I think we can all agree that Nevada is seen as America’s corporate haven. There is no question, hands down, that the State of Nevada, over many decades, has created entity programs to make its State, business and corporate friendly.
Yet, Nevada may not be, in all truthfulness, the perfect State to form your entity in. Over the years, there have been a lot of changes in Nevada. Since around 2008, their entity setups have been evolving and changing nearly annually.
I’d like to give to you some history about Nevada’s perseverance of getting its reputation as being America’s corporate haven in the first place. Let’s rewind the hands of time to the early 1990’s through the early 2000’s, when George Bush and subsequently Bill Clinton were Presidents. Back then, the general historical consensus of the US Economy was great. The gross domestic product (GDP) increased steadily for nearly ten years. Businesses were being formed around the country and many Companies were taking advantage of the State of Delaware’s business formation because of the fact that the State of Delaware’s entity formation laws protected their business owners’ information private who registered their Companies with them. What this means, is that if you were to go research a Company in the State of Delaware, to date, you cannot obtain the information publicly. The State of Nevada wanted to offer this to their new business formations. The State of Nevada, for all intents and purposes, was jealous of the way businesses and Companies went to the State of Delaware to form their entities. Because of this, Nevada ended up getting super aggressive in changing its rules and laws and literally copied the State of Delaware’s success when it came to liability protection for their businesses. During the early 1990’s because of the extended growth of the US GDP as businesses were growing, the State of Nevada’s end goals, in that era, were to attract those new Companies and Businesses to form in their State and they succeeded.
Time passed, and somewhere between 2001 and 2004 the State of Nevada ended its privacy State privileges and stopped offering business owners anonymity. It was a subtle transition. So subtle that the changes bypassed even the most educated in business formation. Then again around 2008, the State of Nevada began slowly increasing its corporation fees and continues to do so, nearly annually.
Now that you understand the history of how Nevada got its reputation as being America’s corporate haven, it’s important to get to the root of why Nevada is pushed to form businesses in today.
Why do many of the Real Estate Gurus sell Nevada and even say that it still has the privacy anonymity when it doesn’t?
The biggest reason that Gurus are continuing to sell the State of Nevada for business formation, is because the State of Nevada doesn’t have an Information Sharing Agreement with the IRS. Why is that? Because there is no income tax department in Nevada.
One of the perks, that the State of Nevada offers new business owners, is that the Officers and Directors of a Nevada Corp “can be” protected from unlawful acts of the business. BUT if that business is foreign filed and unlawful acts are committed, it is very easy to breach the Corporate Veil. Additionally, what Gurus sell to all of you that participate, is a Tax Advantage that the State of Nevada does not impose a tax on Corporate or LLC profits.
Since this discussion is diving deep into this topic, let’s evaluate that for a minute and approach this for the majority of you who have paid for the entity, and still have not made a profit and then eventually or are on your way into revocation status with your formation.
Do you live in a different State and do business in that State outside of where your LLC is formed? If so, and your business is formed in the State of Nevada and you are not making a profit and losing money, then the chances are, you are not reaping the benefits of the business formation that you were sold.
It used to be that the State of Nevada served to protect its business owners from nasty creditors and litigators and frivolous lawsuits. But today, the State of Nevada doesn’t do that anymore. The privacy benefit has been gone for nearly 17 years or longer. And the nasty secret behind these Gurus sales pitch, do not tell you that the State of Nevada doesn’t stop anyone who practices unscrupulous businesses from filing frivolous lawsuits against someone.
Here is a real-world example. One of my Clients was a private money lender who bought out a hard money lender position. My Client was sued by an LLC. The LLC was in Nevada, but the actual location of the LLC was in a different State. The LLC was registered in the State of Nevada and was foreign filed in the State where the actual LLC did business. My Client hired my services, to help organize the case and assist, locate and hire Attorney’s to represent my Client. Because of the intricately woven problems this case involved, my Client ended up having to retain an Attorney in four different States to unravel a sale the LLC, registered in the State of Nevada, had made. The case was the fraudulent sale of a piece of real estate which bypassed paying back the private money lender who was a first lien-holder.
Why did the Client have to hire four Attorney’s?
One State was where the private money lender lived; the second State was where the LLC was registered; the third State was where the LLC actually did business, and the fourth State was where the property was located. And it’s important to understand that each State has their own laws when it comes to Real Estate law. So, it was my job to organize the paperwork for each Attorney to review and work with, within their State they were hired to work in, with my Client because of the way the LLC was formed in the State of Nevada. It’s important to also note, that the LLC who held the property in State number four, was not foreign filed.
What happened next was nothing short of Business suicide. During discovery, the Lawyers found out that the LLC literally Quit Claim Deeded the property to themselves, personally, without the private lenders knowledge.
When that conveyance happened, by and through a Title Company in the State where the property was located, the private money lender was not notified of this conveyance. The Quit Claim Deed which was previously filed by the LLC, without the use of a Title Company, had the new owner of the Deed to the property’s name on it who happened to be the one and only Managing Member of the LLC which was formed in the State of Nevada. That name was on the Chain of Title. This gave the LLC, who moved to own the property personally, to sell the property in their name personally which bypassed the payoff to the private money lender.
The private money lender did not know the sale had happened right away. It was months after the sale that it was discovered. During that time, the LLC that was sued by my Client, did not have a Lawyer and filed motions to extend for a few months when the case was originally filed. After the property was sold, and the LLC’s Owner responded to the lawsuit, in the very response to the filing of the case with the Courts, stated that the money that was received from the sale of the property was being used to retain the Attorney to respond to the lawsuit. That is the definition of Ponzi.
After approximately three years of litigation, my Client was able to receive a judgment which boiled down to one State. My Client won the case for many reasons. One of the reasons was because the LLC who transferred the property into their name personally with a loan agreement and promissory note under their LLC that was registered in the State of Nevada, allowed my Client to move with the legal team to prove that the LLC/Owner breached the “Corporate Veil” that the State of Nevada allegedly protected the anonymity of the Owner which was the irony. The truth, my Client never recovered monetarily the financial losses of this debacle. Ultimately, the LLC and the Owner that LLC went out of business and was never heard from again. My Client accepted the loss, and now has their contracts and purchase agreements of their ongoing investments reviewed by Lawyers, per our recommendation, in the States that are invested in; and forms LLC’s in those States where the property is located. The lesson my Client learned is that the law will prevail in the State in which the property is located.
This example is but one of many real-world experiences, to show that what the Gurus say about privacy in the State of Nevada is not necessarily what you are told nor what you pay for. And in this case of my Client, because the LLC was registered in the State of Nevada a crime was committed against my Client by this LLC. The LLC/Owner thought that they were protected by the anonymity rule. The Owner of the LLC was brazen enough to fraudulently convey a property from the LLC to themselves which literally breached their own Corporate Veil.
The bottom line, is that if you are registered in the State of Nevada and you commit crimes with money against others, your Corporate Veil will not protect you. The LLC was not protected by the business structure in Nevada.
Most heavy playing Real Estate Gurus say that Nevada is the best State to incorporate in. What they don’t say is that the State of Nevada is a great State to incorporate in to achieve certain illicit goals. What they don’t say really matters. Those goals for the Gurus are to sell you entities that are set up to accomplish doing bad business and hide assets through a sales pitch that is designed to make you think that you have anonymity.
It is not full proof for those who think that way because even the most unscrupulous business people eventually lose. And for those of you who have entitles set up and are not using them because they don’t benefit you or your business, also lose because your best interests of your business model were not looked at and considered when the entities were formed. It was about the sale, and only the sale. Nothing else mattered.
Another sales pitch that is being sold regarding the State of Nevada’s other tax benefits, some Real Estate Gurus are saying that Nevada has a relationship with Florida, Colorado and recently Utah. That is a myth. The State of Nevada does not have any type of a reciprocal relationship with Florida, Colorado or Utah.
I think it’s important to note that the State of Nevada has huge tax revenues from its biggest industry which is gaming. That result of tax revenue offers Nevada’s residents and businesses low State taxes. Let’s take a look at that more closely and ask ourselves, is it possible that it is in a business or Companies best interests to perhaps consider filing their entity in the State that it practices its business in? Is it possible that each State has its own tax revenues for small business enterprises that are local to that State? It’s up to you to find that out on your own. Call your State Corporations Division/Secretary of State located in your State and ask those questions or seek out their website and read their FAQ’s. You can also seek out a Real Estate Investment Consultant or go to your local REI Groups and ask others, who are working the industry in your State what they do. Gather your facts, then sit down and create a plan to implement that is in you and your Companies highest and best good.
If you are one of these people, I’ve described, and you are not benefiting from the tax benefit the State of Nevada has that you were sold by the Gurus; then you are not benefiting from having your LLC or your S-Corp in Nevada. Remember, it’s just a hustle the Gurus use to sell you a dream; but that dream is not necessarily your dream.
Consider the option of moving your LLC to your State you live and work in, from the State of Nevada. You paid for the formation, you can dissolve it in the State of Nevada and literally pick it up and move it to your State that you live and work in. This might be the ticket to serve your business better in the long-run, and save you tons of annual fees that you pay to another State. Plus, the benefit is that you now have an operating business in your state and you put your money where it matters most, your community, your State.
Disclaimer: It’s important for all of you to understand that I am not undermining the State of Nevada’s Corporate rules and regulations. There is a State and a place for any business to create a start-up. This blog is specifically geared towards real estate investing and problems that run rampant in this industry due to misinformation that is passed on by others, that create seminars and prey upon people’s ignorance and create long-term financial business problems for the uninformed new business enterprise who wants to make a living in this industry. Because of my experience and knowledge, I think it is important to share my knowledge with the masses who pay thousands of dollars for three days of “education” and walk away with LLC’s and S-Corps with no previous Entrepreneurial or Real Estate experience. Worse yet, most people who walk away with these entities, do not even know what the abbreviations are that were created for them in the first place, and how to use the entities in the industry. That is the recipe for failure. I make it my company’s business to help keep small businesses, that want to do real estate, in business.
Who is Jinean Florom? Jinean Florom is a National Real Estate Investment Consultant and Acquisition Specialist who solves intricately woven problems for Real Estate Investors on their investments.
Here is a Hard Fact: If you are Registered in the State of Nevada and you Foreign Filed your LLC or S-Corp in the State in which you reside and work and you actively use the LLC or S-Corp in the State in which you reside and work, and your LLC or S-Corp goes into revocation status in the State of Nevada; did you know that because of non-payment of annual fees, the State of Nevada can sue you and get a judgment for you to pay the past and current annual fees? Why? Because you continued to do business in your State where you live and reside when your LLC or S-Corp was not a valid business in the State of Nevada where your business is formally registered.
If you know anyone who would like to know this information, please share this blog. And to book a consultation with Ms. Florom, please visit www.myreitoolbox.com #myreitoolbox
Today I am going to discuss some reasons why the facts entered by the listing agent may not match those from public records when you are getting ready to review listings to buy. The MLS listing is typically the most up-to-date and reliable source of information about a home for sale, but sometimes, MLS doesn't have the information either. Remember that Listing Agents, put information into the database, based on the information they are provided by the Owner of the property by virtue of a disclosure statement. Some Realtor pull a Realtor packet on the property; some do not. So, when you find conflicted information here are four simple reasons why the sources may not agree:
REASON NO. 1:
LET'S TALK ABOUT RECENT UPGRADES - When a house has been updated, MLS listings typically reflect the current beds, baths and square footage. In some counties, the assessor's records are usually up to speed yet, some are not. If you believe that a house you are looking at to buy doesn't have accurate information on the MLS or by what you see, go to the building department and pull permits or find someone who can. This is the best strategy to take if you question add-ons or upgrades. If they are permitted, they are legal. If they are not permitted, they are not legal. That could be the difference in a profit spread on a rehab and your buy-in and your exit strategy. Additionally, the MLS "year built" may sometimes be the year of a major remodel whereas public records typically show the year the original structure was built. If the property is bank owned, you can be rest assured the bank knows the property. And banks don't have to disclose. And banks don't have to accept price reductions on "AS IS", "WHERE IS", and "WITH ALL FAULTS" listings. So, when you find yourself questioning your deal you are buying, ask yourself this simple question, "... Is the upgrade permitted or not?..." It's that simple. MLS may say so; but the County ultimately has the final decision if you are rehabbing a property that was not permitted. Some will tell you that the County is slow to update, you can count on the fact that the County is counting on the developer to make the mistakes when inspections are drawing near. Make friends with the inspectors. They can be the biggest asset you have - especially in a market you do not know well.
REASON NO. 2:
LET'S TALK ABOUT THE SQUARE FOOTAGE DEBACLE - It may not always be clear whether the square footage of an MLS listing includes any partially finished or unfinished areas of the house such as a basement or a garage. Public records at the building department will sometimes split out square feet into finished/unfinished sections. This information helps when looking at the cost of a rehab in areas where there are basements. Remember this fact when buying, when the MLS and public square footage does not agree, the county footprint is what will ultimately win as long as the permits have been pulled and changed at the county level. If MLS is listing more square footage than what the county shows, you can best bet that it's an non-permitted addition or add-on. Count on your County records.
REASON NO. 3:
LET'S TALK ABOUT, WHAT IF THE ADDRESSES DON'T MATCH - There is a rare occasion when there is a listing on the MLS that has a different public record. We have seen instances where the property was not even a matter of public record. We have seen instances where part of parcels were not part of a Deed; we have seen Deeds showing more parcels than what was actually available for purchase. These can be costly mistakes that the buyer has to handle with survey's, title searches, and more.
When you find a listing that looks like the public property record is not the same, contact your County and ask them what the record is. There may be a simple explanation. There may not be a simple explanation; but doesn't it feel better to know that you have an option to talk with the county before you purchase so that you can have things straightened out when you buy before it’s too late? An example of this could be if a parcel of land was partitioned or sub-divided and has the same address yet two different homes on each parcel. This is one example of many.
REASON NO. 4:
LET'S TALK ABOUT REALTOR NOTES - CDOM - DOM - AND SOLDS – Where do we go when we want to see and review solds from a Realtor? We go to Redfin. Redfin above Realtor.com shows sold listings from the MLS for the past several years! It shows DOM (Days on Market) and CDOM (Cumulative Days on Market) when a listing changes Realtor's. Redfin shows the home facts for the MLS listing describes the house at the time it was sold and also provides photos. This is valuable information when using sold data to determine the fair market value of a property you may be interested in purchasing. Really get to know how to use the tools within Redfin. Don't just be satisfied that the solds you are looking at are real comps. Look at the neighborhood and google the properties to see if they are "like for like" with yours. You can be duped if you are not careful, by an aggressive realtor and ultimately buy high, sell low and lose your tail in the game. Do your due diligence. Save the listings as your favorites. Follow the trends in the market.
Redfin, really does offer good reliable facts for older listings that show work done on a home when it is sold. (Disclaimer - This is not a paid advertisement for Redfin. We do not have any affiliation with Redfin other than using it as an investigative tool and to shop for property.) After you have done your due diligence on a property and you are confident you want to make an offer; you go into it with the knowledge of what it's as is value is based on the data in that market. Then it's time to contact your agent if you have questions or need some clarification about MLS-provided facts. And remember, if you are rehabbing remotely from a distance, make sure you have some solid boots on the ground teams in your area. That can make the difference between profit and loss at every level.
Know someone who is working the market to help you. There is value in that kind of a team. And remember, as an investor, never get emotionally attached. Your job is to turn the most profit you can from a deal. Take the time to put your efforts into the rehab that will give you the best value in the future. This strategy going in will help you make the best and most profit.
Who is Jinean Florom? Jinean Florom is a National Real Estate Investment Consultant and Acquisition Specialist who solves intricately woven problems for Real Estate Investors on their investments.
Here is a Fun Fact: MLS listing has been doing the best for every home owner who has shown faith and confidence. Selling or buying a home is not an easy task and this we have experienced for all these years. This perception has changed completely with Flat Fee MLS, MLS listing and For Sale By Owner. Home owners who have used this decade old technology understand the advantage in much better way. We as home owners used to get in touch with traditional styled real estate agents and have paid them millions in commission. Now this has completely changed with flat fee MLS where owners can sell their home as for sale by owner and save in sales commission what they used to pay to traditional real estate brokers.
If you know anyone who would like to know this information, please share this blog. And to book a consultation, please go to our contact us at the top of this page. #myreitoolbox