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Using LLCs for Real Estate

For individuals who own real estate, it is important to consider the best way to structure your ownership. When you are just starting out as an investor in real estate, you may hold title to the real estate personally, but that may not be the most advantageous method of ownership. Another option is to create a limited liability company (LLC) for your real estate ventures.


There are many important considerations to keep in mind as you decide whether to form an LLC to hold your real estate. Here are a few things to think about to help you make the best decision for your unique circumstances.

  1. Liability. One of the most significant characteristics of the LLC is the limited liability it provides its members (i.e., owners). LLCs allow you to separate your personal assets from your business assets. In doing so, the LLC separates the liability to which each set of assets may be subject. This separation means that if real estate owned by your LLC is at risk from litigation or creditor claims, your personal assets will not be at risk. Keep in mind that there are limited exceptions to this rule. For example, if you did something negligent or intentionally wrong that led to litigation, you may be personally liable. However, compliance with state rules and careful steps aimed at distinguishing your personal property from that owned by your business will allow the LLC to provide greater protection against personal liability.

  2. Taxes. Another factor you should consider is the tax impact of creating an LLC. Single-member and multi-member LLCs that hold real estate can enjoy the benefit of pass-through taxation. In some cases, the transfer of your real estate into an LLC may not have a significant immediate effect. However, depending on how many owners your LLC has, whether you have a mortgage and how much (if anything) you owe on it, and the value of the property, you may have significant tax issues to consider.

  3. Customized terms of ownership. A significant benefit of the LLC is the opportunity to tailor the structure of your business. This means that you can define how you will split profits and losses in the real estate and how decisions will be made. These are two examples of ways you can enjoy the flexibility provided by an LLC, but there are many more. Some people create multiple entities, with one LLC focused on the management of the real estate while the other LLC or subsidiary LLC owns the assets. From determining your LLC’s tax structure to deciding whether to have annual meetings, you can design the company’s structure so that it will function in a way that makes sense for the types of owners involved and the specific assets it owns.

  4. Estate planning. Finally, a benefit of the LLC is its ability to serve as a tool in the estate planning process. When combined with an estate plan, a single member LLC can provide a seamless transfer of ownership for estate planning purposes. Additionally, transferring LLC interests to beneficiaries of an estate plan can be a way to avoid probate, and allow you to effectively manage and pass on family real estate assets through an LLC.


The LLC provides a host of options for individuals interested in maximizing their protection against personal liability and determining effective tax, ownership, management plans, and estate plans.


We Can Help

If you are interested in exploring the use of an LLC for your real estate, we can help. We are ready to help you assess the best way to create an LLC and structure it in a way that provides the most protection for you and your assets. Schedule a virtual meeting with us today.


 

THIS ARTICLE SHOULD NOT BE RELIED ON AS LEGAL OR TAX ADVICE (INFORMATIONAL PURPOSES ONLY)


Ryan E. Snow, JD/MBA, is a licensed attorney and experienced entrepreneur specializing in legal services for small to mid-sized businesses in all industries and at all stages of growth and development. He can be contacted via email at Ryan@RyanSnow.com or at his website www.ModernUtahLaw.com.


©2023 by Venture Counsel LC, all rights reserved.


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