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Protecting yourself in a real estate investment

Investing in properties, both developed and undeveloped, can be a profitable business. Whether you are from the United States or just want to invest in property here in New York, you may want to consider protecting yourself from personal liability should anything go wrong.

One way to do this is to create an entity to hold the property. This article touches on the benefits a real estate holding company can provide you as you enter into the property-investment business.

The basics of a real estate holding company

A limited liability company (LLC) actually owns the real estate. However, the LLC does not handle the operations of the business. What it does do is limit your personal liability for debts, legal actions and more. The members of the LLC pay taxes on the income from it. This is because taxing authorities treat LLCs as sole proprietorships with only one member and partnerships with two or more members.

Why should you consider an LLC?

Understanding the basics of an LLC, you may consider using this entity to hold your real estate for the following reasons:

  • LLCs generally require the payment of fewer fees when compared to corporations.
  • LLCs avoid the double taxation of corporations.
  • LLCs insulate you from liability for the debts and other liabilities related to the properties you purchase.
  • LLCs often make property ownership more manageable.
  • LLCs give you more flexibility when distributing any profits.
  • LLCs can be transferred more easily than other entities.
  • LLCs allow the purchase of property abroad and in the United States.

You could set up an LLC for each piece of property you want to purchase. This could help keep you organized, and it will also protect you personally as well as separate each property from the other. Lenders may also require you to form a real estate holding company for each piece of property as well. Forming these entities does provide you with numerous benefits, but lenders may still require you to sign a personal guarantee for the loan or a portion of it depending on the circumstances.

Entity formation is just one aspect of your real estate investment that requires your attention. Other parts of the transaction, daily operations and more may also require advice and assistance. Working with an attorney experienced in both real estate transactions and business law could provide you with the tools you need to increase your chances of making your ventures a success.

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