I am a first time real estate investor buying a vacation property that I intend to rent out during summers but use myself during the off season. I bought the property with my own down payment and mortgage. Should I form an LLC? Should I incorporate my rental property as a business?
One of the chief reasons to incorporate a rental property is to protect the investor from personal liability. When you're looking to form an LLC or incorporate real estate, both can help offer protection to personal assets in the event of a lawsuit, but we find that individuals who are considering an LLC real estate venture for investing purposes choose this particular structure to hold their investment real estate. If the LLC is formed and managed correctly and there is a claim or lawsuit relating to the real estate, then generally only the assets owned by the LLC, and not the investor's other personal assets, will be subject to the claim or lawsuit. The Company Corporation can help protect an investor's other personal assets by properly forming the LLC and you helping to ensure that it is properly maintained.
Although both an LLC and a corporation can help protect an investor from liability, we find that most investors choose an LLC to hold their investment real estate. An LLC can offer more freedom in the management of the property. For example, in the LLC operating agreement, the investors can expressly set forth and/or limit the rights, powers and obligations of the manager and the members. An LLC also may not require some of the formalities of a corporation, such as annual meetings. In addition, an LLC may have tax advantages over a corporation, such as an LLC with only one owner may not have to file a separate tax return and its profit or loss can be included on the owner's tax filing. In contrast, a corporation must file a separate tax return.