![]() ![]() The 'Due on Sale' Clauseīe careful about transferring any real estate that is held in an individual's name to an LLC. Continuity is preserved, and the transfer is seamless. The LLC's real estate will continue to be owned by the LLC but with new LLC members. ![]() Simple TransfersĪn LLC can be sold through a relatively simple transfer of membership interests. #True real estate management llc professional#Professional AppearanceĪn intangible benefit of owning and holding real estate in the name of an LLC is that it appears to the public to be more professional, especially when advertising a property for lease to commercial or residential tenants.Īn individual or business looking to lease property may be more comfortable renting a piece of real estate from "Smith Properties LLC" than from "Joe Smith." 3. These pass-through rules help members of an LLC avoid double taxation. Each LLC member reports the income on their individual federal income tax returns-usually on Schedule C. Whether you are the sole owner of the LLC (single-member LLC) or one of several members (multimember LLC), you benefit from so-called pass-through taxation.įor federal income tax purposes, pass-through taxation refers to the fact that any income earned by the LLC-including profits generated through real estate (such as rental income from leasing an LLC-owned property)-will pass through the LLC to its individual members.Īny income earned by the LLC is not taxed at the corporate level (as would be the case with a traditional corporation) but only at the individual level. ![]() Members of LLCs who own real estate as part of their investment portfolio also derive favorable tax treatment from the Internal Revenue Service. While this is by no means cause for celebration, it's better than losing the property altogether. Instead, the judgment creditor is typically required to obtain a "charging order" from the court that, in turn, becomes a lien on the real estate. If a third-party succeeds in obtaining a monetary judgment, it-the judgment creditor-can't force the sale of real estate held by an LLC-the judgment debtor. Hence you are provided anonymity, and your personal assets are not exposed.Īnother reason to place a property title in the name of an LLC is that it gives you liability protection against monetary judgments if a financial dispute involving the LLC arises. More importantly, only the LLC's assets would be obligated to pay an award of monetary damages if the injured party's suit is successful. If, on the other hand, you placed the deed and title to the property in the name of an LLC, only the LLC (and not you) would be named as a defendant. But if the amount of damages the injured party seeks exceeds the policy limit, your personal assets could be exposed. LLCs provide that protection.įor example, if someone is injured while visiting a property you own, even if you do not reside there or have any connection to the guest, they could potentially pursue a legal claim against you, the owner, for their injuries.Īssuming you acquired property insurance to cover such incidents, your homeowner's insurance policy would provide coverage up to a particular monetary limit. You want the best option for limiting your personal liability should an unforeseen circumstance arise relating to your property. Here are the pros and cons of forming an LLC for real estate investments. Owners often prefer to form an LLC when purchasing real estate-or when transferring titles-so that the LLC becomes the legal owner of record, rather than the individual members. Limited liability companies have become one of the most popular business entities for acquiring real estate. ![]()
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