If you are looking to invest in real estate, there are numerous reasons why it makes sense to manage your investing activities through a Limited Liability Company (“LLC”), or multiple LLCs. Though, there are numerous pitfalls as well. Hence it is important to attain a general understanding of the positives and negatives associated with using an LLC for real estate investing.
What Exactly Is an LLC?
An LLC is a business structure that limits the exposure, or personal liability, of a business owner. An LLC also allows you to pass-through income to a sole proprietorship or partnership while enjoying the limited liability to your personal assets.
It is worth noting that the owners of an LLC are referred to as members and there is no cap on the number of members who can be affiliated with creating an LLC.
In this article we review 3 Pros and Cons of using an LLC for real estate investing.
Using an LLC to Invest in Real Estate
There are an array of positives associated with using an LLC to invest in real estate. For example, an LLC provides an enhanced level of privacy when conducting business. In fact, it is quite common for celebrities and public figures to create an LLC when venturing into real estate investing.
Another benefit is the protection afforded to your personal assets. For example, if your company is forced to defend itself in a civil lawsuit, it is possible your liability insurance would not completely protect you.
Using an LLC for real estate investing is not without potential drawbacks. For example, there are embedded, long-term costs associated with using an LLC to manage a real estate portfolio. The costs to set up and maintain an LLC will differ from state to state. In California, the cost to establish an LLC online is around $70. This fee is paid directly to the California Secretary of State when filing your LLC’s Articles of Organization. At first glance, $70 does not sound bad, but this fee is followed by an annual $800 tax imposed by the state.
Another potential negative is the ongoing compliance required to maintain an LLC. For example, once your LLC is formed, you need to comply with all state and federal regulations. You also need to make sure you file the proper tax documents with the IRS when filing your federal taxes.
In deciding whether to form an LLC to invest in real estate, you should carefully weigh the positives and negatives before moving forward.
In Need of Hard Money Loans in Los Angeles?
Effectively using an LLC to invest in different properties, along with harnessing the power of hard money loans in Los Angeles, can lead to a fruitful career in real estate.
To learn more about how to finance your next real estate venture, please contact the leading hard money lender in Los Angeles, PB Financial Group, at 877.700.3707 to schedule a consultation or for further information please visit www.CalHardMoney.com.
PB Financial Group is a premier direct hard money, private money and bridge lender, who has been providing quick funding since 2006 and have funded over 2700 hard money/private money loans. Our objective is to work to satisfy your financing needs on important real estate projects throughout California in an efficient and effective manner.
PB Financial NMLS #357614/DRE #01522495