Personal Financial Statement when real estate is owned in LLC or INC?

Question

I've been looking over various personal financial statement templates and one thing confuses me.  If I own real estate wholly or in partnership in the form of an LLC or a corporation, how do I list this on a PFS?  Is the real estate section under assets only for real estate owned in your own name?  If I own a corporation that owns the real estate, do I list the corporation shares under securities rather than the property the corp owns under real estate?  What about property owned through LLC membership, which from what gather may or may not be considered securities?

Steve Wilmers · Answer

Banks and lenders can vary in how they like this information presented, but in my experience this is how I would request that it be laid out.

I'd list all of the real estate assets individually under the real estate section (if viable), whether they're held personally or in a real estate entity.  To show that some of these assets are held within an entity, after the address or property name you could simply include the entity name for additional detail.  For partnerships, you could either show solely your share of the value and debt in the property, or the entire property value and associated debt.  Either way, especially if there is a significant difference, be sure to note how the partnership shares are represented.  Don't list any of the RE values in securities, unless it is a publicly traded company.

In the end, the lender simply wants to have a good overall picture of your personal financial situation.  To put some icing on the cake, feel free to add in some additional detail at the end on how you filled out the form just to ensure you and the lender are on the same page.

Steve Wilmers · Answer

@Lee I. As a general rule of thumb, always list the associated debt if you're showing the asset, even in a non recourse scenario. Make sure to note that it's non recourse though.

If it was me, I'd show the asset value as 50, your share of debt as 5. If you show it this way for this property, just keep it consistent throughout the statement. Note at the end that the values and associated debt are shown on a "pro-rata basis as a percentage of ownership".

Cole Davis · Answer

I put the percentage interest of equity owned in every LLC for the assets we own - including syndicated deals (private placement offerings) where we have an equity stake above a certain preferred return. Technically we don't have ownership to title day one, we only have ownership to the distributions above the preferred return.

Not one of our many banks has had an issue with this.

Steve Vaughan · Answer

Gotcha @Lee I. Better to inherit a property in a corp than nothing at all!  Just keep in mind the lawyer only makes money when you get involved in complicated asset transfers. Take their advice with a grain of salt.  If it ain't broke, don't fix it!

Steve Vaughan · Answer

On my PFS I list all real property I have a vested interest in.  Because only my wife and I are members/shareholder's it's easy.  Hopefully you were speaking hypothetically owning property in a corp. LLCs can be a great way to own larger multi-family property.  A corp has a ton of disadvantages!

Lee I. · Answer

Thanks again @Steve Wilmers

Lee I. · Answer

Thanks @Steve Wilmers  Sounds like it is less about having every section perfectly categorized, but just making sure it is completed fully, accurately, and with the method explained.  One question regarding my share of the debt.  If the debt is non-recourse, do I list it?  Just to be really simple, say a property is appraised at $100,000, I own half, and there's $10,000 debt left on it, non-recourse.  Do I list my ownership at the valuation of $50,000 since none of the debt is actually my debt, or do I list my share as $45,000 since even though the debt is non-recourse, that's how much equity I truly have in the property?

@Steve Vaughan the corp was already set up before I inherited part of it, so I had no choice :-)  Fortunately it is a pass-through corp so I won't be hit with double taxation on earnings.  I'll be meeting with the lawyer soon to finalize everything and that's one of the questions I am going to ask about, what was the advantage of my relative doing corp for holdings versus llc.

Personal Financial Statement when real estate is owned in LLC or INC?

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