Why You Should Own Your Real Estate In An LLC
You may have reached the point in your life where you are ready to earn some passive income and become a landlord or you want to buy your first vacation condo to unwind on the weekends and to move into once you retire. One thing you should think carefully about is how you own the property. When it comes to owning real estate, there are multiple ways it can be owned, such as in your personal name, in a trust, or in a limited liability company (LLC). Each type of ownership has its benefits. Whether you own one property or one hundred properties, owning it an LLC is beneficial and to your advantage.
The main benefits of putting your real estate into an LLC or multiple LLCs is to reduce your personal liability and to keep your information private. The first reason to put your real estate into an LLC is to reduce your personal liability. In the eyes of the law, when a property is owned in an LLC, it is viewed as a separate legal entity. If the property creates liability, then an LLC would be best to protect you from lawsuits against the property. A rental property is a prime example of a property that can create a liability. For example, Patrick the property owner rents property to Terry the tenant. Carl the customer comes onto the property but falls down the steps leading into the building due to their age and deterioration. If Carl sues Patrick for his damages, Patrick could be personally liable for Carl’s damages and Carl could go after Patrick’s personal assets such as his wages, income, and other properties he may own personally. However, if Patrick put the property into an LLC, then the LLC would be responsible for Carl’s damages and Patrick’s personal assets would generally be protected.
Going off of the prior example, Patrick owns an art collection worth about $250,000. Carl sues Patrick for his medical bills and lost wages due to not being able to work and the Court renders a judgment against Patrick for $400,000. If Patrick does not have the money to pay the judgment, Carl can potentially go after the art collection and force it go to auction to pay off the judgment. However, if Patrick owns the property in an LLC, then Carl will generally not be allowed to go after Patrick’s art collection and force it to go to auction to pay off the judgment.
Another benefit to owning your property in an LLC is your assets will be more private. In modern times it is easy to look up information using the internet. When someone owns property in their personal name, their information is recorded with the property appraiser in the county where the property is located. Since property appraisers generally have an online search function, someone can go on any county’s property appraiser’s website, type your name in and a list of all the properties you own will come up. When a property is in an LLC, your personal name will not show up on the property appraiser’s website
Additionally, the privacy benefit ties into reducing the benefit of reducing your personal liability in the event of a lawsuit. One factor a Plaintiff may use in deciding to sue you for damages is what assets does the Defendant own. If a Plaintiff finds that the would-be Defendant owns multiple properties, cars and takes lavish trips then the Plaintiff will most likely sue them whereas if the property is owned under an LLC the Plaintiff will only be able to go after the LLC’s assets. For example, Patrick the property owner has five rental properties each titled in a separate LLC with separate bank accounts. Carl the customer comes to one of the properties and is injured and sues Patrick the property owner for his medical expenses. Assuming that Patrick has no other assets in each of the LLCs Carl is only allowed to go after the one LLC that the property is titled under and he cannot go after the other properties.
Although there are numerous benefits to owning your property under an LLC, the two main benefits are privacy and limiting your personal liability in the event of a lawsuit. When transferring your property into an LLC or multiple LLCs it helps avoid headaches down the road and can save your personal assets. To speak to an attorney about transferring your property into an LLC, click here to contact an attorney.