An important part of being a real estate investor and executive property management is protecting your assets. One way to do this is to own your properties through a company. One of the most popular types of entities is the Limited Liability Company or LLC. It’s a smart move, and here’s why.
Protect your personal assets
As a real estate investor owning your investment properties in your personal name opens you up to a lot of personal responsibility. If someone is hurt in your property, you, as the owner, can be held liable. That means that anything you own can be taken if a judgment is entered against you. Obviously you don’t want to lose your own home or assets so you need to find a way to protect your personal assets. That’s by forming an LLC to own your business assets.
What is an LLC?
An LLC is similar to a partnership but has the legal protections of a corporation. What that means for you is that the liability stays with the LLC, while the income and taxes flow through to you like a partnership. Unlike a partnership you can have only one member of an LLC or as many as you want. So for those wanting to work for themselves, and just themselves, you are protected. Rules for forming an LLC differ from state to state, but the tax implications are the same all over the US.
Using a lawyer for set up
You don’t have to get a lawyer to set up your LLC, but it’s not a bad idea. You may file the paperwork yourself, but a lawyer will know more ins and outs of all the things required and can help you navigate it better. Getting one going means filing a document called Articles of Organization. They are usually straightforward and most states have blank forms for your use. It’s a smart idea to have something called an Operating Agreement, especially if there is more than one member of the LLC. An Operating Agreement lays out all of the rules of getting into and out of an LLC, how it will run and who will do what. That should be at least reviewed by an attorney.
Forming an LLC to own your real estate investment properties is a great idea. Talk to your attorney about it today!
Disclaimer: While I have worked with 100’s of real estate investors in Colorado and around the country, I am not a lawyer. Please make sure to check with your attorney for specifics about incorporating to protect your assets in your city or state.