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In this episode, we’ve got a unique opportunity to chat with a well-known real estate attorney named Clint Coons.
Clint is one of the founding partners of Anderson Law Group. He has grown this legal and tax firm to hundreds of employees by assisting real estate investors in creating and implementing solid entity structuring plans.
Clint is also an active investor and content creator. He’s got a YouTube channel with a very respectable following and he is a unique person to follow in the real estate space because he can speak about a lot of legal issues without giving the usual disclaimer of “I’m not an attorney”, because he is an attorney!
In this interview, we’re going to grill Clint on a lot of the most common questions we hear again and again from other real estate investors. Some of these questions pertain to the land investing audience and some of them apply to any type of real estate investor.
I should also emphasize that in this conversation, we’re obviously going to talk about a lot of things that revolve around legal and tax issues, and you shouldn’t take any of this as legal advice. I’m not an attorney, Jaren isn’t an attorney, and even though Clint is an attorney, he’s not your attorney… so always, do your own research and talk with your own attorney before you act on anything we’re about to discuss here.
Links and Resources
- Anderson Advisors (Clint’s company)
- Clint’s YouTube Channel
- Invisible Investor Strategy by Clint Coons
- How Land Specialized Real Estate Agents Can Change the Game for Land Investors
- How to Start Your Own LLC or Corporation (It’s Easier Than You Think!)
- When Should You Register as a “Foreign Corporation”?
- 7 YouTube Channels I’m Following in 2021
- REtipster Coaching
- What is a REIA?
Episode 99 Transcription
REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.
REtipster does not provide tax, investment, or financial advice. Always seek the help of a licensed financial professional before taking action.
Seth: Hey everybody, how's it going? This is Seth and Jaren, and you're listening to the REtipster podcast. Today we've got a unique opportunity to chat with a pretty well-known real estate attorney named Clint Coons. Clint is one of the founding partners of Anderson Law Group, and he has grown this legal and tax firm to hundreds of employees by assisting real estate investors, just like us, in creating and implementing solid entity structuring plans.
Clint is also an active real estate investor and content creator. He's got a YouTube channel with a very respectable following, and he's put a lot of good information out there into the world. That's actually how I first learned about Clint years ago. And he's a pretty unique person to follow because he can speak about a lot of the legal issues that we have to deal with without giving the usual disclaimer of “I'm not an attorney, don't listen to me” because he is an attorney and he also understands a lot of what real estate investors need to be looking at because this is the world he operates in all day long.
In this interview, I want to sort of look back at a lot of the most common questions that I've heard again and again, from other real estate investors, from other land investors, and also some of the most common questions that I've come across myself. So, we can just sit down and grill Clint and get as much information as we can from him in this session here. So, some of these questions pertain to the land investing audience and some of them apply to any type of real estate investor.
And I should also emphasize that in this conversation, we're obviously going to be talking about a lot of things that revolve around legal and tax stuff. And you shouldn't take any of this as legal advice. I'm not an attorney, Jaren's not an attorney. And even though Clint is an attorney, he's not YOUR attorney. So always do your own research and talk with your own attorney before you act on anything we're about to discuss here.
Well, that a lot of the way, I'm not going to waste a lot of time. I'm going to jump right into our list so Clint can school us on what we should be looking at and thinking about in our real estate businesses. So, Clint, how are you doing? Welcome to the show.
Clint Coons: Hey, thanks for having me on. I'm doing great.
Seth: One of the issues that I've thought about a lot, and it's a common question I get from other people, particularly in the world of vacant land investing, is the issue of liability insurance. So, if somebody owns a vacant lot, most typically in a rural setting, there's not a whole lot of people around, what kind of insurance would you recommend that people get in that situation? And is there a certain type of provider they should be getting that from? Or how does that whole piece work?
Clint Coons: All right. So, with broad land, the question that always comes up is, “What is your liability if somebody gets hurt on the property?” And I can put it in context, when I was a kid growing up, I grew up out of 20 some acres and we had different paths where we would rotate. We had, I don't know, maybe 10, 12 cows. We'd rotate them around so they eat the grass.
My brother and I, and the neighbor kids, we would shoot BB guns at one another. We call it BB gun wars. This was before paintball. I remember one time I was running and my brother and this guy named Matt Kelly, they were shooting me, BBs were whizzing by my head. And there happened to be this old foundation of a schoolhouse that had been built there. I don't know, 150 years ago, it burned down and I was going to seek cover there. And I heard my brother closing in on me.
And all of a sudden, I heard somebody started screaming. So, I stopped and I turned around and the ground had actually opened up and my brother had fallen through. No, he didn't fall the way down. He actually caught himself on the edge of it. And he's just hanging there and it wasn't that far, but it dropped down into the swell, but no one knew about it because grass and dirt covered it up. And finally, those boards just happened to give way when my brother's trying to shoot me with a BB gun. So, I walk up to him, he's like, “Help me out.” I’m like, “The hell, you're trying to shoot me with a BB gun.”
But the point of the story is this. Once we knew about that dangerous defect on the property, you're under an obligation to fill it in. So, my dad had to bring it back. And you just couldn't throw some boards over the top, more dirt on it, and say, “Oh, well, there we go. We just fixed the problem.” Because now you're responsible to someone who would trip and fall into that in the future because it's an undiscovered defect. Once you know about it, you're under a duty to protect against that. Whereas the individual that crosses onto your property and just, say you haven't, you should post, “No trespassing.” And you may trespass on there. They fall down and the stick goes through their eye. You're not liable for that.
Now there are some notable exceptions. You look at Pennsylvania. A number of years ago, there was a situation where some hunters were hunting on someone's property and they had a blind built there. And the owner actually knew that people would hunt on his property and he didn't post it. I think a guy fell out of the blind and his gun went off and he shot himself. And maybe he was stable or killed, I don't recall the details, but the owner was held liable because they knew people were engaging in that activity on the property so they're brought to a higher standard.
So, when it comes to raw land investing, this question comes up a lot: “How exposed am I?” Well, depending on the steps that you take in the land, if it's just a lot and it's just dirt, you don't really have a lot of liability. I've got a general liability policy. I would contact either your typical provider. Maybe you use another nationwide group and you get a policy that covers everything, but you don't have a lot to be concerned about.
Whereas if it's property, and this is what comes up a lot. People buy land that was formerly used maybe for cattle, something like that. I worked on this project when I was in law school where Home Depot was buying this property. They were in the process of buying 40 acres from this farmer. When they bought the land, what they ended up doing was a phase two environmental study. And they had found that all of the posts that he'd used, fence posting back then they would cover them. I used to bury the same things on our property. You plant them and then eventually they wear out. And what do you do with them? Well, we didn't bury them, but other people would bury them.
So, the guy had buried these. This went on for years. And it wasn't necessarily this. Well, they found that there had been contamination spots on the property. So, in negotiations, that affected the price because there's a remediation that needed to be done.
So, when I look at land, one of the things I often tell people is I wouldn't be so worried about the trespasser. Just post, no trespassing gets in general. I build the policy, their insurance on that property, but be more concerned, I think is about the environmental contamination that could potentially be there. So, not going into it, then that's a liability. And in that case, you're not going to be able to typically receive a policy or get a policy. So, put it in an LLC, something that limits your liability exposure. Otherwise, you'll end up like a bank in Southern Washington state.
About 20 years ago, they foreclosed on another guy that had a bunch of land. And the guy was so pissed off he took all of his kid’s chemicals and went out on the back 40 and dumped all the chemicals and collected them from his buddies and diesel fuel, the bank took the property back in foreclosure. Then he called up the EPA and said, "Hey, here's some seven-legged raccoons crawling around on this property. I think you got to go out there. In fact, I think I saw a fish walk up onto shore the other day." And sure enough, they found the land that had been contaminated. That guy has no assets, right? He's the one that did it, but now the bank owns this property and they bought themselves a liability. So that's how I approach it.
Seth: The environmental issue is really an issue for commercial property, right? Does that apply to residential too?
Clint Coons: It can apply to any land. We had a client in Colorado that rented the house to an individual who was running an auto body repair shop, an unlicensed auto body repair shop. And this was on a lease option agreement. They got totally blew it, the client that we're working with.
He enters into a lease option with this individual that said, “Hey, you can buy it in two years at its fair market value.” We didn't set the minimum price for it. The guy runs this unlicensed auto body repair shop there, unbeknownst to the owner of the property. So, this is residential. Dumps all the oil and everything, antifreeze onto the ground. Took property that conceivably should have been worth about $800,000. Decreased its value to $400,000 because of the remediation that was required to fix it. And it had gone onto the adjoining property. So, it had flowed down onto the adjoining property and he said, I'm going to buy the land. And the guy fought him. He said, “No way, I'm not going to sell it to you for $400,000. It's worth $800,000.” Well, it needs remediation.
Long story short, the tenant actually won because the owner put together the lease agreement. So, it was held against him and he had to pay his attorney's fees. So, when you think about it, in those terms, you can contaminate any property.
In fact, when I was growing up as a kid, I grew up in a real estate background. That's why I'm so involved today in buying properties. In many times when I would drive by on the way out to the dump, what you would find is that people would dump stuff on any vacant land they could find rather than going to the dump. Because as the transfer stations now as they call them, garbage dumps begin to restrict what you can bring to them. And they make it more difficult for you to dispose of what they call hazardous materials. Many people don't have the money nor the time to deal with it. So, let's just dump it on property. You're going to have somebody looking over your property? To me, that's the greatest threat.
Seth: Yeah. What you're saying makes sense. And it is actually kind of odd to me that people don't. On one hand, I'm glad because it would be a huge pain, but on the other hand, it's kind of weird how it's regular to order phase one environmental reports and all this stuff on commercial properties but nobody does this with residential when it's like kind of just as susceptible. Maybe it's less likely because people aren't going to contaminate their own homes, but still, there's no rule saying you can't contaminate that property.
Clint Coons: No, but you would get an idea for it. I mean, you would know when you went out there, the extent of it, we've all done this, right? You change the oil in your truck. If there's a vacant lot next to you, what do you do with it? You either pour it in your property or you go over to the vacant lot. And I go, “What the hell? Nobody's living here.” I did that when I was 22 years old, but let's say you had a hundred people doing that. Then you could run into a problem, but you would know that of course, when you're looking at the property. You get a sense for it when you see no grass has grown in a 20-foot square area. You might go, “What's going on with that?”
Seth: Yeah. In terms of the liability protection side of it. So just thinking that practically for a land flipper who buys and sells a vacant lot and they own it for like, at most, a few months, maybe even a few weeks. Do you think is it really worth going through the gyrations of always getting calling up the insurance provider and making sure that one lot is insured and then taking it back off a few weeks later when it sells? Do you think there's a case to be made for just not bothering with it at all? Or should it always be done as a matter of policy? What do you think?
Clint Coons: Well, what I think is this. That I wouldn't go in and create a whole bunch of LLCs and things like that. If you're just flipping land, I think that's a waste of money and time. What I would do is I would have one entity set up and we'll probably talk about this later. And you would take title in that one entity. And then what I would do is I would work with a national insurance company. Chubb's one of them, National Real Estate Insurance Group is one of them. And I think there's one other one that I've heard of.
And what they'll typically do is allow you to add properties and move them off. And so, if you only have it for 30 days, they'll insure it just for that 30-day period, you get onto their portals, people told me, and then you remove it. So, it's a small amount of money. And I always look at things what is the cost versus the benefit. The likelihood of anything occurring is very, very small, but that one deal that goes bad on you. I mean, how much is that going to cost you relative to acquiring a little insurance? Maybe the policy is $150 because they realize that the risk is very, very small, but it's worth having it.
Jaren: I'm over here just soaking it all in. This is a really good interview. I get asked so much about different legal stuff and I'm not an attorney. So, I have to always be like, “Well, I don't know, go talk to somebody who knows what they're doing.” But now we actually have somebody who knows what they're talking about. So, I'm really excited about this interview. What are some of the most common legal disputes or lawsuits that come up with vacant land properties?
Clint Coons: It's always going to be boundary lines, depending on where you are buying. Who has easements? Who owns the property? That's going to be the greatest risk-averse possession of land as well. Let's say that you buy some property and the neighbor has been mowing 20 feet onto your property for the past 15 years and maintaining that one section as if it was their own. You buy that, they're going to make a claim and say, "That 20 feet is mine." That may screw up your ability to build on that property because now you take a buildable lot. You just lost 20 feet. You can't build anything in that section. So that's the greatest risk.
Seth: It sounds like a new sub-niche for land flippers is to expand your holdings just by mowing your neighbor’s lawn. It can be very profitable that way.
Jaren: That's hilarious. Aside from getting insurance, is there anything that you can do to avoid disputes or liabilities?
Seth: Getting a survey on that particular issue, right?
Clint Coons: Yeah. Well, you get a survey, but the survey it's just going to show you where the boundary markers are and where the lot lines are for your property. It's not necessarily going to let you know if that property is being maintained and there's an adverse possession claim against it. What you would need to do is hire someone and have someone go out there and take a look at the property and say, is there anything that is obvious to the naked eye that someone could assert that, "Yeah, I have 10 feet of this property because I've done X, Y, and Z." Let's say there's a fence that somebody put up there. That could be an issue or some type of barrier, or just a small wall for plantings.
So those are the concerns that I have. Or an easement. So, let's assume that the neighbor has been driving across that property for the past 17 years to gain access to his backyard, where he built a garage. If you buy that property and you want to erect a fence and a house on there, you're going to have to contend with that easement. You're going to find him some other access because now he has the right to access his backyard across your property.
So, there are lots of little things like that that come up. Water rights as well, depending on if you had, maybe they put their drain field on that property. No one knew about it at the time.
Jaren: Clint, excuse my ignorance in this question. But just to clarify, you're saying that if somebody essentially treats the property as if it's their own in some capacity for a long enough time, that they'll actually have some right or claim to that particular property?
Clint Coons: My first experience with this as a child growing up on that property where I grew up, my dad had probably about a half-acre worth of land or a little more. That when he bought it, it actually had already been fenced by the previous owner, and turns out that the fence line cut through the adjoining property, owners’ property. And so, on that property was sold. And so, this would have been probably 28 years later that this one little corner lot was sold. Maybe it's three and a half acres. When they ran a survey, what they found is that my father's land encroached onto their land via that fence by 50 yards. And they try to tear my dad's fence down and say, “Oh no, that's our land.” Like, “Whoa, hold on a minute. You said that the fence has been there for 30 years. That's my property. I've run animals on it. That's no longer your property.” And so, of course, a lawsuit came from it and they lost, and my father kept the property and they readjusted the legal description for his land to account for it.
Jaren: So that is a viable strategy, Seth. Like, we can just start mowing our neighbor's lawn and long enough we'll just get a bunch of property.
Clint Coons: Yeah, yeah. But you have to be careful about that. So, my father was aware of this issue. And where I grew up, there was a county road that cut through my parents' property. And so, when he bought, he owned up to where we have the fence. And then on the other side of this little county road, there's a house kind of on a sloping hill. My dad owned about 70 feet up that neighbor's property and the neighbor would mow it all the time, but my father would always go and then let him know, “Hey, this is my property.” And so, we kept him aware of the fact that he owned that property. He'd send my brother and I over there and we would just sit in a chair in the grass. “I want you to sit over there for a couple hours."
"Well, what are you doing that for?"
"Just let them know that's our property and not his.”
So, they couldn't assert that by mowing it, they claimed ownership. Because in order to claim ownership on our adverse possession, you have to state that it's been hostile and adverse to the owner and that you took it under a claim of right. So, there are certain things you have to go through. If the owner makes you aware of the fact that they own the property and they're aware of what you're doing, then it doesn't work.
Jaren: And I'm assuming the timeframe is probably specific to each state, right?
Clint Coons: You're typically looking at seven or ten years, depending on how you acquire it.
Seth: There is a video I made a few years ago where I was talking about a special kind of survey marker, where basically once you get a survey and the surveyor has put the stakes there, you, as the property owner can get the survey marker. It's basically like this metal disc that you just put in the ground, you can mow over it whenever you want, but it's a marker showing, hey, this is where the surveyor put that stake.
And I remember I'm making this YouTube video by it and just saying, “Hey, look at this thing. This is how it works.” And there was this guy, I don't know if he was just an internet troll or if he knew what he was talking about, but he left multiple comments saying like “I'm a surveyor and what you're saying here is illegal. Only a surveyor can put a survey marker on a property because apparently people like me could just as well put that survey marker closer onto their neighbor's property and like lie about it.” I don't know. I'm just making a wonder, like in terms of informing your neighbor that it's your property, is that a viable way to do it? To just have that survey marker there? Or do you have to have some kind of conversation or paper trail or something like that?
Clint Coons: Now you need to make it open and notorious. So, like I said, mowing the lawn, putting up a fence, doing something to show that you're putting that property to use. You see, this whole basis of adverse possession stems back from the common law of England, where they didn't want land to sit, no one to do anything with it. Because if you're not making land productive, then it does not generate tax revenue. It doesn't feed people. So back then, this was the thing. We wanted to make sure that the land was always being worked and tilted and crops were coming in because that's the populace and it brought in money for the crown.
So, that embodiment of our law has capsulated that into how we approach land today. And that we want to ensure that people don't just sit there, buy land and sit on it. Now I know there are environmental concerns and all that's come about as of late, but it still works that way. If you take some property and you put it to productive use, or you start using it, the law will award you that property. If it's done for a certain period of time, open, notorious, and hostile to any other claims, the way they state, so they can't do what you're doing. I'm going to bury something or just put that little disc there. That's not open and notorious. No one would know that. So, you got to do more.
Seth: I got you.
Jaren: Very interesting.
Seth: And actually, this is sort of a follow-up question to the earlier thing we were talking about with liability. So, as I understand it right, that if you just put a sign on your property saying “No trespassing,” that technically is supposed to get you off the hook if somebody hurts themselves. But if you don't have that sign there, then you could be liable.
Clint Coons: I'm not saying one way or the other on that. It just helps to have it.
Jaren: That was a very attorney answer right there.
Clint Coons: All right. So, I'll give you another example. I got tons of them growing up. So, we used to as kids to get off the school bus and they would cut across this field that was owned by the neighbor. And there was a path that went through there and we used to ride bikes out there as well and ride our horses in that area. So, the neighbor knew about this and on that particular property, there were some large holes and divots, and there were actually some cement blocks that at one time they had weather balloons tied up there.
So, when you know that people are using your property and you don't take any steps to prevent them from using it, then you're held to a higher standard. So, if you know the kids are walking across this path and there's anything dangerous and they get hurt, you can be held technically liable in those situations. Or if you see kids like we used to do, we would take those big cement blocks and we would build a ramp and then take our bicycles. Or my buddy had, that was not a quad, it had three wheels. And we'd build a huge ramp and try to jump off the thing. If you see that going on and you don't take steps to dismantle that and stop us from doing it and we were to put that thing back and land on our heads and kill ourselves—you're liable.
Seth: I just don't know how I feel about that.
Jaren: Yeah, I know.
Clint Coons: But here's the thing. If you're not holding onto it for very long, anyway, you're in and out of the property. So, these types of issues wouldn't necessarily affect you. Your best defense is always going to be ignorance. If I own a piece of property for three months and I flip it to someone else, that becomes their problem. As long as you're not put on notice of it, you're not going to have to disclose.
But once you know about stuff, like this residential property in Idaho. The guy sold the house in November, in the fall time to this couple, they buy the property. Come springtime, there are really weird garden snakes. Well, first they smell it. And then they see the snakes in their house. Wife's out there cooking breakfast and snake comes out from under the stove, wakes up at night, steps on a garden, snake in her bedroom, one o'clock in the morning. And like, what the hell is this? Will they bring someone out? What they find out? Because the smell was just overpowering.
This house was built over a cavern. And this empty cavern was filled with garden snakes. They would come and they would congregate in there in the wintertime. It's so cold, to preserve their body heat they're this big royal mass of something you'd see in an Indiana Jones movie or something like that. And then as soon as it got warm, they’re like party time and they want to take off. And then this house happened to be sitting over it and they'd come up through the foundation into the house. And so, what they found out later on is that they sued the seller and they said, you didn't disclose this information. Actually, they didn't disclose it on their disclosure, they wrote snakes and they just didn't ask.
So that's an example of when you're selling property, if you didn't know about it, then you're not going to be held liable. And if you do sell property, and you know about it, you definitely want to disclose it. And then depending on the state where you buy, red states versus blue states and how they approach responsibilities, you may have to go over and beyond what you think you need to disclose in some instances.
Seth: It almost makes me wonder if there's a case to be made for learning as little as you can about a property before you buy it.
Jaren: I mean, I do.
Seth: But at the same time, if there is a huge glaring issue that the future buyer is going to find out about, you might as well know about it first. So, I don't know. It's like, where do you draw the line?
Clint Coons: It really comes down to the state. So, here's a guy flipper, flipping dilapidated houses in Virginia and DC. More liberal in their approach to things. And here's what he would do. This was a couple of years ago, by the way. He would list these homes for sale on the internet sight unseen and say, “Hey, listen, I just bought my house off the internet. I've never been out to the house. If you want it, let me know. This is the price. Do your own due diligence, your own inspection.”
People will go out there and they would bring out bad inspectors. And they would buy these homes from this flipper only to find out later on, there were a lot more issues involved with the house. And so, they thought they're going to be able to do a remodel, make it a personal residence and spend $200,000, instead they drop $400,000. Some of them can't even flip the projects.
So, who do they blame? Well, they go after the flipper that had been buying these homes. They sued him and they said, “Listen, you should have done more to let us know.” And his all defense was, “What else do I have to tell you? I never even visited the property. I bought it off the internet. I saw it on screen. I listed it. And you did your own due diligence. Why is it my problem?”
And so, that's a classic example of where they can go after you. Even though you don't know anything about it, you can get enough momentum if you sell enough in a certain market like they did here where a local news station got involved. They tried to assassinate his character. And this is one of the reasons why I'm big on anonymity with my planning is because you don't need people like that, jumping on the internet and saying you can try to rip people off, you’re a slump. It's not true, but they make very sympathetic plaintiffs. And so they paint the story that's most beneficial to them and their pursuit of their claim.
Seth: Yeah, for sure.
Jaren: Yeah. To clarify, one of the reasons why I really like land compared to wholesaling houses or other types of real estate is because you don't have to approach it with that much worry about knowing too much. But when I used to work for Simple Wholesaling, that was one of the pushbacks that I got as the disposition manager. A lot of our potential buyers would be like, “Well, your numbers are wrong. Your rehab numbers are wrong. What are you doing?” And I'm like, well, rehab numbers are extremely subjective, my friend. Like you have to do your own due diligence. And it is very subjective.
I actually remember one time I was driving down to a property to show two different potential buyers, the property at the same time. And one of them called me while I was driving there and they asked me, “Jaren, how much do you think the rehab is going to be?” And I said, “Well, I think it's going to be between $15,000 and $25,000.” And they're like, “That's a very large range. Why would you say that?” And I said, “Well, because to one person, they hold the property. And they attract tenants that are low maintenance, and they don't need to update the windows and they don't need to do a bunch of stuff. Whereas with somebody else, who wants steel appliances and all the fancy bells and whistles.”
And sure enough, I walked both of those properties. And one of them said $15,000 for rehab. And the other one said, $25,000. It goes to show you that there's so much that can go into a property. And every time we listed our property because we would actually buy the property, take title, we wanted to do assignments. And we were licensed. A lot of times we would put our properties in the MLS. And every time it was just like, “We don't know anything.” We literally just had a save template of our discloser. We tried to know as little about the state of the property as possible.
So, another question for you, Clint. Let's talk about doing business in multiple states. So, when you're doing deals as a land flipper in multiple states, and you've got one LLC registered in one state, at what point are you considered doing business in these other states? Is it when I buy just one single property there? Is it when I buy five properties? When I have employees there? When I generate a certain amount of money? What's the cutoff point where I need to say, “Okay, I'm now doing business in this state?”
Clint Coons: I wonder if you're the one that posted that question on my YouTube channel this weekend? Because I actually got that in one of my videos on land. Somebody wanting to know when you have to register in multiple states. And the thing about land is that if you own land and nothing more, it does not constitute doing business in that state. So, you're able to hold that one entity, let's say you set up a Wyoming, Delaware entity, and you're going to flip some properties in New Mexico, Texas, Oklahoma. And you buy a lot here and there. You don't need to register.
However now, where you would need to register is going to be in those situations where you intend to actively target a specific state. So, if I decided that I'm going to focus strictly on New Mexico and I'm flipping properties left and right, well then, it's going to rise to the level of a trader business and now you're going to need to foreign file in that state.
But I might recommend if you're engaging in multiple flips in one particular jurisdiction, and maybe you've grown your business out where you have two or three different states you're targeting, that might be a good scenario where you set up an LLC in that particular state, just for those deals.
So, I would create a New Mexico LLC and have that owned 100% by my parent company. And then I would have a Texas LLC owned 100% by my parent company. So as your business expands and you start to do more, then you would look at tiering some structures, layering some entities on top of one another.
Seth: Yeah. So, on that, at what point is it intent? Is it okay if I send a direct mail campaign to New Mexico that officially qualifies as intent? Even if I only owned one property there, I meant to do that. It wasn't just something that fell into my lap. Like, is that the threshold at which you're doing business?
Clint Coons: No, that's just buy-in. It's after you bought it, what are you doing with it?
Seth: Like in terms of the timeline at which you plan to sell it?
Clint Coons: You want to sell it right away. Right? As soon as you can. So, if you do one isolated transaction, that's not going to rise to the level of a trader business, but it's a facts and circumstances test. So, if it can be showing that you've engaged in multiple deals and you've been actively advertising in that state, then it takes on the semblance of a trader business.
But what does that mean in the grand scheme of things? Well, if I have an entity that was set up in Delaware and it's a corporation and I buy property in New Mexico and then I flipped eight properties this year and I don't register. What's the penalty? Well, there is no penalty as long as you don't have to start a lawsuit. So why is registry so important? Because they're still going to withhold taxes. I just sold a property in California two weeks ago and they withheld taxes because it wasn't in the California LLC. It was held in the Wyoming LLC.
And where the issue comes in is let's assume that you sold the property and the buyer defaults on the sale. So, you go after the buyer, you could get bounced out of court. They would say that you cannot bring a claim to enforce that contract because you were not registered at the time to conduct business in this state. Therefore, you lose the ability to prosecute an action.
Or if you're rehabbing a property, your contractor stiffs you, charges you, and said that the work was done and it was not completed and you weren't registered. Then if you sued the contractor, his defense would be, “He's not registered to do business here. He cannot bring this claim against me. He's an outlaw.” So, the remedy for you then would be to register your entity and get it compliant at that point in time and hope the claim will still survive.
Seth: It's not like the government is fining me or something. I just sort of don't have a leg to stand on in a court situation.
Clint Coons: States have gotten really wise as to this. I don't typically set up a state-specific entity for my one-off deals. So, it’s about a property in Hawaii just to try that VRBO Airbnb scenario a couple of years ago. And after a year and a half, I realized it’s too much lifting for me. So, I sold it, but I didn't set up a Hawaii LLC. Again, I had a Wyoming LLC that I closed in title, and that's how I held title. So, when I sold the property, they withheld a portion of the sale. And then what I had to do is file a tax return, show them what my basis was in the property and apply. I think they withheld $60,000 from the sale. And I had to apply to get that money back. That's what typically happens.
Seth: Gotcha. And I know at least my understanding anyway, is that you have a couple of options. You can either file for a new LLC in that state. Or you can do a foreign qualification where you keep your same LLC, you just file as a foreign one. Why would you do one versus the other? Is it kind of the same thing or is one better for some reason?
Clint Coons: It depends on what you're doing. If you already have the LLC set up, maybe just foreign file it. If you didn't have the LLC set up, you might as well just open up an LLC in that state. Because if you do the foreign filing, you're going to have an RFA fee and a state fee in the home jurisdiction. And then you're going to have another fee in the foreign jurisdiction as well, RFE and annual filing fee. So, what does it really gain you? It doesn't really gain you much unless there's a larger business strategy at play that we're focusing on.
Seth: Yeah. So, it's sort of a follow-up to what we're just talking about here. Suppose I'm starting a remote land flipping business from scratch and I live in Michigan, but all the properties that I want to buy are in California and possibly some other states. So, given that, which state should I establish my LLC? In what basis do I use for making this initial decision? And along the way, I know you talked about having an LLC in Wyoming. Why that, or why Delaware or Nevada, or these other state LLCs we always hear about?
Clint Coons: So, in your situation it's different. When you're running a business that produces income, that you classify as active income, which is flipping, you're going to be drawn a salary from your business. Or if it's disregarded, you're going to be a sole proprietor. So, whenever I'm focusing on those types of structures or dealing with those types of realtor investor clients, we're going to set them up with an entity that's typically treated as an S or a C Corp in the state where they reside.
We can set it up in Wyoming or Delaware or something like that, but we're still going to have to foreign file it in your state because in order for you to set up payroll, you got to get registered there because you're the employee working out of your state and you're performing the services there.
So, for this type of activity, I'm typically going to start with your home state. A lot of times people say, “Well, I want anonymity. I don't want people to know that I own this business.” Okay, I can still accomplish that. We'll set up an LLC in Michigan that's owned by a Wyoming LLC and I’ll give you complete anonymity and we'll treat it as a C Corp for tax purposes and cut your tax rate down to 21% on all your income that you're not taking out personally. We could do that, but by and large, you still need a home state entity, no matter how we skin this cat.
Jaren: So again, excuse my ignorance here. Sometimes I have to dumb it down a bit. I move a little slow sometimes, but am I understanding you right, Clint? When you're saying that if you're just doing one-off property randomly in a different state, don't worry about filing an entity there or foreign filing or getting an LLC based there. But if your intent is to do business in that state or to do multiple business transactions, at that point, you should probably register. I guess what I'm trying to get at is I'm really trying to narrow in on where is the line? Where is the tipping point where it's like, “Okay, now you've crossed into the territory where it's time to go ahead and register in that state?”
Clint Coons: Okay. I'll give you the perfect examples of what I did and why. Because I hadn't really planned on this. It was just something that came out of the blue and I put it together. If I had to go back and redo that investment, I would have taken out Wyoming LLC and foreign file it in Hawaii. Or I would have set up a Hawaii LLC for this property because of the withholding taxes on the sale. Because I was a foreign entity and they withheld so much from the gross proceeds of the sale of that property, I didn't have $60,000 for about six, seven months because it filed the tax returns and requests the money back from the state. So, it took a while for me to go through this process to get my funds back.
Now, if I'm relying upon the funds to put into my next deal, are you in a financial position where you can say, “All right, I'll let the state hold on to $15,000 out of my sale?" Or do you want that money so you can keep turning it? If you want that money so you can keep turning it then I would set up an LLC in that state.
First, figure out what the laws are in the withholding on the sale of real estate to see if they distinguished between a foreign company or foreign resident owning property versus a resident of that state. And an LLC set up for instance in California is considered to be a resident of California. So, you would want to know the taxation of that particular property sales in that state to see what the holding is to make that determination.
Seth: So, I've got one of these questions where there's like a bunch of questions buried inside.
Jaren: It's like an interview within an interview.
Seth: Exactly. And this has to do with the issue of being looked at as a dealer versus an investor by the IRS. So just right off the bat, maybe you can outline of what is the difference between a dealer and an investor.
Clint Coons: The dealer holds property for reselling. That's what they do. They don't intend to treat it as an investment to generate income from rents or for longer-term appreciation. They're always looking to sell. A great example of a great case six to seven years ago, this individual bought a warehouse in Colorado. He bought this warehouse and he did a feasibility study and got all the stuff together and then tried to sell it. No buyer.
So, then he just sat on it, rented it out. Next year, he went in, checked the property out again, did another feasibility. He said, well, this isn't the right time. So, he kept sitting on it. He sat on it for four years, but every year he did feasibility to see whether or not it's a time to take it to market or not. He finally sold it and then claimed long-term capital gains treatment that he held it as an investment. IRS came in and audited them.
It went to tax court because the IRS said, “You're a dealer in property. You didn't intend to hold this as an investment.” He's like, “The hell, I held this for four years. How do you say I'm a flipper? I didn't turn around and just sell it.” They said, “Yeah, but your intent. That's what we're focused on. What was your intent? Your intent was to sell the property. The fact that you couldn't sell it is not relevant in the analysis of whether or not you're a dealer or an investor.” Tax court agreed and they said by him performing that feasibility study every year to look at the property, to see if market conditions were right for him to sell it, put him in the category of a dealer and not an investor.
Seth: So, for somebody who's flipping vacant land, selling stuff within 12 months with intent, it's pretty clear we're all considered dealers, right? I mean, that's all IRS.
Clint Coons: Yeah.
Seth: What are the tax or legal implications of being a dealer versus an investor?
Clint Coons: Well, if you do it within your own name or you do it through a disregarded LLC, you're going to be treated as a Schedule C filer. So now all the income is considered active income to you. It's going to be subject to 15.4% employment taxes up to the threshold. And it'll just drop down to 3.6%, whatever it is, Medicaid tax.
On top of that, you're going to lose the ability to engage in installment sales. So, this is the major problem that our flipping clients face. A lot of them flip properties in the Texas market on installment sales. Lease options. They bring someone in and lease it to them and then they sell it to them on an installment sale. And so, they sell them the property. They take down $5,000 down and their basis what they put into the property may be $60,000 and they're going to sell it for $120,000 but they're going to amortize it out on a 30-year five-year payment.
So, they just sold that property for $120,000, but they only received $5,000, and their gain eventually would be $60,000. Well, the person who can engage in traditional installment sale reporting the investor, they're going to recognize that as the money comes in. The flipper recognizes that $60,000 the day they enter into that installment sale. So now you've got $60,000 of income that you have to pay taxes on, for which you only received $5,000 thus far.
Now, where do you come up with the difference? Go to your bank account because the IRS is going to expect that money. So, people who flip property, they don't get the benefit of installment sales. They also don't get the benefit of 1031 exchanges. So, you've just taken yourself out of the ability to engage in a 1031 on the disposition of an asset, because it was not an investment property.
So those are the three main drawbacks for people who deal. And I often tell people because of the employment tax issue with the active income, we encourage those people who flipped to run it through an entity that is treated as a C or an S corporation for tax purposes so you can control that.
Seth: Yeah. That is one thing that does not apply to vacant land or any property that does not have a dwelling on it. And there's a little highly overlooked and very little-known part of the tax code, that specifies this whole whether you're a dealer or not, that issue of having to recognize all the income at the time of sale, it applies to everything except when there's no dwelling on it and it's residential.
Clint Coons: Yeah. Because it hasn't been put into use yet. I forgot that one.
Seth: Yeah. I know that's significant because I remember the first time, I heard about that, I was like, “What? Are you kidding me? This destroys everything!” until I found out about that.
Clint Coons: Yeah, yeah because it hasn't been put into use yet. Yep. I remember that. You can see my blonde hair. It's just I'm getting older.
Seth: No, no problem. It makes me wonder though. So, you also mentioned the thing about, as a sole proprietor or a disregarded entity. So, if you declared yourself as an S Corp or C Corp, does that get you off the hook in some way?
Clint Coons: It just gives you control over your receipt of income. If you're a sole proprietor, you have no control and if you make $175,000, it’s all active income to you. Whereas with an S Corp, you can cut the employment taxes by taking out a distribution from your S Corp. Or if it's a C Corp, if you state that you and your wife, you're working and you're pulling in $250,000 to $300,000 a year, you're doing really well and you don't want to pay 37% on that $200,000 you made in flippancy, leave it inside of your Corp, and it's only taxed at 21%.
The benefit being that now you've got more money to put into more deals the following year. So, it puts more money back in your pocket. And if you need the money, loan it to yourself. I mean, pay yourself a reasonable salary. Always have to do that, but it just gives you more control.
I'm fan of C corporations because of the control feature that if it doesn't come down, if I don't need it, I leave it there. And I will go toe-to-toe with any CPA every day of the week, when they say, “Well, C corporations result in double taxation.” They complain about it. Depending on your tax bracket that is just the same that they tear it over and over again without analyzing the individual. If you're in a 15% tax bracket effective, yes, a C corporation doesn't make sense. If you're on a 37% tax bracket, you'll pay less in tax with a C Corp in a dividend than you would if you just took it into your own name.
Seth: Yeah. That's actually a good point. Because that's in my mind, every time I hear C Corp. I go back to the first book I ever read about this with the double taxation thing. And I was like, “Nope, I’m not going to do it because of that,” but you're right. There's always a situation. You got to look at the specifics of your own financial picture and whether that makes sense or not.
And I'm wondering, is it possible to be considered a dealer for one property, but an investor for another? It's not like you get this label that just applies to everything, right? It depends on each specific deal. Is that accurate?
Clint Coons: Yeah. It's going to depend on the deal. And the reason why we like to separate out the activities is that we want the corporation to be the dealer, you to be the investor. So, any deals you intend to treat as an investment, you run them through disregarded LLCs or a partnership that flows back on your 1040 schedule E to keep that dealer stuff inside of the company. So, there's this clear line as to where investor ends and dealer begins. It begins in a separate tax-paying entity.
Seth: That makes a lot of sense. This tax issue is something that a lot of land investors, I don't know, it's kind of a disappointing thing because, for most real estate investors, there are all kinds of tax advantages, but for land, depreciation is not a thing. You kind of get left out in the cold in a lot of ways.
In your knowledge, or from your experience, is there any creative way for a land investor or land flipper to cut their taxes? Or is it pretty much just the way that you structure your entities and kind of what we just talked about in terms of which properties you buy in which names? Or is there other stuff we could do to pay less in taxes?
Clint Coons: On land, it's how you buy it. The entity that owns it. Maybe you're buying land for a solo or self-directed IRA or a corporation. So those are the ways in which you can control some of that income.
Jaren: When it comes to selling land with terms, with seller financing, land contractor, deed of trust, how important is it to record a memorandum or some evidence of the outstanding transaction?
Clint Coons: Definitely important if you want to file a deed of trust against that property or a mortgage.
Seth: In Washington, where you're at Clint, did they do land contract or contract for deed?
Clint Coons: Yeah, they're recognized. And I would record that if you sold it that way. You always want to make sure that there's some record so that the buyer doesn't sell the property out from underneath you and you don't get notified and you don't get paid off.
Jaren: There are some people that have the idea that it's easier to repossess the property if nothing is recorded to cloud the title. So, for example, in Florida, a lot of people, if they do a land contract, a lot of land investors will intentionally not record it at all because if they have to foreclose, they have to go through a six-month judicial foreclosure process that's super annoying and cumbersome. Whereas if they don't, they can just automatically assume back control of the property.
So, the ultimate question is, what's the right path to go here? Should we always be recording it? Because like you said, you brought up a really good point that having a public record of something prevents a borrower from selling the property from underneath you. But on the flip side, if they default, if you're in a judicial foreclosure state, then you have to go through that process.
Clint Coons: Yeah. From the seller standpoint in a land contract, title doesn't transfer until their actual land contract is paid off. So, the seller is not going to record it. If I'm representing the buyer and I tell them to record that agreement, to prevent the seller from selling that property out from underneath me so that the world is put on notice that I have an interest in that. So, if anybody who bought that property didn't record it, they're going to be at risk. And as someone who works with buyers like that, definitely you need to have that recording.
Seth: Yeah. I think it kind of goes both ways because really either party could try to do something malicious to the other, if they're really going to be a jerk about it. The borrower could try to build something on the property or build a house before it's paid off. Whereas in that case, a lender would pull a title search.
Jaren: Oh, yeah. Or they might mow the lawn for 7 to 10 years. Right, Seth?
Seth: Yeah, exactly. You do something really nasty, like mow the lawn. But the attorneys have talked to about this. The attorney answer's like absolutely always record it because it's going to protect both parties. That's all kind of the stance I've taken. But the problem with a lot of land flippers is that a lot of times people are selling properties on seller financing with land contract, without doing any kind of credit or background check. They don't know anything about the financial standing of this person. And it's not uncommon at all for people to just stop paying pretty early on in the process. And when that happens, there's this cloud on the title and it's this huge pain to get rid of it.
So, some people have this idea of, “Well, just don't record it and you're fine.” But then another attorney answer that I've heard is “Even if you don't record it, that doesn't necessarily fix the problem because all that borrower would have to do if they ever made a single payment to you is go to a judge and say, 'Look, I've got this signed contract and here's proof of my payments. And now I have an equitable interest in this property.'” And then you've got a huge title issue later on. So, it's like whether you record it or not, the problem is technically still there until you go through the right motions. Is that accurate?
Clint Coons: Absolutely. You need to know your state law because sometimes what comes up, if you're involved in a land contract for the sale of the land, and you've been paying it for say over a year, then you have an equitable interest in the property. And in order to remove that person in some states, as I understand it, you actually have to go through a traditional foreclosure process. And it's not just as simple as I just boot them out.
So, knowing each state. If you're going to do a land contract, let's say in North Carolina, find an attorney that understands land contracts, then ask that attorney, what are my obligations if I need to kick someone out and take back possession of the property? Can I do it through an unlawful detainer action? Or do I have to go through a foreclosure? What's that process look like? So, you know going into it when something goes wrong, what steps do you need to take to rectify it.
Seth: Yeah. Gotcha. So really in terms of when that land contract memorandum or whatever is recorded in terms of how to get rid of that in that scenario of a default, that's really a conversation to have with an attorney in that state.
Clint Coons: Absolutely. In that state. So, if you called me up and say, “Clint, what do I do in Colorado on a land contract?” Call a Colorado attorney.
Jaren: That makes sense.
Seth: Are you primarily in Washington? Do you do stuff in any other state?
Clint Coons: We set up entities all over the U.S. You said 200, we're actually up at 347 employees.
Seth: That's huge.
Clint Coons: We got a lot of attorneys and we work in all 50 states.
Seth: Another question here regarding seller financing. So, if the goal is really just to allow a buyer to pay for the property and installments, just giving them easy financing options so they don't have to cough up all the cash right now. Is it a viable alternative to use a lease purchase or a lease option instead of a land contract or a deed of trust?
Some have theorized that if a buyer stops making payments on a lease in some form, it would be easier to repossess the property or terminate that agreement when you compare it to a land contract or a deed of trust, which is like a formal loan document with a person. In a deed of trust like they would actually own it, but on land contract, there's like a very clear path to ownership. I'm just wondering, is there any merit to that or is it all kind of the same thing with just different wording?
Clint Coons: Well, here's what it would come down to. Let's say I did a lease-purchase for someone. I need to know whether or not that lease option needs to be recorded because in certain states, and we take Washington state here, two-year lease agreement needs to be recorded. So, you'd have to record it. Why? So that puts everyone on notice if you're selling property like that under this lease option agreement and it is raw land, I think there's an argument to be made by the purchaser.
Let's say they miss one payment and you say, “Oh, deal is over.” The intent of structuring it was an installment sale and that you're using the word “lease option” to get around any of the other requirements that would be in place to foreclose on the property.
Because at the end of the day, if I'm leasing land, what am I doing with it? Why would I enter into a lease agreement for land? Maybe you specify in there that the tenant tends to do X, Y, and Z with the property. It's obligated for that. But other than that, if they say, well, the substance of the transaction wasn't installment sale of the property, and there was no intent to treat as a lease. And that you've actually given them the ability to go in and construct buildings and things like that on there, you still lose. It's still going to be treated as a purchase.
Seth: Yeah. I've heard similar feedback regardless of what you call the document. If it looks like a duck and quacks like a duck, it's a duck.
Clint Coons: You see that a lot. I've been doing this for 23 years now. And especially in RIAs guys will come in and they've got their box of forms, and they go, “Hey, let me just tell you the secret strategy here to do X, Y, and Z”. And many times, it works. Stuff like that does work until you hit that one road bump where somebody is not paying, they challenge it, and then it starts to unravel on you.
And many of those individuals that come up with these strategies I'll say, listen, is there an attorney that has back this and told you, you can do this? What state is that attorney in? Do you have an attorney's opinion letter to back it up? Because if you don't, if the person is telling you this doesn't, you should go to an attorney and ask the attorney. And I understand a lot of times we don't like to use attorneys because I think more of them are Morton Salt men than they are anything else because they're not up on it so they're down on it. They don't want to spend the time, but if you find the right guy and you're willing to pay that attorney some money to research it, then you'll get a solid answer.
Jaren: In a seller financing scenario, land contracts specifically, is there a way for a seller to protect themselves legally if their buyer/borrower, they are the same person, decides to do something illegal on the property since it's titled in the name of the seller and not the buyer? So, if the person I'm selling the property to on land contract does something illegal on my property. I'm obviously liable, right? Is there a way to protect myself?
Clint Coons: You want to have a demonstration clause in there, any waste that's committed on the property they'd be responsible for. Yeah, you'd definitely want to contract that in. So, in the event that you had to enforce the agreement and they've been doing anything that jeopardizes your investment. So, you'd put that in there. Buyer agrees not to X, Y, and Z. Buyer agrees not to A, B, and C. It's just like a mortgage. You pick out a mortgage, the lender has you assert that you're not going to run a house of prostitution on the property or drugs and things like that. That's to protect their interests.
Seth: So, earlier Clint, we had talked a little bit about this idea of putting a fence over somebody else's property and that kind of thing. Well, it was actually one of our questions here from another perspective. Say if I buy a property that I do have an easement to get to the property, come through somebody else's land, but that person has put up a fence and I can't get through them. They don't mind my own easement. What's the right way to proceed with gaining physical access to that property? Can I just cut their fence down or do I have to go to a judge? Or do I go to them? Or do I call the cops? Or what do I do? What's the way to handle that?
Clint Coons: So, my mother-in-law bought this piece of property on the Hood Canal, and let's say it was an acre or whatever. And there were two lots there. One of them had a house on it. And the other portion was just vacant. They were going to subdivide it. She and her twin brother bought it. So, they subdivided the property. Twin brother got the vacant lot. She got the house and he built a house on this vacant land. And it just became a mess where their relationship then deteriorated because of the things that he was doing to his own sister, took advantage of her, tapped into her drain field, and screwed it up. She almost lost her CO in her house.
So, she had to cut all that stuff off. And they had this stairwell that cut through the bulkhead that went down to the beach. And where they'd subdivided the land, it came through that stairwell. Whereas the top two steps to go down, half of them were on her property. And then it continued on down through the bulkhead, which was her property.
So, in order for her to walk down to the beach, she had to then step onto his stairs to get down there. Now that's been there for probably 90 years, this bulkhead and the stair access. Well, the twin brother, he's pissed at his sister. He's just a jerk. My mother-in-law. He puts up a fence right on the property line, cuts right down to the bulkhead on the stairs to block her access to the beach. Now for him to get there, he had to kind of squeeze by this fence to go down the stairwells that wraps around.
And I hate to put this up. I went out to her house one day and I'm standing there and I see this. I said, "Nancy, you can't allow this to go on because he's claiming that's his property. And if you allow him to keep that fence up, you will lose access to the beach." And she said, "Well, I don't know what to do." And I said, "I'll show you what to do." And I went over there and I kicked it down, pull it right out. Actually, I didn't kick it down. I unscrewed everything, took it all up and I stacked it on his property.
So, he came home. He sees himself as a tough guy. He said he's going to beat me up and all this stuff. I'm like, whatever man, do whatever you think you need to do. So, he calls the police, police come out and said, Hey, this guy over here, my sister's son-in-law took my fence down. He trespassed on my property, blah, blah, blah, blah, blah. Officer looks at me, he goes, what are you doing? I said, I took his fence down. He's cutting off my mother-in-law's access to the beach. We have a claim of right to that. It's been there for 90 years. He thought he could block her. He looks over at him and he says, you need to arrest him. He's like, this is a civil dispute. He goes, don't call me again. And the Washington state patrol officer drove off and that's the right response. That is a civil issue.
So, the thing about this is, yes, you're going to have to enforce it eventually, but you're still within your claim of right to dismantle it. You don't want to kick it down. I use loose terms there. Just take it down, put it on his property. He cannot block your access to it. He can try to sue you for using it. And then you go to court and you prove that you own it. But that's the issue you're going to face. If you allow that to stand and you do not enforce your ownership rights, you will lose those ownership rights.
The same thing happened at my old house, with the homeowner’s association. We had access to a beach and they ended up going through a guy that owned all this property, wanted to develop it. And he wanted to cut off our access and put up a fence and told us to go use some other access to the beach. I'm like, hell no, I'm still using that trail. I've maintained it, we've done it for 18 years and you think you're going to stop us now? That ship's sailed. And I told the homeowner associates, if we allow them to do this, you're going to lose access to the beach and you're going to have to go all the way around that other way, where he said he created another path for you to gain access down there.
Seth: Just to escalate that situation and making it a ridiculous example about it because this is what I do. So, let's say somebody put up, I don't know, the Berlin Wall over your easement access or they built a house over your easement access. Can you really just get a bulldozer and bulldoze through their house and say, “Nope, that's mine. Sorry. Civil dispute. Can't call the cops?”
Clint Coons: No, but when you see this going up, you should be taking steps immediately to prevent that.
Seth: And I think that's the premise because when this happens with a lot of land flippers, like when they take possession of the property, the fence is already there. It's not like they ever had a chance to stop it. It's just the situation they inherit it.
Clint Coons: Well, depending on how long that's been there, you may be screwed on that deal.
Seth: In which case you'd have to make a new easement or something or open up new negotiations with that person?
Clint Coons: It's tough. I mean, you could try it. You could take the fence down. If it was my property here's what I would do. I would take the fence down. If I knew it was on my property, I would take it down. I would force them to take action against me. I'm just not going to roll over and say, “Oh, well, I see you got your fence on my property. Let's negotiate this.” Hell no. They have to start it.
Now when they approach me, then we'll discuss what we're going to do about that. They're probably going to get their attorney and they're going to make sure that they get an easement recorded against my property for access, or maybe they move for adverse possession if they can show that they've been using that property for 10 years, that fence has been up for that period of time. If they want to go that route, then it's going to be an expensive claim. And if I was depending on how much I spent on the land, I may just walk or try to sell it to him. Just say, “Hey, whatever, just buy the property off and you can have the whole thing.” Gets recouped some of your investment, or maybe not all back from the purchase.
Because in every situation where you try to fight these claims, they are expensive. You're talking $30,000 in legal fees in the typical fight. My time is better spent flipping land than it is paying an attorney and I'll never get that money back.
Seth: Yeah. Just a reminder. Nobody is given legal advice here, informing you how you're supposed to start a war with your neighbors or any of that stuff. But that's helpful, though. Now somebody in our Facebook group actually posted an interesting question. It's something that I've actually had experience with myself. This person was buying a property worth $100,000 and they had it under contract for $10,000 to buy it from this person. And they were closing through a title company and the title company informed the seller. I don't know if they call them or email them or what but said, just so you know your property is worth a lot more than $10,000. And it basically totally blew up the deal. The deal died as a result of that.
And I've had this as well. In my case, it didn't kill the deal, but I did have a title company just talking to this seller saying “You know your property is worth a lot more than this, right? Are you sure you want to do this?” That's what they said to the seller. And in my case, the seller was well aware of it. It was no surprise to them. So, it went forward. But when I hear that, it's just like, man.
Clint Coons: Who hired the title company?
Seth: The buyer, I think, I assume. At least that's how my case worked.
Clint Coons: Yeah. So, then there's no claim for you against that title company because that's the buyers', say, agent. So, they're in a preventive contract with the buyer and they owe you no duty. However, if it was my title company, if I would hire them for this and was paying for it, and they told the buyer that then you would have a claim against them.
Seth: Maybe I didn't clarify. So, this person, they were the buyer in the scenario, they were buying the property for dirt cheap. They were the ones that picked the title company. So, the person that they enlisted to help them told the other party and basically screwed up the deal. In my mind, it's obviously that's assigned, “Well, I'm never going to hire that title company again.” But is there any legal recourse in that or they're really just sharing public information, I guess? I can't see how it's technically illegal or anything. It's just a dumb move that really hurt their customer.
Clint Coons: You have interference with a business expectancy and that by giving them that information, they knew that would most likely lead to damages to you because you wouldn't be able to profit on that deal. So, I can bring that cause of action against them.
There are some ways you could go essentially and hold their feet to the fire on it. But I think a lot of it is going to come down to is who's the title company representing. If they're not representing you, you didn't hire them and it was the seller who did it then of course the seller would be protected there, but the buyer's title company, if I'm buying it and they go back to the seller, we're having a conversation on that one.
Seth: Yeah. That's like serious damage but at the same time, when I look at the ethical side of it, it's really all that's happening here. It’s just facts are being given around. So, maybe that person should have never done that first place.
Clint Coons: No, I don't think that's facts because now they're operating outside of their role in the transaction.
Seth: And they're not an appraiser, so that's a good point too.
Jaren: There's ill intent too.
Clint Coons: Yeah.
Jaren: I want to actually circle back to something that you briefly touched on earlier about finding a good attorney in a different state. You said you guys have representation in all 50 states, but this is something that I've personally struggled with a lot. There was an actual agreement that I was trying to put in place, like a template that I can use over and over again to structure my private money lenders coming in on my land business. And I was cold-calling attorneys for probably a good 30 minutes to call a couple of attorneys once or twice a week for about a solid month. And I just could not for the life of me find anyone that really wanted to give me the time of day. Maybe they perceived me as small fish or something, but I think it's pretty hard to find an investor-friendly attorney, at least in my limited experience.
And so, I really want to take some time to kind of like pick your brain as to what should I be looking for? How would you start the search for a new attorney? What questions would you be asking and what are kind of the qualifications that make a good attorney stand out compared to a mediocre one?
Clint Coons: The way I often describe it is if you're going to hire someone to represent your interest or help you through a transaction drafting agreement, you need to ask, do they even understand? And many times, the way you can gauge whether or not the individual understands what it is you're doing is to use the jargon with your type of investing.
So, for example, land contract, right? Ask the attorney if they have any experience in drafting land contracts. And if they understand what they are and what are the requirements in your particular state, if they say no, well then you know right away that he can't help you in that area. So, if that's what you want to do, it's not going to work for you. So, you have to ask those deeper questions. If you're house hacking, "Hey, you ever worked with somebody who house hacks?" And if they think that it's an illegal activity, then you know that's not the right guy to deal with.
First, you got to interview him, number one. Number two, where do you go to find him? Go to the local RIAs. Most of these things are online now. So, you can go on there, ask to join one, ask questions, “Hey, anybody got some referrals for good real estate attorneys that they've been working with?” That's a great place to start to try to find someone.
If you can't go about it that way, go to wealthcounsel.com. They are a purveyor of hot docs, document generation software for attorneys, for estate plans, LLCs, things like that. And the unique thing about it is they have attorneys all over the U.S. that are part of it. I'm part of it as well. And many of those attorneys are involved in estate planning.
And what I've found is that a lot of attorneys that are involved in estate planning, if they're just not exclusive estate planners, then they're typically also going to be transactional contract and real estate attorneys as well. For whatever reason, that seems to kind of go hand in hand.
So, then you can call those guys up and just ask them, “Hey, does your firm handle this? What is the scope of your representation in dealing with real estate investors? Do you deal with flippers?” Use the term “flipper” and see if they understand what that means. If they think it's an animal from a television show, not the right group. So, you have to be able to get that.
The last thing I would tell you is this. The individual that calls up and wants free information, they're not going to deal with you. They want serious people. So, you have to be prepared to pay. This is something that comes up a lot. So, our firm is set up where we give away free 30-minute strategy sessions. And a lot of times people on my YouTube say, “Hey, Clint, I want to meet with you”. Not going to happen. Because I have gatekeepers. I have strategists. I have such a large organization I can afford to do this where they filter the clients down. And the only ones that get to my level, I will then have a consultation with, because I don't need to be meeting with everyone. People have aspirations, but they're not yet there.
So, for that attorney, that's taking that call, they need to know that you're serious and the best way to do that is to pay for their time. And I would start with that. I want to hire you for an hour. I want one-hour consultation. I'm willing to pay for it just to talk about these issues. Don't expect that it's going to be for free, but you can also ask the basic questions to begin with. Hey, land contracts. Are you familiar with this, this, this? If they say, yes, they do that type of work. Great. Let me pay you for an hour of your time.
Jaren: I have an attorney that I'm working with. I'm pretty satisfied overall. Compared to the other experiences that I've had with attorneys thus far, he's been okay to work with for sure. But one of the big adjustments that were really hard, probably coming from being a millennial, being an internet-based culture, and all of that, his response time is extremely delayed compared to what I'm used to. Like, I have people who pay me for coaching as well, right? We have a coaching program where they have direct access to me. And I don't charge people for me responding to their emails.
But one of this guy's biggest things is that you don't have to put him on retainer. And then if he responds to an email for me, he tries to justify it saying that, “Oh, well, it takes 30 minutes of my time. And I have all these years of experience and knowledge.” And there's some merit to that, for sure. I understand that.
But on my end, like my real estate agents, for example, that I work with, because one of my distinct strategies that other people don't necessarily do, but I do in my land businesses, I work exclusively with land specialized real estate agents to sell property. I can text them at seven o'clock at night. If they're busy, they won't get back to me until they're not busy, but I have direct access to them. And if I need something, "Hey, check out this property," or whatever. They're motivated to get back to me very quickly because they make money with me.
I haven't had that experience with a lot of attorneys. And I'm just curious as to maybe you could speak why that is on one side. And then I guess really what I'm after is what's the appropriate expectation of professionalism or communication that real estate investors should have with their attorney.
Clint Coons: I know this comes up a lot through friends of mine that are attorneys where their clients will sometimes complain about the fact they charge for emails. So, we don’t do that at our firm because we are probably similar to what you do. We charge a flat fee. So, when a client plays a flat fee, they don't have to worry about us charging them to send them an email or pick up the phone and call them. Whereas the attorney now that responds via email, it used to be, that would be over the phone.
Now a lot of people will send the attorney an email or possibly even a text message and think, well, because it's like electronic, I don't have to pay you for that. So, they have this different expectation that's involved. Well, the attorney's expectation is always that if I'm just answering emails and texts all day long, how am I going to ever make any money? Because if that's how my clients want to communicate with me, they don't expect me to charge them for that and they're avoiding the phone call then I go out of business. So, they have to do it.
Maybe the better set strategy for that attorney is to say, that's a great question. Let's get on the phone and talk about it. And then you pick up the phone and talk about it. Then you feel better about getting billed because you were talking about it. That's how I would deal with those clients if I were in that situation.
Jaren: Actually, it's funny that you brought that up because he'll take like a week or longer sometimes to respond to an email. But the method to communicate with him is I have to talk to his secretary, schedule a time to talk, and it's still normally like a week. But I don't know, I just find it frustrating that I normally have intervals of like a week or longer to wait before I can actually ask him a question or get an update on my case.
Clint Coons: I think a lot of that is you've grown up in an era where a lot of people expect instant communication gratification from whatever they're doing through social media and all of that. And for people who have been practicing that have that experience, they're not part of that and they have not bought into that. And I look at it from my own standpoint right now, if you send me a text, I don't even know if I'd even respond. Sometimes I do. Sometimes I don’t. And if you get a response back, a lot of times it's going to be delayed.
Why is that? Because I have a phone. I have email where people can reach out to me. There's Facebook that they reach out to, the YouTube, LinkedIn, text messages, Twitter. It gets to the point where you go there are so many ways where people are trying to hit you, that you have to pick and choose what's your most effective way to communicate with someone and then stick with those channels and train your clients how best to communicate with you and change their expectations.
So, if you have a client that's a texter, as an attorney, I would never accept that because I want that email there so I can correspond and look back through my emails. I mean, texts are hard to go back and scroll through them. So, they always want to keep a record of it as well. That's why they're going to use email.
So, I don't know if I've answered your question. I would just say, maybe have a conversation with the attorney to set the expectations and the boundaries of the front end, how you want to be communicated with, and see if they're comfortable with it. Because I've actually told clients before. And they said, “Oh, I just want to be texted.” So, I'm not the right guy for you because I'll never text you. And if you text me, I probably won't respond. If you need to get ahold of me, contact my assistant, she'll set everything up. Because I don't have time to deal with creating the consults with my clients. That's the least efficient use of my time. I can do it, but I'll just charge you for it. So, that's I think the mentality that you're running into.
Seth: Yes, it makes me feel better about the lack of response I've gotten from you about the different memes I've been texting you over the past few days. I just took it really personally and it hurt for a while, but I understand that.
Clint Coons: That's good because that's the only thing I send out.
Seth: I'm going to choose to forgive and move on. Awesome. Actually, I can totally relate to that. I've actually set up autoresponders on our Facebook pages and as many places where I can that just automatically respond and say, “This is not a good place to get ahold of me. Send me an email here.” I don't even look at it. People just realize, “Oh, okay. I'm not going to hear from Seth if I talked to him here.”
Clint Coons: Oh, that's an awesome idea.
Seth: Yeah. I can email you the little snippet that I use. It’s been pretty effective.
Clint Coons: Yeah, that'd be great. Yeah, I'd love to see that.
Seth: Not every social media thing lets you do autoresponders, but I know Facebook does. I think Instagram might, but don't quote me on that. Well, Clint, you've been very generous with your time. I really appreciate you helping us understand a lot of the looming questions that real estate investors and land investors have.
There's actually a lot of other stuff we didn't even get into that you're really good at in terms of like investing anonymously and hiding assets and that kinds of things and trusts and there are all kinds of ninja moves this guy knows.
I was trying to find it the other day and I couldn't find it, but there was a video series he did that I saw about a year ago and it just blew my mind. It was four different videos explaining all the ins and outs of land trusts. And it was just so well put and well-articulated. So, this guy is a wealth of information.
I'm going to have a link to a couple of different resources that he has available in the show notes for this episode at retipster.com/99 because this is episode 99. So, feel free to check that out. andersonadvisors.com. That's the main website. And anything else people should check out, Clint?
Clint Coons: Yeah, just check out my YouTube channel. You and I, we have the same philosophy. It's about giving education. Investors know how to use these tools, how to make investments. And I'm an open book like you and I want to give as much as I can because through that people will be able to find success and understand the nuances of doing what they're doing.
Seth: Well. Thanks again, Clint. I wish you all the best. Hopefully we'll talk again soon.
Clint Coons: Hey guys, thanks for having me on. I really appreciate it.
Seth: There it was folks. That was our conversation with Clint. I don't know about you Jaren, but that was a great conversation. We didn't even cover everything that was on our list, but we covered a lot of the hot button topics that a lot of real estate investors and land investors especially are just always asking about.
Jaren: Yeah. And he was one of those gifted communicators that he just starts talking and you're just drawn in and you just want to listen. I don't know how people cultivate that. It's something that I find very aspiring and admirable.
Seth: It seemed like he had a story for every question we had.
Jaren: It was like Toastmasters. He’s like talking on a stage and you're just having a normal conversation. I didn't pay attention too closely, but there were a couple of times where I was noticing, “Huh? He hasn't said, ‘hm’ and ‘like’ or ‘um’, ‘ah.’” He didn't do any of that. I don't know how to train myself out of that. I’m just cursed to sound like a California guy hanging out.
Seth: I don't know how to do that either, man. In every video I've ever done to this day, I cannot get the “ums” and just the dumb filler words. Like, I can edit them out, but I just can't not do it. It's really hard. I noticed a number of years ago, I was in Washington, D.C. doing that thing where you can sit up in the chairs and watch a Senate proceeding. I noticed the politicians that I saw getting up and speaking, granted their senators at the federal level.
So, they're as high as you can get, but still just in general, politicians like that, a lot of them have this legal attorney background and they're so articulate. They speak so clearly. Like, man, if I was practicing 10 times, I don't know that I could sound as good as these guys did. So maybe it's an attorney thing. Maybe in law school, you just have to master that.
Jaren: Yeah. That'd be a good skill to have, let me tell you. Yeah, he definitely seems like somebody who will command a room if he walks into it. I really enjoyed it. I thought that it's rare to find an attorney that feels like a real estate investor. He felt more like “one of us” than just like a runoff attorney that could actually speak that legal language. So, it was really good.
Seth: Yeah. And we were talking just for a couple of minutes after we stopped recording that conversation. So Anderson Advisors, the company that Clint is one of the co-founders of. I don't know if this makes sense to everybody, but they do have a service where they can help a person set up a new legal entity, like understand the specifics of their situation and where they're going and what they're trying to do. And sometimes the recommendation might be, you don't need to do it yet. Like it's too soon, just hang on until you've proven the concept to yourself. Or it could be, well, if you're doing this and that and that from this state and that state then do this.
So, there is sort of the cookie-cutter approach. If you go through the REtipster Rocket Lawyer affiliate link. If you know what you want to do, there you go. It's pretty inexpensive and easy to do that. If you don't really know what you want to do though and if you want to get it right, and if you do have a little bit of money to spend, because it's definitely more expensive to work with Anderson Advisors, you know who you are. So, we're going to have an affiliate link to that service as well in the show notes at retipster.com/99.
Jaren: Before we move on Seth, did anybody catch the flex in the conversation where Seth was like, “Oh yeah, but according to this unknown tax law, blah, blah, blah, blah, blah.” And he's like, “Oh yeah, I forgot.” You totally flexed on the guy. Did you guys see that? I thought it was hilarious. The whole time I was holding back my laughter and I was like, “Okay, Seth, go ahead. Go ahead and flex on the guy.”
Seth: That was not tended to be any kind of one-upping. It was a very, what do you call it? It's a thing that 99% of people, even attorneys don't know about because it's such a niche thing and it does matter a lot for land people. So, he was right about what he said, but it was really important to insert that disclaimer. So, I just thought I would go out of my way to say that. So, Clint if you are listening to this, sorry, I wasn't trying to be a jerk or anything.
Jaren: No, I was impressed. That was probably one of my favorite moments of all time in REtipster history for me.
Seth: I thought about interrupting him and saying, hang on, stupid. And then telling him that. My people skills have developed a little bit further and I don't talk like that anymore.
All right, man. Well, here's our outro question for this episode. So, what weird food combinations do you really enjoy?
Jaren: So, for me, the first one that comes to mind isn't that weird if you're from California, but for other people, apparently, it's like super off-putting. Growing up I always had ketchup with my eggs. Like always.
Jaren: You never heard of it?
Seth: Disgusting. Well, I'm kind of overreacting. No, I have not. I don't think I have heard of that. I've heard of hot sauce with eggs, but not ketchup.
Jaren: Yeah. Growing up, that's what you do. That's what goes with eggs is ketchup.
Seth: This is a California thing you said?
Jaren: Yeah. Unless it's just my house thing, but I'm just assuming that it was not out of the ordinary. Like it wasn't like putting ketchup on peanut butter and jelly sandwiches or something. It's just like, most people did that growing up and that was like the normal condiment with eggs. So, I always have ketchup with my eggs. Always.
Seth: Have you ever had ketchup that does not have sugar added to it?
Jaren: It's nasty.
Seth: It's disgusting. Why would anybody eat that stuff?
Seth: For me, basically, everybody I've ever told this to has just recoiled and discussed at this idea, but I ate this pretty regularly when I was a kid. I haven't eaten this in probably 30 years now. So, it's been a long time, but I used to eat jelly and cheese sandwiches. What do you got to say about that, Jaren?
Jaren: I don't know. My default in life is always to remain open-minded so I don't have any context as to what that would taste like. My response is I think I need to try it before I can come to a conclusion as to whether or not it's gross.
Seth: Yeah. It was slices of cheddar cheese I think and grape jelly specifically. That's what it was. I never thought anything of it. It’s not like I thought it was amazing, but it wasn't bad. Essentially what it is, is like sugar and fat mixed together. And sugar and fat are usually pretty tasty. So, I thought it was fine.
Jaren: Yeah. And then there are all those cheeses out there that have fruit and fuse, goat cheese, and stuff like blueberries and cranberries and stuff. So, I don't know. It doesn't sound that off.
Seth: Well, thank you for not making me feel like such a barbarian.
Jaren: I used to have some really weird food habits as a kid. I brought up ketchup and peanut butter and jelly sandwiches because that was a thing. I was obsessed with ketchup growing up. I absolutely hate tomatoes to this day. My wife, the other day, she made me an omelet and she was really trying to impress me. And so, she put tomatoes in there and not telling me. I took a bite, not knowing what was in it. I was like, “Ah, it's not cooked. Taste it.” And she's like, “What are you talking about? It's the tomato.” So, it's weird. But I had an affinity with ketchup on everything as a kid.
Seth: Have your taste buds changed much from childhood to adulthood? Because for me tomatoes were, I remember almost throwing up on few occasions from eating tomatoes and mushrooms. Again, as a child, I don't know what it was, but it just triggered some gag reflex. But now I'm totally cool with both. I'll eat them for fun. And I don't know what changed, but at some point, a switch flipped and I have different opinions now.
Jaren: Yeah, I was really picky as a kid, but I grew out of that and I pretty much eat everything except for tomatoes. Like tomatoes and corn. So, here's the thing. Tomatoes are absolutely repulsive to me. It's the texture. It's not necessarily the taste. The texture just does something that just makes my skin crawl. There are other things that I will eat and that's fine, but it's not like my go-to preference. Like I don't really like corn on the cob or like avocados necessarily. I eat avocados every week because my wife is like, “Here, try this avocado thing that I'm making.”
And the one thing that is absolutely repulsive, like I've tried, I've consistently and I continue to try it every once in a while, eat a tomato and try to stomach it. And for whatever reason, the texture. Small cherry tomatoes are a lot more palatable. They're still not like my favorite, but they're a lot more palatable because the texture is a lot crisper, but just biting into like a mushy nasty red. That's not my thing.
Seth: Did you say corn is something you don't like?
Jaren: Corn on the cob. Yeah. Corn on the cob, it's not like I dislike it, but I don't want to sit there and be like, “Oh, it'd be amazing right now, sticking corn on the cob.”
Seth: So, the cob specifically is the problem, but just corn, in general, is fine.
Jaren: Yeah. I mean, it's fine. If I go to somebody's house or I'm sitting there and my wife wants corn on the cob, we'll get corn on the cob every once in a while. But it's just not something that I'm super into… Like, my wife loves it and a lot of people love corn on the cob, put butter on it on the whole thing. It's just not my thing.
Seth: I was just going to say that corn is like in everything. There's like an abundance of corn in chips.
Jaren: Yeah. No, I'm good. I'm totally good with that.
Seth: Well, I learned something new about you today.
Jaren: We are really personal on these end of podcast things. Right, Seth?
Seth: My wife is actually the same way. Like when we go to Chick-fil-A or whatever, whatever I ordered a half to specify no tomatoes. Like that's a huge no-no to get a tomato on anything. So, you're like that too. It's good to know.
Jaren: It might be a genetic thing. Maybe there's like a small portion of the population that was allergic to tomatoes or something. I don't know.
Seth: It's probably like most issues in life. So much of it is in your head. It can absolutely be overcome, but there's something, some puzzle in your brain that needs to get unscrambled or thought of differently. And that's hard to do. Like that is a hard thing to just snap your fingers and think differently all of a sudden.
Again, listeners and viewers. thanks for listening and watching. I hope you guys enjoyed the conversation here. Again, go check out the show notes. There are links to a lot of important stuff we talked about at retipster.com/99.
And if you want to stay up to date on some other things, we've got going on at REtipster, take out your phone and text the word “FREE” to the number 33777. I dare you to do it. You'll see what happens. Thanks again for listening. Talk to you guys later.
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