Owning property here in New York City can provide you with a lucrative investment. With good properties at a premium here in the City, you will more than likely profit nicely from your purchase.
However, with the potential profits come the potential losses. In order to shield yourself from any liability, you may want to consider setting up a single purpose entity to hold the property for you that will shield you and your personal property.
Consider a limited liability company just for your real estate
Limited liability companies are popular with real estate investors since they provide personal liability protection without a lot of the paperwork required for corporations. This makes LLCs particularly attractive. Forming an LLC for each property keeps the income, taxes and bookkeeping isolated from other investments. If any issues arise, no other properties or your personal property will be in jeopardy under most circumstances.
Where to begin
One of the advantages of using LLCs is that they are not difficult to form. Even so, they do need to comply with state law, and the formation documents must contain certain language. Even choosing a name for an LLC must comply with state law despite the fact that it will only hold real estate. In addition to the paperwork filed with the state, the company will still need an operating agreement to outline the agreements among the members if there are multiple.
Each LLC will need an employer identification number from the IRS. The EIN number allows you to open a bank account, obtain financing and file taxes. If you intend to form multiple LLCs as your real estate investments grow, each one should have its own bank account. The more isolated and separate each one is, the more protection it provides to its members and other assets.
Increase the chances of a successful transaction
Even though it’s not a requirement for you to enlist the aid of an attorney to set up an LLC, you may want to consider working with a commercial real estate attorney anyway. Real estate deals are more than just the formation of a holding company. You could probably benefit from the advice and guidance when it comes to the actual purchase and financing of the property as well.
Dealing with sellers, lenders and the due diligence process can become complex, and having someone to walk you through the process could make the experience one you will want to repeat.