During the last decade, limited liability companies (LLC) have become a widely used option for acquiring real estate in the United States. Despite the benefits that LLCs offer, they’re not always the best way to carry out real estate transactions. For many investors, the cost of starting and maintaining a company as a means of preventing the effects of lawsuits isn’t convenient for their financial interests.
Benefits of Purchasing Through an LLC
- Protects the owner from possible property related lawsuits. This means that, in the case of a lawsuit, they can only go after a specific property and not any other asset.
- It allows you to deduct many of the expenses generated by the property.
- The LLC structure helps to avoid estate taxes. Since the legal entity never dies, even upon the death of the owner of the company, they will reduce inheritance taxes.
- The mortgage loan interest could be deducted from income taxes if the LLC has only one member (single-member LLC).
LLCs usually pay lower filing and maintenance fees than other types of corporations.
- Unlike other types of corporations, a non-resident foreigner can start an LLC.
- Great flexibility in the distribution of profits.
Should I Open an LLC for Each Property?
Starting an LLC for each property may provide greater protection. This way, the investor limits the liability of each of the properties. If multiple properties are under the same LLC, the liability of one property could expose the other properties. On the other hand, if each LLC owns one property, the maximum liability will be subject only to that property. However, due to start-up, management and maintenance costs of multiple LLCs, it’s common for investors to keep multiple properties under a single LLC.
Estimated Costs of an LLC
- Start-up costs: Approximately $400 to $700
- Regular annual registration fees: Approximately $200 (Florida) to $400 (Delaware).
- Accountant fees for management and annual tax return (before May 1st in Florida, before June 1st in Delaware.) Fees vary depending on the service and structure that each client requests.
What Do You Need to Open an LLC?
- Corporate name
- An address in the United States (if you don’t have one, usually the accountant or lawyer that creates the LLC will use his office address for this purpose)
- Names of the owners (may be a husband and wife)
- Articles of organization of the company (prepared by lawyer or accountant)
- Operating agreement (prepared by lawyer or accountant)
How Long Does the Formation Process Take?
The process takes between three and five workdays in Florida and from five to seven workdays in Delaware.
Florida LLC vs. Delaware LLC
The main difference between the two is privacy.
- They’re a matter of public record in Florida.
- The information is private in Delaware
I bought a property in my own name. Can I transfer it to an LLC?
It’s important to plan this out before purchasing the property. If you’ve already purchased the property under your name, it is possible to transfer the property to an LLC. However, it is extremely important to consult with an accountant and/or lawyer who can analyze your specific case and determine any possible legal and financial implications. It’s important to determine:
- If FIRPTA applies (foreign investors)
- Transfer costs
- Other closing costs (determined by lawyer or accountant)
LEGAL NOTICE: These provisions are complex and require the knowledge and experience of a certified public accountant and/or real estate attorney who can assess the potential implications.
The material contained herein is provided for informational purposes only. It should not be used by the reader as a source of legal advice. Always consult with a real estate lawyer or accountant for guidance.