Does A Real Estate Investor Need An LLC?
Investing in Florida real estate can be a second job for many, bringing in significant income (if one is smart and lucky!). However, one aspect of investing that many neglect is protecting their own assets. Without a legal wall, so to speak, between one’s personal assets and their investments, anyone filing a lawsuit or lien may be able to access the investor’s personal finances in order to satisfy it. In order to avoid this, many investors set up a limited liability company (LLC) so that investments and personal assets are kept separate.
Pros & Cons
Not every investor will need an LLC, and even those who might benefit from one should be aware of the positives and negatives. It really depends on your own financial situation and the extent to which you can be involved in managing the property. For example, an LLC gives a real estate investor a bit of privacy, since their personal information is not revealed in public records. However, sometimes transfers to LLCs can trigger tax implications or clauses in your mortgage if not handled properly, which can be a problem.
One benefit that an investor will simply not get as a private individual is related to federal taxes. LLCs are taxed under a classification as “pass-through” entities, which means that instead of the LLC paying federal income tax, the profits and tax burdens are both conferred on the owners. In other words, you as the owner of an LLC will not pay any taxes as the LLC; rather, you will receive both the LLC’s profit and its tax burden. This can often save considerable time and trouble at tax time.
Usually Simple To Create
If you have decided that an LLC is a good move for you and your investments, they are not terribly difficult to create in most situations. Once one has a name for the company, they must then file Articles of Incorporation, which sets out the crucial information about the nature of the company, who runs it and their personal information. Other documents, such as an operating agreement, are highly recommended, but not strictly necessary, particularly if your LLC only has one owner/member.
One thing that is important for a real estate investor is to procure the right business license before proceeding, if applicable. Most LLCs do not require a business license in order to operate, but if you wind up doing work that would qualify you as a real estate agent, it is important that you are licensed as such. Failure to do so may open you up to legal consequences. In general, it is a good idea to consult a real estate attorney before proceeding to do business with your LLC, just to make absolutely certain that everything has been set up properly.
Call A Tampa Real Estate Investment Attorney
Every investor is different, but it is always a good idea to ensure that your personal assets are well protected, and for many, an LLC can achieve that goal. A Tampa real estate investment attorney from the Seward Law Office can help clarify any questions you may have about the process. Contact our office today at 813-252-6789 to schedule a consultation.
Source:
taxpolicycenter.org/briefing-book/what-are-pass-through-businesses
