The below is transcribed from an episode of The Accidental Landlord Podcast. Listen to the full episode, here.
Peter: Welcome to another episode of the Accidental Landlord. I am your host, Peter McKenzie. Today, we have Scott Smith with us. Welcome to the show.
Scott Royal Smith: Great to be here, Peter. Thanks for having me.
Peter: We're glad to have you. Please take a moment to introduce yourself and explain your background.
Scott Royal Smith: I bought my first property while I was in law school, a transmission and auto repair shop. Later, I flipped the business and the building to graduate from law school debt-free. As I practiced law, specializing in suing insurance companies, I realized that insurance companies excel at collecting premiums and denying coverage. I continued to invest in real estate and eventually started making more money in real estate than as an attorney, so I left the legal profession.
I thought owning real estate would provide passive income, allowing me to travel and enjoy life, but it turned out to be more complex. I had to consider asset protection, company structure, tax strategies, and insurance. I also needed a consistent deal pipeline to offset taxes as depreciation ran out. This led me to understand that owning real estate is like building a wealth-building company. I assembled a team of specialists to manage different aspects, allowing me to enjoy the life I wanted.
Peter: It's interesting how you initially thought real estate would provide passive income, but it turned into a more involved venture. When did you realize you needed to level up and learn about aspects like depreciation and asset protection?
Scott Royal Smith: It became apparent when I consulted various professionals, such as attorneys, CPAs, and insurance experts, and they disagreed on crucial matters. I couldn't find anyone who understood how all the puzzle pieces fit together. This frustration led me to invest a substantial amount of money in joining groups of investors at different levels of sophistication to learn from their experiences. I discovered that most professionals didn't have all the answers, and investors had to become the quarterbacks of their wealth-building efforts, learning various disciplines to make it work.
Peter: Professionals often have different interests, which can lead to conflicting advice. How did you connect all the dots and create a system to address these challenges?
Scott Royal Smith: Initially, I developed my own system, which involved using a series LLC formed in Texas for my single-family homes to compartmentalize assets and provide anonymity. As I ventured into different asset types, I realized the need for different entity structures, such as traditional LLCs for commercial properties and apartment complexes. In California, the Delaware Statutory Trust became essential due to the state's complex tax laws related to franchise tax. Over the years, I refined my system based on my personal investing experiences and helping thousands of clients in all 50 states. We've developed a modular approach that works for individuals with diverse backgrounds, net worth, and asset classes, making real estate investment more manageable.
