[ HTJ Podcast ]U.S.RealEstate Forensics “COMPANY REGISTRATION” Jay Knight ,Hanna Musidi & Derren Joseph

 

 

HANNA MUSIDI:

Hi, my name is Hanna and today we have our US tax expert, Derren. We also have our US real estate and legal expert, Jay. We will be discussing Us real estate forensic.

 

VOICE-OVER:

This podcast channel it's about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax

 

HANNA MUSIDI:

Hi, my name is Hanna and I'm based in Indonesia and currently, I'm working in a US tax firm. And today we will talk about your US real estate forensic with Jay Knight and Derren Joseph. Would you please introduce yourself, Derren?

 

DERREN JOSEPH:

Thank you, Hanna. So this would be the third installment series on US real estate for Asian investors. My name is Derren Joseph and I'm a tax professional, doing international tax in general but US international tax in particular. And in this context, we're talking about investors in US real estate.

 

HANNA MUSIDI:

Jay?

 

JAY KNIGHT:

Alright, thanks, Hannah and Derren, thanks for having me here again. It's great to be back. My name is Jay Knight. I'm a licensed real estate broker from the State of California, and I work with Asian investors who want a pathway to deal with someone in America to help them purchase the property. So that's a little bit about my background and looking forward to our discussion tonight.

 

HANNA MUSIDI:

Would you please introduce the case, Derren?

 

DERREN JOSEPH:

Right. So we did some searching in some online databases, legal databases, where you can, because when a matter is taken before the court in the US, for the most part, it's exceptions, of course, but for the most part, they're a matter of public record. So we're going to talk about a relatively prominent Indonesian family who invested in the US real estate attempted or has invested into the US real estate. We won't name names. We don't want to embarrass anyone. Everything is freely available online, but we don't want to use any names in this conversation because it will be distracting. What we want to do is focus on what happened and perhaps the lessons that would be learned that will be applicable to anyone.

 

HANNA MUSIDI:

Do you have anything to add Jay?

 

DERREN JOSEPH:

Okay, cool. So, Jay, I mean, you know, this is your wheelhouse, so do you want to paint the scene?

 

JAY KNIGHT:

All right. Yeah. This was a very tragic situation, although it probably isn't all that uncommon. If we did a little bit more searching, I'm sure that we would find quite a few of these, and basically, it is a real estate scam. One-on-one maybe not be that egregious because we don't know the actual intent of, of the, of the, in this case, the defendants, but it sure seems like that from an outside look. And basically what happened was, was a very well-to-do Indonesian family had invested some money after going to a real estate seminar that was held in Indonesia, and they were convinced to basically invest some money in what would be a limited partnership, which that limited partnership would then buy bulks of properties in the state of Michigan and America. And as a result of this limited partnership and the amount that they invested, which was going to be over a million dollars, they were promised that they would be granted some sort of visa that would allow them a pathway towards a green card and then future residency. So that was really the impetus to this whole case was they wanted to invest the money and they wanted to, they were very enticed by the fact that they were promised high returns and good investments, and also that they would have a pathway to this residency in America. So that's kind of like the outlining area of what happened, right. So maybe you want to add a little bit more, but that's kind of in a nutshell in terms of the overview.

 

DERREN JOSEPH:

Okay. Sounds good

 

HANNA MUSIDI:

And now we will talk about company registration. So I think this time Jay will have things to say more than Derren. So, go ahead Jay.

 

JAY KNIGHT:

Okay. Sure. Well, I think we'll both have something to say about this topic, but yeah, I mean, in this case, it was an appropriate example of where this could be a red flag. Not saying that it will always be a red flag, but it's just something that you should be aware of in this case, the company that these investors invested in was a company that was registered to do business in the state of Michigan. This is where they're buying the properties, but the company also had its principal place of business, which was in California, which was in San Diego. So these are places that are not anywhere. If you know anything about American geography, this is not any place that is anywhere near each other. There, there are about four to five-hour plane flight from one to the other. Now that doesn't necessarily mean that it is a scam on its face, but it is something that you would want to check into to make sure that why is this company doing business and registered an LLC or a corporation or a limited partnership in this particular state and then have their principal place of business and another state that's five hours away. So in this case, that would have been there if I was looking at it and I wasn't an investor, and I knew and understood the geography of America, that would have been something that would've jumped out to me as saying, wait a minute, this, I need to investigate this a little bit further.

 

DERREN JOSEPH:

 Yeah. That's a really powerful point. And that ties into the video, the previous video that we did, and I'll put it in the notes below, at least Hannah will put it in the notes below, which was about, about structuring your real estate investment. They, we, in that video, went into a little bit more detail, how LLCs, how corporate structures are defined within the US, and that these, especially in LLC is like a creature of the state. It's, it's almost a hybrid entity and you need to be registered to do business in each state that you do business. So for example, again, just being random and has nothing to do with this case, but if it is, you had a Delaware, LLC, and that's one thing, or everyone has heard of Delaware, right? So when you think less form an LLC, that just, oh, it has to be Delaware. Not necessarily. You have a Delaware LLC. And your real estate investment is in California. It doesn't work. So, and it's happened, right? I'm aware of a case where the, you know, someone invested in a property in California using a Delaware, let's see because that's a thing. And there was a dispute with the tenants. The tenant wanted to repair them, whatever it is, there was a dispute. And then the tenant stopped paying rent. Okay, well then I need to get the tenant out. Of course, you have to go to court to do that. You can't just kick them out. And when they went to court, the court held, well, you know, your, your LLC is not registered to do business in this state. So you have no standing in this court. You're not here because you have not been registered in the state. So therefore the tenant was allowed to continue living rent-free because you didn't do the right thing at the beginning. Right. So just to back up, Jay's point, you need to look at the structure and make sure that whoever you're dealing with is licensed to do business in the state, in which the real estate is actually located.

HANNA MUSIDI:

Oh, well, rent-free. I mean, like, it's, it's good for the renter, but this, like, if you are the owner of the property, you will lose everything.

 

JAY KNIGHT:

Yeah. You know, and that, and that ties back into this case as well as because when they, the investors lost their money and they eventually wanted to Sue them to Sue the company, how do they know where to Sue? Because the action and the fraud took place maybe in Michigan, but their principal place, their business was in San Diego. So again, this comes more of a legal point, but, again, this is why you have to really be careful and just make sure that you're dealing with very licensed individuals on all fronts, because here, if they would have tried to Sue in San Diego, it probably would've got thrown out, but they may not have known that. And they would have wasted more money on lawyers and so forth and so on to make sure that they got the right place to see you. So we can talk about legal issues. On another, another time you mentioned a standing which maybe people are really familiar with what that really means, but we didn't get dive into some legal issues on another video.

 

HANNA MUSIDI:

Everything, everything is about money. You know, I mean, like you already spent a lot of money to invest. And then, later on, you need to pay an attorney to make your money return, which is almost impossible. Your money will return to you anyway.

 

JAY KNIGHT:

Yeah. That's why we want to do this video so we can really teach and educate people on these red flags. So we can avoid these types of scams and these types of problems going forward, because yeah, I mean, you're just throwing good money after bad and vice versa on some of these things. And once you kind of get down that rabbit hole, so we want to avoid that from the beginning, by using quality individuals and doing your due diligence.

 

HANNA MUSIDI:

Thank you. Thank you so much for today. And then we'll see you again soon.

 

VOICE-OVER:

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