If you’re investing in real estate (especially in rental real estate), you’re probably weighing your options and considering the safest way for you to hold that real estate.
In my opinion, an LLC is typically the best option in that situation, and not a corporation.
A limited liability company, or LLC, is a company structure where the members of the company cannot be held personally liable for the company’s debts or liabilities.
An LLC is more flexible than a corporation because the LLC can be managed by a single individual or a third party. The business will be able to file taxes as though it were a partnership or sole-proprietorship, while having legal protection. If an LLC is sued, the plaintiffs are suing the company, not the owners or investors.
The tax and civil laws are favorable for real estate LLCs, as well. I believe that rental real estate investments should never belong in a corporation.
Most of corporate real estate focuses on commercial properties instead of residential because they would need to “flip” the residential property within a year or face double taxation at the corporate level. If you’re investing in residential real estate, an LLC will give you more options than a corporation would.
Let’s pretend you have ten rental properties. You could have a series of eleven LLCs that covers you, as the owner, and the ten properties. The LLC does nothing but hold the properties for you. The eleventh LLC manages the ten others.
The ten properties’ LLC has a relationship with the one LLC, while the one LLC manages the other ten. That one LLC would be the main point of contact, responsible for the bank account, repairs, management, or anything else that is needed.
If you have any questions about LLCs, or any other business entities, please contact my office.
We would be happy to sit down with you to talk about the pros and cons of each of the entities that you can choose from.