Limited Liability Company (LLC) - an organization that is best suited for holding real estate for rent

When holding real estate, limited liability company or LLC is the subject of choice for most real estate investors. This is truly reasonable for two reasons: protection of responsibility and tax flexibility.

Protection of responsibility

As this name suggests, the big legal advantage of LLC is to provide protection of responsibility to the owner. Why do you need such protection? Well, recently, many investors are joking about the definition of tenants as "plaintiffs".

Aside from all the joke, if you sue for a rental property falling accident or a fall accident, its effect can vary greatly depending on how you keep your property. If you own a property with LLC, you lose all the assets in the LLC containing that property. This is not desirable, but compared to the scenario where you hold the rental property with your name it is a vanity. In this case, the lawsuit not only will you lose your rental property, you may lose all other things you own.

Now, a limited liability company is not a bullet proof, so when setting up your entity structure you should seek a competent lawyer's advice. There are additional things you can do to stop a lawsuit from being raised. There are also opportunities to carry responsibility insurance.

In any case, you need to judge how well you need to protect yourself by looking at your personal situation, risk tolerance, wealth situation. Discussing these with experienced real estate lawyers is a great investment when you consider the amount you might save you somewhere in the road.

Tax flexibility

The second advantage of forming an LLC is related to the tax structure. Establishing LLC gives us the freedom to choose a tax system where LLC is taxed. For example, if an LLC has a single owner, it may be set to be taxed as a sole owner, S company or C company. Alternatively, if LLC is owned by more than one person, you can choose to tax LLC as S, C or partnership.

This makes LLC extremely flexible from the tax position because it allows you to minimize tax liabilities by choosing an appropriate tax system. When choosing how your LLC will be taxed it is absolutely reasonable to sit on the CPA to discuss your situation.

Other considerations of LLC

Limited liability companies bring great benefits in terms of liability protection and tax flexibility, but there are a few things to consider before deciding this entity structure to hold rental properties.

1. LLC may increase the cost of your business. If your LLC is partnership, or taxed as S-corporation or C-corporation, you need to submit your own tax return. This can generate hundreds to thousands of dollars a year every year.
2. LLC will bear the associated start-up fee. In most states you can apply for LLC at a cost of $ 25 to $ 50. Or, if you have a lawyer's form, you will pay hundreds of dollars.
3. If you own an LLC, you need to attend specific corporate proceedings, such as preparing the minutes of the meeting. Without documenting these enterprise procedures, LLC may release liability beyond LLC.

All things are taken into account and most real estate investors choose to hold rental properties at LLC for the above benefits. Michigan state turnkey can provide referrals to attorneys and CPA familiar with real estate investment discipline, if you need to invest in the rental property and set up your laws and tax system. These experts can decide the best law and tax system on your personal situation.