{"id":91274,"date":"2017-09-12T05:00:53","date_gmt":"2017-09-12T11:00:53","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=91274"},"modified":"2021-03-16T13:37:23","modified_gmt":"2021-03-16T19:37:23","slug":"hold-properties-llc","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/hold-properties-llc","title":{"rendered":"3 Benefits of Holding Your Properties in an LLC"},"content":{"rendered":"

Let’s talk about what an LLC is and what it isn\u2019t. An LLC is not equal to a get-out-of-jail-free card. You can be sued with an LLC, and you can still lose everything. An LLC is not designed to prevent you from ever being sued. An LLC is intended to help you manage and contain the fallout from such a lawsuit. According to the United States Small Business Administration<\/a> (SBA), a limited liability company is \u201ca hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.\u201d<\/p>\n

Given this definition, an LLC\u2019s benefits are threefold.<\/p>\n

3 Benefits of Holding Your Properties in an LLC<\/h2>\n

1. Limited Liability<\/h3>\n

If you were to get sued, your liability (the damage to your wallet) could be contained to the assets within the LLC, not everything else you own. In other words, if the LLC is set up correctly, and you get sued and lose, the creditors probably would not be able to take your personal house or car, or garnish your W-2 job wages. Or course, there are ways a judge might \u201cpierce\u201d the protection of an LLC and go after these things if every I is not dotted and every T not crossed.<\/p>\n

\"great-deal\"<\/p>\n

2. Tax Efficiency<\/h3>\n

The LLC is fairly easy to handle during tax time, especially if it is a \u201csingle-member LLC,\u201d which means an LLC owned by just you or by you and your spouse. LLCs are known as \u201cpass-through entities,\u201d which means the income and expenses flow magically through the LLC and are reported (and paid) by each individual member on their personal income statement.<\/p>\n

There is no \u201ccorporate tax\u201d like a corporation might pay. This can definitely make taxes easier and less expensive than for, let\u2019s say, a corporation. That said, although a single-member LLC does not require its own business tax return, a multimember LLC does. Don\u2019t make this mistake.<\/p>\n

3. Operational Flexibility<\/h3>\n

Finally, an LLC is fairly flexible in terms of running it. You don\u2019t need thousands of documents or to issue stock. An LLC can be set up fairly easily and inexpensively and requires just a few documents.<\/p>\n

It\u2019s easy to see why an LLC might be advantageous to a real estate investor. Let\u2019s say a tenant slipped on the stairs and broke their hip. The tenant decides to sue the landlord for \u201cneglect,\u201d and the court sides with the tenant. For whatever reason\u2014let\u2019s say your insurance doesn\u2019t cover all the legal penalties\u2014you, as the owner, are required to pay $500,000 out-of-pocket to the tenant. Ouch. If you own the property without an LLC, the tenant could have your wages garnished, force you to sell all your properties, and drive you to bankruptcy. You could end up eating cold beans out of a can under a bridge while pigeons sit on your shoulder\u2014not a fun place to be.<\/p>\n

\"tax-consultant\"<\/p>\n

On the other hand, if the owner of that property was \u201cMain Street Investments LLC\u201d rather than you personally, then the LLC would be the entity getting sued. The courts could make you sell that property, or other properties owned by that LLC, but they likely wouldn\u2019t be able to make you sell other properties owned by other LLCs, if you have them. They won\u2019t take your primary residence. You won\u2019t be eating cold beans. Sorry, pigeons.<\/p>\n

Of course, this example is a bit overdramatized and unlikely to happen. And I don\u2019t actually mind eating cold beans. But it illustrates the fear that drives most investors to pursue an LLC. Even though it may sound like I\u2019m encouraging you to establish an LLC, remember that there are still cons to doing so; it all depends on your personal situation.<\/p>\n

\"\"<\/a><\/p>\n

Do you use an LLC for your real estate business? Why or why not?<\/em><\/p>\n

Let me know with a comment!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

An LLC is not designed to prevent you from ever being sued. Rather, an LLC is intended to help you manage and contain the fallout from such a lawsuit. <\/p>\n","protected":false},"author":710,"featured_media":84363,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4241],"tags":[],"class_list":["post-91274","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-business-management"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/91274","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/710"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=91274"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/91274\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/84363"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=91274"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=91274"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=91274"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}