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Tips for Investors
TIP #1: Form an LLC
I’ve come across many investors who have not taken into consideration the repercussions of not forming an entity such as an LLC or LP before purchasing real estate investments. For many of these investors, this lack of preparation has come back to bite them in the ass!
First let’s say this: when I say LLC, let’s just assume I’m saying “LLC, LP or any other corporation entity that reduces personal liability on investment ownership.” And before I get in to this further, let me state a quick disclosure: I AM NOT A REAL ESTATE ATTORNEY. Please consult an attorney before forming a legal entity and to verify that my advice is accurate.
Now let’s continue. An LLC protects investors in many ways. Here are a few:
- it protects the owners’ personal property from being claimed in a lawsuit should a claim be made on the owners’ investment(s).
- it allows the owner(s) to sell the LLC instead of selling individual properties (which in turn sells all ownership rights to any property deeded to the LLC). this can save you a ton of money in Real Estate transfer taxes in the long run.
- it officially declares each partners ownership percentage or share up front so there is no discrepancy or lawsuits about ownership percentage in the future.
Here are a couple real life examples of when an LLC could have been very handy:
- An investor owns over 100 properties, they are all recorded/titled/deeded to himself and NOT to an LLC or LP. The investor decides to sell all the properties as a “package deal” so he can retire, and low-and-behold, he’s looking at a transfer tax of over $300,000! Should he have formed an LLC, he could have just sold the business ownership and bought a beach condo with his savings!
- An investor owns a couple properties in Pennsylvania and they are recorded directly to him and NOT to an LLC. He gets married a few years later. Fast-forward and 15-years down the road he’s getting a divorce. His soon-to-be-ex gets a lawyer and she also gets 1/2 of the appraised value of EVERY investment property he owns even though he owned them before the marriage and she invested no money and no time in to the properties.
An LLC states clear ownership rights and investment amounts. Look in to it!
*If you don’t want to start an LLC or LP, at least look in to an “umbrella” insurance plan. This will prevent a tenant from suing for your personal property should they be injured or harmed at one of your investment properties.
If you’re looking for your next investment, would like some sound advice and would like to get the best price possible, then give us a call:
KELLER WILLIAMS REALTY
The Dustin Nulf Team