you’ll have little to worry about.

In summary, when the government makes it clear that incorporating or registering an LLC is a proven way to reduce your risk of tax audits, why not go with it? These entities can also be better ways to protect assets, and once you have assets worth protecting, you can and should want to do everything you can to get the job done.

In a recent post I promised to give some additional tax information on different types of entities.  Here are a few brief descriptions of each:

Sole Proprietorships

A sole proprietorship is basically a business that is run by a person and operates under that person’s social security number. There is no separate entity formed. The advantage of a sole proprietorship is that a person who files their taxes in this way can start claiming the tax benefits of being in business, without having to file for a corporation or LLC. A sole proprietor’s business identity is usually a ‘doing business as’ (or dba) kind of arrangement and is less organized than a formal business entity.

As I mentioned before, the tax advantages of being a sole proprietor are not that different from other kinds of business structures. There are two key differences that you should be aware of, though. First, sole proprietorships open you up to personal liability for the activities of the business and put your assets at greater risk. Second, the IRS is far more likely to audit you (or at least pay extra close attention to your business tax deductions) when you are a sole proprietor than a separate business entity. For many investors who don’t yet have assets that they have acquired, a sole proprietorship is something to at least consider.

Corporations

A corporation is one of the easiest and most effective ways to give your business a more defined identity and also allow it to enjoy some of the more tangible benefits of being in business. Corporations (and LLCs too for that matter) are fairly easy to establish and also easy to maintain. Most states allow corporations to be filed online and the setup process is far easier than you might think. If you want to start a business, that’s all that is necessary to form a corporation. There’s no application process, approval needed, or minimum amount of capital to do this.

Once you form a corporation, you can then set up a bank account in the name of the corporation and start routing expenses and revenue through it. This allows you to more effectively separate your business actions from your personal affairs, which is an important distinction when it comes to taxes and the IRS. Expenses run through a corporate account are generally much easier to claim as tax deductible, even though, this is not an excuse to manage company funds improperly.

Unlike LLCs or limited partnerships, corporations are generally not the best entities in which to hold assets and many asset protection specialists would recommend a corporation for business operations and one or more alternate entities that would house the assets, in your case real estate. The bottom line is that, like other formal business entities, corporations make it easier to account for company expenses and are also less prone to extra scrutiny by the IRS. Given their relatively low expense to establish, they are worthy of serious consideration.

Limited Liability Companies (LLCs)

The limited liability company (or LLC) is a fairly new kind of business entity but has been around long enough to be ‘battle tested’ in legal settings. LLCs have some advantages other entities do not. LLCs are fundamentally partnerships so they have members, rather than officers and directors like a corporation. They can be set up to emulate the tax benefits of corporations but also can be effective entities in which to hold real estate assets. LLCs are seen as generally being much better for asset protection than corporations, even if the tax advantages between the two are probably a draw.

Operating an LLC gives you a similar level of identity and authority to that of a Corporation. Clients will note that you have a company and can even look you up in some states to verify that your company actually exists and is registered with the state. Like for corporations, don’t overdo your stated title within your company. What you do is far more influential than what your official title is within the organization. Remember, you are working on Main St., not Wall St.

Limited Partnerships

Limited partnerships are common business structures for larger projects, as they are ideal for situations where moneys need to be raised to fund a deal. Basically, a limited partnership works like this. A general partner manages the partnership, carries a small percentage of the ownership, and a high percentage of the liability. Numerous limited partners carry the majority of the ownership but have almost no liability. In this way, actions brought against the limited partnership (such as a lawsuit) end up in the hands of the general partner, who owns next to nothing, as far as the total partnership value.

Limited partnerships are great tools to raise money and protect the interests of the contributors. They aren’t necessarily of much general use to the average real estate investor who buys houses here and there. Typically, these structures are more suited for land projects or commercial real estate and may be worth exploring based on your individual needs.

I hope this look at various business entities enables you to choose the best organization of your business. Also, don’t forget that I can still provide you with what I know the most about – the how to’s of real estate investing. Contact my team using the following link to find out how!

http://www.brianevanssupport.com/

Most real estate investors don’t know how to overcome the buyer and seller objections. Of course, as a real estate investor, you’re going to have to ask personal questions. You’re going to have to ask what people owe on a property. You’re going to have to ask if people are current or behind in payments.

You’re going to have to ask potential buyers what their income is. You’re going to have to ask them how much they can afford to pay monthly and what they can put as a down payment.

The more personal you get with a lot of your questions (even though you have to know the answers to these questions) the more objections and questions you’ll raise in your clients’ mind. The key is knowing how to overcome these objections.

Now, we could quite easily spend an entire hour talking about this topic and dissecting it from all types of different angles. But we don’t have that kind of time. So, what I’m going to do is give you two pointers to take away with you today.

Pointer #1 on how to overcome buyer and seller objections is, before you pick up the phone and call your buyer or seller, make a list of potential objections that you think might come up during the conversation. And have an answer to those objections before you speak with them.

Believe it or not, this is actually a more simple process for you to do than you would think. Simply put yourself in their shoes and raise some objections about your conversation. This is called preparation. And in fact, if you do this and then have the conversation with your client, you’ll be surprised. I would wager that less than half of the objections that you thought of were actually brought up by your client. So, a lot of the fears that you have in your mind are questions and objections that most likely won’t come up with the majority of the people that you speak with.

Point #2, and this may sound simple, but you have to have confidence. When you speak to these people on the other end of the phone or meet with them in person or whatever the case may be, you have to have confidence in yourself.

Self confidence will take you farther than you ever imagined possible. Develop your confidence and you’ll be able to overcome buyer and seller objections. It might help to verbally practice answering objections that you may potentially hear from a client. Don’t be self-conscious, just give it a try. Speakers all over the world have to practice speaking before they get on the stage, most ministers practice their sermons, it’s just good diligence on your part to be prepared.

Keep in mind that most buyers and sellers will have the same questions. As you gain experience and knowledge, objections get easier to answer. Also, continue learning yourself so you are up to speed with real estate changes in your area. I’m a firm believer that you learn from others’ mistakes, that’s why I share so many of mine. Now, some things you have to learn for yourself, but if you have a good mentor you can tackle these mistakes with ease. If you want to learn more about investing and have a desire to succeed, then visit this link to fill out a help ticket so one of my team members can call you and discuss what we can do to help!

http://www.brianevanssupport.com

Demonstrating and honing your skills and professional expertise is vital to your success when working with clients and peers. It is equally as important to maintain credibility with Uncle Sam. After all, taxes are an inevitable part of running a business and, while they can be effectively reduced in many ways, they also need to be accounted for. The way in which your business is set up can have a big impact on how you are viewed, tax-wise, and thus directly and indirectly influence your professional longevity.

Basically, it works like this. When you decide you’re going to go into business as a real estate investor, there are any numbers of ways in which you can do it. You can simply leave things as they are, operating as an individual and simply enjoying some tax breaks for the properties you are able to accumulate. That said, there are some significant disadvantages of this approach, even if it is the easiest way to go.

First, you lose out on some substantial tax deductions when you operate your business individually. Expenses that are at least partially deductible for businesses are generally not deductible for you if you are not operating as an organized business. Examples include:

• Marketing expenses
• Utilities pertinent to your business operation
• Phone and Internet
• Vehicle expenses/mileage
• Supplies
• Meals or entertainment with clients

Your team accountant has the final word when it comes to deductions but these kinds of expenses are typically a) available to businesses and b) not available to individuals so consider this lack of business structure carefully, if you are thinking about it, because it can greatly impact your bank account.

Another clear disadvantage of not using a business structure relates to liability. Business entities allow properties you own as investments to be titled in a name other than your own. Many states have homestead laws that allow liability protection for one’s personal residence but these rules usually don’t apply to investment properties so you need to be careful. You are investing in assets which ideally have tangible value so that can make you an attractive target if your business operations don’t do much to protect the assets you accumulate.

Since there are some clear advantages to protecting your business assets, as well as enjoying additional tax breaks, what options do you have for organizing your business? There are several ways, and you should decide which is best for you with the help of your team accountant and/or real estate attorney, as this is their place to shine. Let the professionals do what they do best.

As I suggested, there are several options for business organization. These are:

• Sole proprietorships
• Corporations
• Limited Liability Companies (LLCs)
• Limited partnerships

I’ll briefly discuss each of these entities in my next few posts, however my best advice to you is don’t go forming any entities until you know why you should be forming them. If you have yet to do a single deal then why do you need a business entity? Go make a big fat check and then consult with someone to get your business set up properly. Although having an entity is important, it is not required to start doing deals.