After a long time watching and getting life in order, we're ready to start our investing journey. My wife and I are in Sarasota, FL. (a little South of Tampa). I see one of the most common questions from new investors (myself included), is if they should use an LLC or not. From what I've gathered, owning property in a Trust or an LLC with a clear separation of personal and business activity is one of the most secure options in regards to asset protection and liability, but it has a lot of challenges with getting traditional loans to acquire property.
My family has already started an LLC to do business, but after reviewing all of the information, I think we may start in our personal names with an Umbrella insurance plan for protection to make acquisitions easier at the start. I'm worried about using a quit claim deed into an LLC, but that may be an option in the future.
*If we own the property personally, is there any benefit or need to keep the LLC?
*Can the LLC be used to 'manage' the properties and start generating an established income source in the LLC?
*Are there any tax benefits to taking the money in through the LLC and dispersing it to us personally? Can you even do this if the property is owned personally?
*Any other advice from the community?
I'm curious if anyone has a use I'm not thinking of, otherwise I'll just close the LLC and not worry about the minor additional fees / tax preparation after this year.
One minor addition, currently my Brother- and Sister-in-law are in the LLC with my wife and I. We were planning on all going in together to invest, but they've decided to pull out and not jump in for now. I already have the forms to remove them from the LLC, and will do so before any 'business' would be conducted.
Should I keep it or kill it? I know none of your advice is official legal info, but am interested to hear your thoughts on what you'd do???
@Andrew Varney If you are going to hold the properties in your personal name then there really isn't a reason to keep the LLC open. There wouldn't be a tax benefit of having the money flow through the LLC, since it will still eventually end up on your personal return.
Lots of lenders will work with an LLC, but they'll probably require a personal guarantee as well. You'd have to do that anyway if you're buying it in your name. As for the family situation, it's probably cleaner to start a new LLC rather than risk messing up paperwork removing members.
If you have already invested in the LLC I would suggest just transferring your property into a land trust and assigning the LLC as the beneficiary. This is a protected transfer from lenders using the Due-On-Sale Clause because of the St Germain Act, which you can read more about it in this article. This would allow you to use the LLC for the protection you are looking for on an LLC you have already formed.
If you have any other questions on this, just let me know. You could also establish the LLC as an operating company, but it wouldn't be of much use to you with only a single property that is under your personal name.
This isn't legal advice, just my opinion as an investor.