LLCs for Real Estate Investors
Intro to LLC for the Real Estate Investor
Limited Liability Company (LLC) is becoming the vehicle of choice for the real estate investor. The LLC is a hybrid between a corporation and a partnership and due to it’s unique structure, it provides maximum liability protection and the flexibility required for the investor.
In today’s litigious society, the real estate investor faces the threat of law suits in two areas. First, the tenant can sue you for anything that happens connected with the property. Both a corporation and an LLC will protect you from these lawsuits through the use of the corporate veil, which provides a veil of protection between you and the business.
But what is one of the partners has a personal lawsuit? A divorce, a lawsuit in an unrelated business, a car accident, medical bills, etc.. If the property is in a corporation, it is fairly easy for the litigant to grab the stock of the company and force liquidation. Just as in the case if you had stock in any company and had a personal lawsuit, the litigant could force you to sell the stock to pay the settlement.
This is not the case in an LLC. If any of the partners would have a personal lawsuit and the stock of his LLC is foreclosed upon, this is called a “charging order”. This allows the litigant to have financial rights, but not voting rights. They can NOT force the owners of the property to liquidate the property. In addition, because they have financial rights, they could be subject to paying property tax for the properties without having any rents or income distributed to them. Due to this unique structure, there has not been one case of a charging order EVER being executed in the history of law in Nevada. In the case of multiple partners in an LLC, the LLC allows the various partners to be insulated from any potential problems that the other partners might be experience.
In addition, the LLCs allow for disproportionate income distribution, which allows the LLC to distribute income regardless of the ownership of the company, upon agreement of the partners.
The LLC is a flow through entity which will allow each of the partners to get a K-1, which will be reported on their personal return. If a husband and wife own a property, they can file a single member LLC and can protect their investment without having to prepare an additional tax return. There is no corporate tax on LLCs in the State of Nevada.
Current properties can easily be transferred into an LLC utilizing a simple quitclaim deed, with no transfer tax in the State of Nevada. If the partners possess a trust, the shares of this LLC can be owned by the trust, allowing the rental properties to easily become part of the estate upon the passing of the owners.
For any specific questions on your particular situation, please contact Bonnie Simon at (702)990-2301 or on her cell (702)336-6300.