What are the real advantages of owning real estate in a limited liability company? What common blunders could cost investors big time?
Bizadvisor.com proclaims “the limited liability is the top choice for real property.” A review of recorded real estate transactions from Property Shark by the wealthiest and most sophisticated investors and funds in hot Manhattan over the last year show LLCs almost exclusively used for taking ownership. So why are these legal structures and investment vehicles so popular with savvy investors? What are the real pros and cons?
The Advantages of Investing in Real Estate with an LLC
The most popular benefits of using LLCs in real estate investing include…
The security conscious and those desiring anonymity from frivolous and malicious lawsuits prize vehicles like these as an extra layer of privacy.
Chief Strategist of Breakwater Equity Partners, Jack Rose, says “One major advantage of an LLC over a partnership is that the liability of the members of an LLC can be limited to their financial investment,” and “so if the worst happens, the most the owners can lose are the assets being held by the LLC.”
Lack of Double Taxation
Limited liability companies offer lack of double taxation which can be a big issue that takes a large bite out of revenues and returns when using other entities.
LLCs can provide members and investors far more flexibility in operations and structure than some other types of legal entity.
Reduced Paperwork and Time Burden
Some legal structures require regular board meetings and the recording of minutes. Burdens like these can expose investors to risk if they fail to stay on top of them. Or may eat away at time and resources if they do.
3 LLC Pitfalls to Watch Out for
1. Filing Reports
Original applications and annual renewal fees must be kept up with in order to enjoy seamless operations and ongoing coverage. In some states an LLC can be filed online, in 5 minutes or less, for just around $100. However, with anything this important it is crucial to obtain professional legal advice, personalized advice on your unique individual circumstances, and ensure paperwork is completed and filed flawlessly.
One of the most significant mistakes real estate investors make is putting off registering a LLC until late in the game. Transferring an owned property to an LLC or especially an IRA LLC can potentially trigger substantial tax consequences.
3. Piercing the Corporate Veil
As with any corporate structure it is vital for investors to avoid any activities which could allow for exposure to piercing the corporate veil. Activities such as comingling funds could result in the failure of the LLC to maintain its protections in court.
LLCs have many advantages. Used well they can be invaluable. Used poorly they can increase liability. Consult a professional and find out if a LLC is right for you and your strategy, and look out for the June 2016 presentation on Asset Protection at the top ranked West Coast real estate investors club 12 Rounds.
Authored by Titanium Asset Protection
Titanium Asset Protection is an elite asset protection firm with licensed California attorneys on staff who specialize in asset protection, trusts, corporate law, succession planning, bankruptcy, real estate, and tax law. Our team has successfully represented clients to the highest levels of the justice system in fighting to protect them, and their finances, with lead counsel Matt serving as the Ethics Chairman for Le Tip International, The Chapter of Orange for 15 years, being an honored member of the revered Wealth Counsel.