Real Estate Investing is a tricky sport – nothing is easy, and nothing is straight-forward. I answer a lot of questions as part and parcel with my blogging and teaching. But, one of the questions that comes up with regularity is whether or not it is necessary or even a good idea to set up an LLC (Limited Liability Company) as part of purchasing Real Estate.
This is not an easy question to tackle. The answer is a function of each investor’s needs, preferences, and circumstances. Here are a few thoughts:
Should I Use an LLC?
Question: Why do we use LLCs
Answer: LLC is what we call a flow-through entity relative to taxation. This means that nothing is taxed at the LLC level; all of the income flows through and is taxed on the member’s personal income statement. Thus, LLC has no impact on our taxes whatsoever.
With this in mind, the only benefit of an LLC is relative to Asset Protection. In other words, people figure that by taking possession of property inside an LLC, they can limit the liability exposure to the asset base inside that LLC, and free them personally from any liability.
First of all, it’s appropriate to remember that if criminality and/or negligence on your part is proven, no LLC will save you. An attorney will crack that baby faster than I can slap my good frind from BiggerPockets Brandon Turner 🙂
Secondly – I want to ask you a question: How Much Wealth Do You Own? I mean seriously, what the hell are you so worried about losing. If this is your first, second, or third house (all of which are $30,000), then how much Net Worth do you really have that can be attacked?
I am not an attorney, so take everything I say in this piece with a grain of salt. But, from knowing lots of attorneys I can tell you with some level of confidence that most do not like to work for free. First thing they’ll do is check to see what you’ve got which could be taken from you. Not having wealth is the best deterrent to law-suites that there is…is it not?
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