This is part of the Real Estate Contract Fundamentals Series. I’m not giving you legal advice - you’ve got to get that for yourself from a qualified attorney. To get a free copy of the Real Estate Purchase and Sale Agreement upon which this series is based, visit the Monster Purchase And Sale Agreement Download Page. Real Estate Contract Training For Investors.
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The 3 most fundamental issues handled by a real estate contract are:
- Identification of the Buyer
- Identification of the Seller
- Identification of the Property
All of these seem straight forward but are more complicated than they initially appear. For example, consider the notion of identifying a Buyer.
If you’re a real estate investor seeking to acquire a property, identification of the buyer in your Real Estate Purchase & Sale Agreement isn’t necessarily obvious. Here are some of the alternatives:
- Identify yourself personally as the Buyer
- Identify a corporation, LLC or other business entity owned by you as the Buyer
- Identify a trust or other third party entity which you do not own (but over which you have control) as the Buyer
How do you make the choice of who should be Buyer? This is a question only your attorney, accountant and financial advisor can answer. But I’ll give you some general guidelines here:
- It’s almost never a good idea to be listed personally as the Buyer on a real estate contract. The liability is relatively high, while the benefits (property ownership and potential profit) are easily achieved in equal measure when using some other entity as Buyer
- The tax ramifications for the use of corporations, LLC’s and partnerships can vary tremendously. For legal liability reasons, it’s generally a good idea to use a legal entity as the Buyer in your real estate transactions, but the specific choice of entity is a decision you should make in concert with your legal and tax counsel
- Some people use living trusts as a vehicle through which to enter into purchase and sale agreements. Consult with your legal counsel before taking such an action, since the nature of value of trusts varies dramatically based on the language in the trust
As in all matters, the best path is to simply consult with your attorney. However, suffice it to say that the issue of selecting the best Buyer for your next real estate acquisition must be done with great care.
In the next installment of the Real Estate Contract Fundamentals series, we’ll examine identification of the “Seller” and the most common (and serious) errors made by real estate investors in this part of a real estate purchase and sale agreement.
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6 Comments So Far»
I’d like to point out that one factor of identifying the buyer may be your end game or exit strategy for the property being purchased. How long you plan on holding the property, whether you plan to rent it out, or whether plan to sell it immediately may have an effect on whether to purchase using a corporation, LLC, or Trust. Consulting an attorney and tax advisor is advice well given.
Bryan,
thanks for the great info as usual. A while back you had some info on earning money on your web site with ads etc. I had intended to go back to it when I had more time to implement the strategies but now I can’t find it. can you send it to me again?
Thanks
Rachel
David’s right on in reminding that the name/entity you elect to buy in greatly depends on your exit strategy. Also your tolerance for risk.
Thanks for the article, Bryan!
…jp
Well Bryan, I have tried three (3) times and still did not receive a password to get in. I guess like most other so called GURU’s your sight is just BS too!
Believe me I won’t try again!
You know Harry, you should learn to read. You subscribed to my list back on October 7, and on that day at 9:36 AM you were sent the email which contains the password. Furthermore, at 9:53 AM, you opened that email. Are you unable to read simple English? It’s right there in black and white. So as it turns out, my site is not “BS”, you are just incapable of following instructions. I wouldn’t normally respond quite so strongly like this, but to be accused of being like the “gurus” simply because you can’t follow simple directions is not something I am willing to accept. — Bryan Ellis
Bryan is definitely not like the other “Gurus.” Always annoying when people do not want to read even the remedies that were posted.
As for buyer/ownership in today’s world, I feel it is a mistake to ever own or buy a piece of real estate in one’s own name. It is too easy to be sued and lose everything this way and soon the so-called “tax advantage” is going away under the Obama administration.
Therefore, there will no reason for anyone at any time to hold or buy in his or her own name.
The best way is determined by your exit strategy and this is true even if it is your primary residence as someday it will not be where you are going to be for eternity.
If you have the idea of rentals you will have active (hopefully) income, if you have the idea of flipping you will not have active income. If you are going to live in it, you do not have income, go figure.
The only way I will ever hold property again is in an LLP or LLC with me as a minor stakeholder and a C-Corp as the managing holder. This keeps ownership and management separate, making it much harder to be sued.
The other benefit is passing this on without probate or death taxes on the property. With a perpetual entity holding where you live, it does not die when you do.
So maybe part of this is jumping the gun but this is how I see all real estate now.
Chris B
Hey Brian,
I recently came across your site and I am intrigued by the content. I tried to access the downloads page, but it asks for a password that was supposed to be sent to me. I didn’t see a “subscribe now” link for me to put in my email address. Can you please send an access password or a specific link for me to click to access that portion of your website.
Thank you
Q
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