How to Protect Your Real Estate Assets From Liability

The main reason to use a limited liability company (LLC) is to insulate your personal assets from liabilities that may arise at the property. This means that your risk is limited to the LLC, so if anything occurs on the property, such as a slip and fall, your personal assets remain protected.

Advantages

Asset Protection

A property’s biggest liability is generally if a tenant slips and falls and sues you. The only thing at risk is the asset(s) the LLC owns, not your personal assets.

Tax Advantages

You can write off expenses and minimize taxes, since LLCs exclude you from paying business taxes thanks to pass-through taxation.

Build Business Credit

Assuming your personal credit profile is in good standing, business credit could double your buying power.

Flexibility

An LLC can be set up easily and inexpensively requiring just a few documents.

Disadvantages

Cost

California requires LLCs to pay an $800 per year fee even if they are registered in another state. Additionally, accountants charge about $1,000 per tax return.

Bookkeeping

You’ll need separate bookkeeping for the LLC. If you don’t, your personal assets are no longer protected.

Financing

Many lenders won’t lend to LLCs, so getting financing for properties under an LLC can be hard.

Trigger a Due on Sale

Oftentimes, investors will buy properties under their personal name then quitclaim it to an LLC. Doing so may trigger the “due on sale” clause in your loan agreement.

Be sure to consult with your lawyer and tax advisor to have a full understanding of any vulnerabilities your LLC might have.

I hope this was helpful and feel free to reply with any questions you may have or call me at 949-209-9494 or visit GenuineManaged.com to learn more about us. 

Marcel Ford 

Genuine Property Management 

* We are not attorneys, financial advisors, nor tax experts and the information above we deem to be accurate but is not guaranteed.