As a New York real estate attorney and investor, I am asked “Should I hold my real estate investment or rental property in a Limited Liability Company (LLC)”? Yes, you should be putting your real estate in an LLC.
Anyone researching this may run into terms like rental property or investment property, which are usually referring to any property you don’t plan on inhabiting yourself. And a huge mistake real estate investors make is failing to separate their real estate investments with an LLC. We live in an incredibly litigious society, so protecting yourself is a major key to success.
Limited liability companies provide tax benefits, anonymity, easy title transfer, and personal liability protection when it comes to holding real estate.
Here Is Our List Of The Four Biggest Reasons To Hold Your Property In An LLC:
1. Protects From Personal Liability
Holding each investment property in its own LLC limits owner liability that is owed to any tenant, guest, invitee, trespasser, or random person walking by to the value of that specific investment.
When you create an LLC, you are creating a separate entity from yourself. You may own the LLC, but the LLC does not own you or your personal assets. When LLCs own a property, the owner of those LLCs are removed from any liability. So barring any serious misconduct on your end, the LLC is responsible for any debt or lawsuits that are charged against the property.
For example, you own three different investment properties. Each property is held in its own separate LLC. A person walking in front of one of your properties falls over a raised sidewalk and breaks their hip causing the need for several surgeries. The injured party sues the property owner for negligence and other claims. In this scenario, if the property is held by an LLC, the liability is limited to the value of that property, and only that LLC will be named in the lawsuit.
If the property was not held in a separate LLC, the owner/landlord will be named in the lawsuit personally and the landlords/owners’ personal assets could be seized to satisfy a judgement. That means personal any bank accounts, vacation property, and personal items could be seized.
Homeowners often fall into the trap of thinking insurance will cover you in situations like this. Unfortunately, most insurance policies have exceptions in the fine print that exclude certain situations, including lawsuits. Relying on your insurance is like gambling, but with your personal belongings.
To learn more about liability protection through an LLC, you can always contact our office at 212-256-1877 or you can contact us to pick a time to speak with an attorney.
2. Tax Benefits and LLC Structure
The big reason LLCs have gotten incredibly popular is because of their looser structure than traditional corporations and “pass-through” taxation. LLCs are more favorable from a tax standpoint, because the LLC doesn’t pay taxes, unlike a corporation. All profit and taxes “pass-through” directly to the owners. Corporations are taxed at both the business level and personal level.
In terms of structure and management, an LLC is much easier to manage than a corporation. Corporations require owners to issue stock, assign corporate officers, hold annual board meetings, and maintain “corporate integrity”. An LLC circumvents all of that, so you don’t have to worry about losing the liability shield a business entity provides.
To learn more about the benefits of an LLC as your business structure, you can get a free call with our attorneys at 212-256-1877or contact us to schedule an appointment.
Therefore, if you transfer a property held in an LLC, you could gift the property and avoid recording a new deed or you can even transfer ownership of the whole LLC, which owns the property. So if you plan on transferring any properties in the near future, you could save time and money by putting them in an LLC.
To learn more about the intricacies of property transfer, you can contact us or call our office directly at 212-256-1877.
4. It Can Be Anonymous
There are a number of reasons anonymity can be beneficial for an owner. Maybe you’re someone who values your privacy, or maybe you’d like to separate your investments from your personal life. With an LLC, you are afforded a level of privacy that isn’t available any other way.
Since the LLC will own the property, the LLC’s name will be on public record as the owner, instead of your name. As long as you don’t name your LLC “My Name LLC”, your LLC will act as the point of reference for any tenants, lawsuits, or debt collectors.
As an additional bonus, if you don’t want your address on public record either, you can use a registered agent service which will act as your public address for any legal summons or documents.
If you’re interested in staying anonymous as a property owner or want to know more about registered agent, you can call our firm at 212-256-1877 or contact us to book a time to speak with an agent.
How You Can Get Your LLC Started
Fisher Stone has formed countless LLCs and has a dedicated real estate and business legal team so we can cover you throughout the process. If you are ready to set yourself up for success, contact us here and we can get your LLC started in 24 business hours. You can also check out ourstarting a business page to get more information.