"It is a comfortable feeling to know that you stand on your own ground. Land is about the only thing that can't fly away."

- Anthony Trollope

Why You Should Be Concerned About Liability Protection

By Darius Barazandeh

One of the best ways to create massive, passive income is to invest in real estate. Even today, when real estate is in trouble in much of the country, you can still make a steady living as a real estate investor. But before you jump in, remember that - as with any business - you'll want to set up your real estate business in way that not only maximizes your financial reward but also minimizes your risk.

Real estate requires you to deal with tenants, sellers, partners, investors, lenders, management companies, independent contractors, employees, and others. The more parties you deal with, the more likely it is that something may not go as planned.

The first step to protecting yourself is to learn how to run your business in a fair and careful manner, so you reduce the chances of getting sued. But it's also essential to protect your personal assets by doing business as a corporation, limited liability company (LLC), or limited partnership.

Each of these structures creates a special legal relationship between the business owner(s) and the state and federal government. The idea behind them is to promote commerce by limiting an owner's liability to the amount of money he invests in his business - and, thus, limiting his risk. And they have been around for centuries, some pre-dating the founding of this country.

In England during the colonial period, creating a corporation required a grant from the King or the Queen. It's easier to form a corporation today, but it's good to remember that this liability protection is still a privilege.

A corporation, LLC, or limited partnership is not an excuse to act in a careless or negligent manner. You need to be fair when dealing with all parties. You need to outline agreements with partners, vendors, contractors, etc. And you need to respond to tenants' complaints.

These are good business practices - what I call Lawsuit Avoidance 101, because they reduce your risk of getting sued.

But keep in mind that in your dealings with tenants, sellers, partners, investors, lenders, management companies, independent contractors, etc., you may occasionally need to take someone to court because your rights have been violated, a contract has been broken, or money has not been paid to you.

And that's where the protection of doing business as a corporate entity comes in.

When you assert your rights, it's not uncommon to be sued in return by the other party. This is called a cross claim. Usually it happens because the other party's attorney believes they have a claim or will be in a better position by using a cross claim - and it could put every asset available to your company at risk. But with the protection of a corporation, LLC, or limited partnership, your potential personal losses are limited to your investment in the business. Without that protection, you could lose your home, your car, your retirement savings, and anything else of value that you own.

So which of these business structures is right for you? Your individual situation will determine what works best, so be sure to consult with legal and financial advisors before you make a decision. But most real estate investors tend to fall into one of two categories:

• Short-term buyers and sellers ("flippers")

• Long-term investors in rental properties - what I call "buy-and-hold" investors

Short-term buyers and sellers will benefit most from an LLC taxed under Subchapter S of the IRS tax code. This structure allows you to minimize the self-employment taxes you'll owe from active income (such as buying and selling properties) by re-classifying some of it as passive distributions that are taxed at a lower rate. Both a corporation and an LLC will protect you personally from business liabilities, but the LLC can protect your business from your personal liabilities as well.

Long-term buy-and-hold investors make most of their money from passive income (such as rents), so the self-employment tax isn't as much of a burden. For them, a Subchapter K LLC usually has the most tax benefits. The primary benefit here is that many real estate investors borrow money to purchase rental property. The savvy investor wants to ensure that any debt or remaining balance owed on the property can be used to reduce other reportable income earned outside of the business. The S election does not allow this.

A business that operates under Subchapter K can usually choose between an LLC and a limited partnership. The LLC is simpler to run, cheaper, and costs less to set up.

Many new investors balk at the time and expense of setting up a corporate entity, but over the long term, the costs of not doing it are usually much higher. A properly structured business faces far less risk of an IRS audit, protects your personal assets, and can dramatically reduce your annual taxes. You owe it to yourself and your investing business to use these entities to your best advantage.

[Ed. Note: Darius Barazandeh is a licensed attorney in Houston, TX. He also holds an MBA and is an active investor in tax liens and a trainer for other tax-lien investors. Click here to learn more about how you can set up your business correctly from the start, protect your personal assets from lawsuits, and minimize the tax bite from your investing profits.]

Worth Quoting: Seth Godin on Permission Marketing

"Permission marketing is the privilege (not the right) of delivering anticipated, personal, and relevant messages to people who actually want to get them.

"It recognizes the new power of the best consumers to ignore marketing. It realizes that treating people with respect is the best way to earn their attention.

"Pay attention is a key phrase here, because permission marketers understand that when someone chooses to pay attention they are actually paying you with something precious. And there's no way they can get their attention back if they change their mind. Attention becomes an important asset, something to be valued, not wasted.

"Real permission is different from presumed or legalistic permission. Just because you somehow get my e-mail address doesn't mean you have permission. Just because I don't complain doesn't mean you have permission. Just because it's in the fine print of your privacy policy doesn't mean it's permission either.

"Real permission works like this: If you stop showing up, people complain, they ask where you went."

(Source: Seth Godin's blog)

Why Booze and Soda Make Us Fat

By Craig Ballantyne

When you drink beverages that contain sugar - including high fructose corn syrup (HFCS) and alcohol - your body processes the sugar differently than when it is in solid foods. It's almost as if your body doesn't recognize that you've consumed those liquid calories. And because the drinks don't help fill you up, you tend to overeat... and gain weight.

Researchers now believe genetics are to blame. They think that because humans evolved consuming only breast milk and water, we didn't develop the ability to adapt to new forms of liquid calories (from sodas to juices to booze).

But instead of blaming your genes and giving up, you can take action to keep yourself from getting fat.

You must eliminate calorie-containing drinks from your diet if you want to lose body fat. Switch from sodas to green tea to quench your thirst. Mix your booze with calorie-free beverages. And drink water with your meals to help keep your calorie intake at the right level.

It's Fun to Know: About Monkeys

Monkeys technically are considered four-handed because they have opposable thumbs instead of big toes.

(Source: That's a Fact Jack!)

Word to the Wise: Cockamamie

"Cockamamie" (KOK-uh-may-mee) is an American slang word that means ridiculous, pointless, or nonsensical.

Example (as used by Rachel Donadio in The New York Times): "[Harold] Humes managed [Norman] Mailer's first cockamamie mayoral run in 1961 and attended the 1960 party where Mailer stabbed his second wife, Adele, nearly killing her."

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These articles appear courtesy of Early to Rise [Issue #2288, 02-26-08], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.