Should I Form an LLC for My Real Estate Venture?

The LLC – or limited liability company – is the popular new vehicle that many individuals are using to begin their newest business venture. An LLC’s organization and governance are very similar to that of a corporation, with a few added benefits. Much like a corporation, an LLC carries the advantage of limited liability. In short, this means that the liabilities of the LLC do not pass on to the individual, absent exigent circumstances. The big reason that many now favor the LLC structure over that of a corporation is because an LLC is a “pass-through” entity for the purposes of taxation. This means that the income of the LLC is taxed only at the individual level by its members. This is preferred over corporate taxation, where income in taxed once at the corporate level, and a second time at the individual level.

Additionally, the logistics and operations involved in an LLC are much more simple than that of its corporate counterpart. For many in the real estate industry, the LLC is the perfect structure to operate your business. Let’s explore why.

For an owner of investment property, an LLC is the perfect fit. Rather than holding title to the property as an individual, the LLC can be the record title holder. This offers a layer of protection on those properties that would not be available if the property was just in the name of the individual. For those who own investment property in their name already, getting the property transferred to the LLC is a simple step for a real estate attorney.

For someone who has identified real estate as a great way to diversify their investment portfolio, but doesn’t know much about the industry, the LLC is an ideal choice. The LLC is “owned” by its members, but it can be managed by anyone the owners desire. Perhaps you know you’d like to invest in real estate, but you don’t know anything about identifying target properties or managing those properties. By forming an LLC, you can invest that money, and appoint a skilled manager to help you select which properties to buy, and how to operate them. 

No matter why you own real estate, or what type of real estate you own, you need to be protected from liability personally. Accidents happen, plain and simple. But when they do, you need to be sure that the injured party can only seek damages from the LLC, and not you personally. A business owner should not have to worry that their home or savings for their child’s college fund are at risk due to their ownership of investment property.            

Investment in real estate property is a great way to diversify your investment portfolio. For those that are industry-savvy, the LLC allows you to take that next step in orchestrating the perfect business model. For those who know they want to get into the market, but don’t know its intricacies, an LLC is a powerful tool to combine your investment with the knowledge of someone who knows the ropes.

These are just a few of the reasons to form an LLC if you own or plan to own investment property. To learn about more advantages and ways we can improve your real estate business, contact our law offices in Sioux City, Sioux Falls, and Omaha to set up a meeting or consultation.