May 2024 Newsletter

Unlocking Summer Opportunities

With spring in full swing and summer just around the corner, there's no better time to reconnect with fellow investors, stay informed on the latest trends, and unearth exciting opportunities in the world of real estate

Our community thrives on the exchange of knowledge and experiences, and this newsletter serves as your compass, guiding you through the ever-evolving landscape of real estate investment From market updates to expert insights, we're here to keep you informed and empowered to make the most of your investments

But let's not forget the heart of what makes the Milwaukee REIA truly special our vibrant network of members. As we gear up for summer, now is the perfect time to reconnect with old acquaintances and forge new connections. Remember, the power of the REIA lies not just in our individual pursuits, but in our collective ability to support and uplift one another.

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The Corporate Transparency Act (CTA) is Here

BY: JEFFERY S WATSON, REAL ESTATE INVESTING TODAY

The Corporate Transparency Act (CTA) is here and now in full force and effect. In 2021, Congress passed this legislation that was signed into law by President Biden but did become official and enforceable until January 1, 2024. This is the most broad, overreaching, and invasive federal reporting statute in the history of our government that squarely and directly impacts every small business owner, entrepreneur and real estate investor you know.

If you are a real estate investor, agent, broker, operator, or anyone else who owns a business, here is what you need to know.

Which of your entities are considered “reporting entities” under the CTA? 1

Who are the beneficial owners of each entity? 2

What disclosure information is required? 3

Using that information, you are now required to timely file your disclosures with the Financial Crimes Enforcement Network (FCEN).

I realize that is a heavy load of information, so let me break this down for you into bite-sized bits of information. Let’s start by looking at what entities are considered to be “reporting” companies under the CTA The types of entities that must report include C-corporations, Sub-S corporations, LLCs taxed as corporations or partnerships, and LLCs treated as disregarded or pass-through entities

There is a minimum threshold for the entity of owning, possessing, or controlling $1,000 or more This means if you have an entity, for example an LLC, that has only been filed with the Secretary of State but does not yet have a tax ID number and does not yet own or control anything, that entity is not considered to be a reporting company yet When that entity does get a tax ID number and has control or ownership of $1,000 or more of assets, whether directly or indirectly, that entity will then need to report.

What must be reported? Any person who has either substantial control of or an ownership interest of 25% or more in an entity must be disclosed. “Ownership interest” as defined under the CTA is incredibly broad and covers all sorts of arrangements, including, but not limited to, equity, certificates, interest in joint ventures, convertible interest, and bearer shares. Any individual who owns or controls an ownership interest through various means such as trusts, beneficiaries, grantors, intermediaries, or blocker MUST be reported.

The CTA aims to ensure that reporting companies identify all individuals who have substantial control and those who own or control at least 25% of that entity I know what some of you are thinking “Well, Jeff, I’ll never own more than 24%, and I’ll stay under that 25% threshold ” That’s fine, as long as you don’t have any substantial control, which I’ll define in my next email I think you’ll be disappointed to find that your 24% ownership strategy will not work

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What is meant by “substantial control”? Under the Corporate Transparency Act (CTA), the definition of substantial control is distinct from other federal statutes defining that term, such as securities laws Under the CTA, an individual is deemed to exercise substantial control if any of the following are true:

they serve as a senior officer or manager of the entity that must report beneficial ownership information to FinCEN, they have authority over senior officer appointments, they have authority over a majority of the board of directors, or they influence important decisions, including those related to business operations, asset transactions, equity issuance, borrowing money, entering into contracts, and governance documents

In the CTA, there is a non-exhaustive list of examples wherein an individual may exercise substantial control, but the foregoing list should give you an idea as to how wide open and subject to interpretation the term “substantial control” is as it relates to business operations, asset transactions, and equity issuance.

Some of you may have read my previous email thinking, “Well, Jeff, I’m going to make sure I never own more than 24% of an LLC or corporation, so I won’t have to be listed in any report.” OK, then how are you going to be able to have that entity do what you want it to do without having “substantial control”? For example, in a small LLC that buys, fixes, and resells houses, whoever makes the decisions on what houses to buy, how much to spend, how to do the rehab, what contractors to hire, where to borrow the money, and when to sell the property and for how much, would all have substantial control I trust by now you are beginning to realize just how broad and invasive this legislation is

I’m going to close by giving you an update on a presentation I did last month on the CTA on behalf of the Seller Finance Coalition Between when I did that presentation and the end of 2023, the regulators at FinCEN changed and expanded the timeframe for a newly-formed 2024 company to report. They have 90 days. If a company formed in 2024 makes any changes to its ownership structure, such as adding or losing a member or someone different having substantial control, it is still a 30-day reporting window for that.

Before I get into explaining my experience using the FinCEN website to register one of my existing entities so I could get a feel for what is going on, I want to make sure you understand a recommendation I’m making that has no material benefit to me but should have a huge protection for you. If you do not already have in place good identity theft insurance, you need to get that right away because it’s more likely than ever that your identity will now be exposed You need to make sure that identity theft insurance covers the family-owned businesses you may operate and control

I understand that on page 21 of the 22-page bill, Congress set forth requirements regarding the cyber security for FinCEN’s website, and they are saying it has been given the highest non-classified cyber protection possible; but I also know that there is a history of even classified websites in our federal government being hacked by foreign operatives. That information will be stolen some way, somehow. I don’t know when or by whom or how, but I’m preparing for it now, and I recommend you do the same.

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Now for my thoughts regarding my first attempt to use the FinCEN website At the outset, let me say that I’m impressed by the fact that the site was up and working, but I was highly annoyed at the fact that it looked to be a complicated, multi-page process that seeks to collect far more information than was collected by the office of the Secretary of State when I established my LLCs

What I and other practitioners I’ve talked with have yet to determine is whether certain information can be auto-populated or auto-saved if you get a FinCEN identification number or if you get an applicant identification number. I would hope, at a minimum, that the applicant ID number would apply across all the entities I have and will be forming in the future.

Given that in the latter part of December, the bureaucrats once again changed their positions on one of the regulations giving a new filer 90 days instead of 30 days in which to register an entity formed in 2024, it allows adequate time for us to figure out how this website functions and how to use it correctly before the deadline for getting things submitted for our newly-filed entities. It also gives each of us time to make sure we develop a list of all the entities we have that we believe are “reporting entities” and gather the necessary information such as driver's licenses or passports and current physical addresses for ourselves and any individual who owns the entities with us

As of the time of this writing, I don’t know if there are any particulars that the website is requiring relative to the quality or size of the photo identification, such as your drivers license or passport Remember, we are in the early days of this brand-new, invasive, and broad legislation, so there will be a lot of learning to do going forward.

Your comments and brief questions are appreciated. I read everyone and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive my emails.

Jeffery S Watson is an attorney who has had an active trial and hearing practice for more than 25 years As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection He has tried over 20 civil jury trials and has handled thousands of contested hearings Jeff has changed the law in Ohio four times via litigation His articles are also regularly featured the RE Journal Read more of his viewpoints at WatsonInvestedcom

May Monthly Meeting SPEED NETWORKING

Are you ready to kick your real estate game up a notch? Well, guess what? We have something super exciting lined up at our next General Meeting featuring Speed Networking! Here are 5 tips for maximizing your time at the upcoming Speed Networking event!

1. Prepare your elevator pitch: Since time is limited in speed networking events, having a concise and engaging elevator pitch is crucial. Keep it around 30 seconds to a minute long.

2. Listen actively: While it's tempting to focus solely on promoting yourself, remember that networking is a two-way street Take the time to actively listen to what the other person is saying. Ask open-ended questions to show genuine interest and learn more about them.

3 Set clear goals: Before the event, set specific goals for what you want to achieve. Whether it's making a certain number of connections or seeking advice from industry experts.

4 Follow-up promptly: After the event, don't let those valuable connections go to waste Take the initiative to follow up with the people you met, preferably within 24-48 hours.

5. Be authentic: Authenticity goes a long way in networking. Instead of trying to impress others with a facade, be genuine and sincere in your interactions

THANK YOU - to Berkshire Hathaway, this month’s beer sponsor! Say “Hi” to them at the Meeting on May 14!

Building Material Prices Continue to Rise

BY; BRAD BECKETT, REAL ESTATE INVESTING TODAY

The NAHB’s Eye On Housing says data from the latest Producer Price Index shows the prices of inputs related to residential construction (less food and energy,) rose for the 5th straight month Data shows that the nonseasonally adjusted index increased 0.21% in March following a 0 54% increase in February and a 1.25% in January, 2024. They point out that the index continues to grow at a faster rate than in 2023 as the average monthly change in 2023 was 0.15%.

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