“Should I buy my investment property in my name or under an LLC?”
In this article, you will find information about LLCs for real estate, how they work, their advantages and disadvantages, and more.
The information you will see applies to U.S. citizens, Green Card holders, residents, and foreigners.
How do LLCs work for real estate investments?
An LLC can help you enter the real estate business or simply in the process of buying a house, apartment, or property.
That is, whether you want to buy and sell apartments or houses, buy them to rent out, or if you simply want to buy your personal property under an LLC.
Within the real estate sector, we can find a rather complicated market, with a lot of speculation and risk, but a high opportunity for profitability.
The positive part we already know because when the business goes well, you make a lot of money and get a good return on your investment.
The problem arises when the real estate business goes bad, where your mortgage can end up being worth more than your property.
A Limited Liability Company is very important here because it can help you prevent these inconveniences and reduce the risk.
When you create an LLC for real estate investments, the properties you acquire will be in the name of your company. This means that the house, apartment, or property will belong to the company, rather than being in your name.
As the LLC owns the property, it also becomes the owner of the debts and liabilities it generates. This allows you to protect yourself and your personal assets from any debt or lawsuit, as in either case, your personal assets cannot be touched.
For many years, people have been investing in the real estate sector through their LLCs due to the benefits it offers in terms of personal asset protection.
Are there only benefits? Let’s see in the next point.
Advantages of forming an LLC for real estate investments
Your name will not appear on the public documents of your properties; instead, your LLC’s name will be listed.
Some states, like Florida, have public information about the owners of an LLC. So, anyone could search the information of your company to find your name and identify the property owner.
In such cases, it’s advisable to establish a business holding or series LLC.
2. Legal protection of your personal assets
As mentioned earlier, an LLC is responsible for the debts and liabilities of its properties.
Your personal assets are legally separated from your LLC, so in case of any legal issues with your property, your personal assets remain protected.
3. Facilitates Growth
One of the reasons why investing in real estate under your LLC is a great idea is that you can find tenants more easily than when the property is in your name.
This is because people are more inclined to do business with a property owned by a company than with a property owned by an individual.
At the same time, you can also access more financing from banks because they trust businesses more than individuals.
4. Tax Advantages
Buying a property using an LLC can provide some tax advantages.
It can protect the property and the owner’s personal assets by limiting liability and also help reduce the owner’s tax burden.
When a property is owned by an LLC, the property’s gains and losses are reported on the LLC’s tax return, and the owner’s personal tax return is not affected.
Furthermore, LLCs can benefit from tax deductions for property-related expenses, such as maintenance, repairs, and property taxes.
Lastly, if you sell the property, you may benefit from a lower long-term capital gains tax rate.
Disadvantages of Creating an LLC to Buy Houses
- 1. People who want to invest in real estate under an LLC must create this company before purchasing the property. It’s easier to buy it directly under your LLC than to transfer it later.
- 2. If you genuinely want to protect your personal assets, you must understand the legally required corporate formalities, such as having a registered agent, separate bank accounts, and maintaining sufficient company records for your LLC.
Need Help with Your Process?
At Rex Legal, we are committed to assisting you with all the legal processes involved in forming your company.
This way, you won’t be alone on the journey and can rely on expert guidance to create a functional, well-structured, and scalable company.
If you need our assistance in forming your limited liability company, contact us here.