After diligently searching the market for the perfect piece of real estate, you have found a property that will provide cashflow and appreciation. You know you need to protect this asset, limiting your personal exposure to the risks involved with property ownership. How do you do that? REASONS TO USE AN LLC FOR REAL ESTATE INVESTMENTS One way to reduce these risks is to hold the property in the name of a Limited Liability Company (LLC). By doing this, you will ensure that you have the flexibility and control that you need. Although other limited liability entities are available, the preferred entity for real estate investments is the LLC for the following five reasons:
1. Protect Your Personal Assets from Inside Lawsuits by Tenants
As in any business transaction, one of your primary concerns in real estate investment is your liability. Owning property either as an individual or in a general partnership creates unlimited liability. Tenants, guests, and, in some cases, trespassers may sue you directly for real or imagined grievances. If they prevail, they may seek to use your bank account, home, and other personal possessions to satisfy the court’s judgment. By using an LLC for your real estate investments, you can avoid personal liability for accidents that occur on the property. Any liability you may face will be limited to the extent of the LLC’s assets. Of course, we always recommend that the LLC have regular insurance coverage.
But having the LLC on title to the property is your second line of defense. If anything goes wrong on the property, and your insurance isn’t enough or denies coverage, you will appreciate the protection that an LLC provides.
BY USING AN LLC FOR YOUR REAL ESTATE INVESTMENTS, YOU CAN AVOID PERSONAL LIABILITY FOR ACCIDENTS THAT OCCUR ON THE PROPERTY.
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