Part 2: Reasons to Purchase Investment Property as a LLC
Did you miss part 1? Click here to read the intro and Part 1 before starting Part 2.
What is an LLC?
An LLC is a business entity that is separate from its owners, like a corporation. But unlike a corporation, which pays its own corporate taxes, an LLC is what some call a “pass-through” tax entity, which basically means that business profits and losses pass through to its owners, who report them on their personal tax returns (just as they would if they owned a partnership or sole proprietorship). Because of the unique benefits an LLC has to offer, it may be the best way for some investors to purchase property.
Other reasons to consider this as an option…
•Liability – Properties managed under an LLC have limited liability for the owner, meaning that should the property be subject to a lawsuit, the owners of the LLC can be sued only within the constraints of what the LLC owns, and not beyond that so your personal assets are typically safe.
• Anonymity – Although you can look up corporations online in most states and find out who the owners are, it’s a step most people don’t take. LLCs tend to offer more anonymity than realty trusts, unless you advertise the LLC.
• Commercial properties – If your investment property will have more than one tenant, such as a multifamily apartment building, or will house commercial retail spaces, it is wise to purchase it under an LLC. A property like this is subject to a considerable amount of risk compared to a single-family home where only one person or one family is there every day. Having an LLC as a double layer of protection is a smart way to make sure no one can come after your home or other assets, should your insurance fail to cover you in the event of an accident in a high traffic area such as those.
The main drawback to an LLC is financial: States charge an annual fee to file an LLC. Click here to learn more about starting an LLC and the fees involved here in Texas.
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