Incorporate a Real Estate Company or Form an LLC

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The following real estate business case studies address common issues facing today's real estate investors. Did you know that you can protect your personal assets by forming a limited liability company with The Company Corporation and get more for your money? More investors than ever are turning to us to set up real estate LLCs, backed by our exclusive $50,000 Guarantee at no extra cost.

If you are wondering how to incorporate as a realtor, we will walk you through the example below.

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.

If so, do I need to sign the property over to the LLC or move the deed into the LLC?

In order to get the maximum protection afforded by the LLC, many customers transfer the property to the LLC so that the LLC becomes the owner of the property. If the title is not transferred to the LLC, and there is a claim or lawsuit relating to the property, then the owner of the property may be personally subject to that claim or lawsuit and other assets may be at risk.

Property owners should be aware that there may be costs associated with transferring the property to an LLC. In addition, when the property is used as collateral for a loan, the property owner will likely need to obtain the lender's consent for any transfer of the property.

What happens with the mortgage that I am personally liable for?

It depends in large part on the lender holding the mortgage and the relationships with that bank. A lender may allow the LLC to assume the loan and mortgage, either with or without changes to the terms of the loan. Alternatively, a lender may require that the LLC obtain a new mortgage in the name of the LLC, and that the personal mortgage be repaid with the proceeds of that new mortgage. In either case, because the loan is being made to an entity and not to a private individual, the lender may request that the member(s) of the LLC provide a personal guarantee or additional collateral. The exact terms, conditions and loan options will vary depending on the lender and other circumstances.

I am a first time real estate investor buying a residential property. I am renting the property to a family that signed an annual lease. Does this particular scenario change the answers to the Vacation Property Case Study in any way?

Generally, everything discussed under Vacation Property Case Study describing how and why to incorporate a rental property would also apply to this scenario. However, in cases where there is already a signed lease agreement, in addition to forming an LLC and transferring the deed to that LLC, many customers transfer or "assign" the lease to the LLC so that the LLC, and not the customer personally, becomes the landlord. However, the lease may contain a provision that prohibits, limits, and/or conditions such a transfer or assignment. If such a provision exists, the consent of the tenant may be needed to transfer the deed or assign the lease to the LLC. The terms of the lease should be carefully reviewed by a qualified person (such as an attorney) before attempting to transfer the deed or assign the lease to the LLC.

Should I form an LLC?

Whether you are looking to form an LLC or incorporate a real estate business, both options bring great advantages. Many of our real estate investor customers form an LLC to hold and manage their real estate in order to protect their other assets from liabilities or lawsuits that might result from their real estate investment. 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 when you incorporate real estate, such as annual meetings. In addition, an LLC for real estate 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. While the decision is yours to opt for an incorporate vs LLC where it concerns real estate, The Company Corporation is available by phone to provide you with information on what others in your situation are doing.

If so, do I need to sign the property over to the LLC or move the deed into the LLC?

In order to get the maximum protection afforded by the LLC, many customers transfer the property to the LLC so that the LLC becomes the owner of the property. If the title is not transferred to the LLC, and there is a claim or lawsuit relating to the property, then the owner of the property may be personally subject to that claim or lawsuit and other assets may be at risk.

Property owners should be aware that there may be costs associated with transferring the property to an LLC. In addition, when the property is used as collateral for a loan, the property owner will likely need to obtain the lender's consent for any transfer of the property.

What happens with the mortgage that I am personally liable for?

It depends in large part on the lender holding the mortgage and the relationships with that bank. A lender may allow the LLC to assume the loan and mortgage, either with or without changes to the terms of the loan. Alternatively, a lender may require that the LLC obtain a new mortgage in the name of the LLC, and that the personal mortgage be repaid with the proceeds of that new mortgage. In either case, because the loan is being made to an entity and not to a private individual, the lender may request that the member(s) of the LLC provide a personal guarantee or additional collateral. The exact terms, conditions and loan options will vary depending on the lender and other circumstances.

Whether the LLC is permitted to assume the personal loan or the lender grants a new loan to the LLC, the bank will likely require that the deed to the property be transferred to the LLC and that the property be pledged as collateral for the loan.

How much might it cost to transfer that deed?

The cost to transfer a deed to an LLC will depend at least in part on where the property is located. It is necessary to prepare a deed in the LLC's name. That deed normally must be recorded in the appropriate office (typically the Recorder of Deeds in the county where the property is located) and the applicable filing fees paid. Additionally, depending on the location of the property and the parties involved, there may be realty transfer taxes or other taxes associated with transferring the deed to the LLC. Based on the circumstances, the total cost can vary significantly from a small filing or recording fee to thousands of dollars in transfer or other taxes. As previously noted, if the property is subject to a mortgage, the consent of the lender may be required to transfer the deed.

I am a wealthy individual, I live in Delaware, and I am buying seven different vacation condo units in Ocean City, MD. What entity structure should I use to minimize liability?

Many of our real estate investor customers form a real estate LLC to hold and manage their real estate in order to protect their other assets from liabilities or lawsuits that might result from their real estate investment. 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 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.

Which state or states?

Although investors often form an LLC or corporation in the state where the properties are located, some investors elect to form the entity in another state, such as Delaware. The laws relating to LLCs and corporations vary by state, and therefore, it is important to understand the law of the state in which the entity is formed. For example, only some states (such as Delaware) permit series LLC, but a Delaware series LLC can be used to hold property located in other states. The decision as to where to form the entity may depend on numerous factors, including tax considerations. In addition, it may be necessary to register the LLC or corporation to do business in the state where the property is located if the entity is formed in a different state. The Company Corporation can help investors form an LLC or corporation in any state, and can also assist with registering the entity to do business in any state.

What if I am buying the properties with cash?

The fact that a real estate investor is purchasing properties with cash should not affect whether or not he or she forms an LLC or corporation to hold the properties. Generally, the cash can be contributed to the entity, which may then purchase the property and take the title directly.

What if I am putting 20% down and financing the rest?

An LLC or corporation owned by one or several investors may apply to a lender for a loan. The real estate purchased by the LLC or corporation typically must be pledged as collateral for the loan. In addition, because the loan is being made to an entity and not to a private individual, the lender will often request a personal guarantee or collateral from one or more of the investors. Banks and mortgage companies typically make lending decisions based on the borrower's credit. A strong debt repayment history, a good debt-to-income ratio and sufficient assets to act as collateral are what banks usually look for when they make lending decisions. This is true regardless of whether the borrower is an individual, an LLC or a corporation. Lenders will provide real estate loans to investors, but generally they associate more risk with an investment property than a mortgage for a personal home purchase. Consequently, investors must often pay higher interest rates on an investment property regardless of whether they buy the property as an individual or through an LLC or corporation. Loans for the purchase of investment properties generally will require a larger down payment, often in the neighborhood of 20 to 25 percent. Exact terms, conditions and loan options will vary from lender to lender.

Should I do it personally or through the entity or entities that are formed?

As explained above, lenders will provide loans to LLCs and corporations in connection with real estate investments. Generally, it is preferable to have the entity that owns the property obtain the loan directly. Among other reasons, if the entity is the borrower, the investors will not likely be personally liable for amount of the loan -- assuming that they did not provide a personal guarantee.

My friends and I have formed a real estate investment club. We recently purchased our first property and we each have equal ownership of the property. We've heard it's best to form an LLC, but does that apply to multi-investors as well?

The benefits of forming an LLC, which are explained below, apply with equal or greater force to multi-investor situations. If you are looking to incorporate for real estate, forming an LLC has become increasingly more effective and popular. Each investor has a strong interest in attempting to ensure that their personal assets are not subject to claims relating to the real estate investment. In fact, absent forming an entity such as an LLC for their investment, the investors could be deemed "partners" and, as a result, could be liable for the actions of the other investors. In addition, as previously explained, an LLC offers the parties significant flexibility in the management of the property, which is very helpful in multi-investor situations. 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. The Company Corporation can help protect an investor's other personal assets by properly forming the LLC and helping to ensure that it is properly maintained.

Many of our real estate investor customers form an LLC to hold and manage their real estate in order to protect their other assets from liabilities or lawsuits that might result from their real estate investment. 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.

When you are looking to form an LLC or incorporate for real estate, both can help protect an investor from liability, but 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.

I am a licensed independent agent. Should real estate agents incorporate? What are the benefits to incorporating for a professional in my line of work?

If you want to learn more about how to form an LLC yourself as a real estate agent, it is best to speak with your accountant, as well as The Company Corporation's team of experts to help you weigh the pros and cons. The Company Corporation can help you better understand tax matters, annual expenses, and specific that may be involved and whether incorporating is right for you at present.

Many of the benefits associated with an independent real estate agent incorporating are tax-related, such as the ability to pay yourself a dedicated salary and set up health retirement benefits. Additionally, incorporating also enhances your professional image and (as is the case with many small businesses that choose to incorporate or form an LLC) can entice more clients to want to do business with you as a respected corporate entity, as opposed to an agent operating independently from a larger agency.

A realtor's decision to incorporate can also help offer a certain level of personal protection from lawsuits as a result of a lease in default or other potential liabilities that may crop up. To gain a better understanding of what sort of protections are offered to you by incorporating or forming an LLC, please speak with one of The Company Corporation's representatives who can give you more specific information tailored to your business needs.

How do I transfer the deed of a property into an LLC?

Before transferring the deed of a property into an LLC, the LLC must be formed. The Company Corporation can help properly form and maintain an LLC. To transfer a deed to an LLC, the deed will need to be prepared in the LLC's name and filed and recorded in the appropriate office(s) located in the jurisdiction in which the property is located (usually the county's recorder of deeds office). The deed must be signed by the person or entities transferring the property, and will require the proper notarizations.

There are different types of deeds that may be used to transfer the title to the property. For example, some deeds may contain warranties purporting to protect the grantee-purchaser from possible defects in the title of the property. The type of deed used to transfer the property to an LLC generally will depend on the particular property at issue and the individuals or entities involved.

Also, a property owner's ability to transfer the deed to an LLC may depend on whether the property is subject to a mortgage. Unless the underlying loan is paid in full prior to or at the time of the transfer, the deed will only transfer subject to the mortgage. Moreover, the loan and/or mortgage documents may prohibit a transfer of the property unless the loan is paid in full or the lender consents. Whether or not the lender holding the mortgage permits the deed and the mortgage to transfer to the LLC, will depend on the circumstances. For example, the lender may allow the LLC to assume the loan and mortgage, either with or without changes to their terms. Alternatively, the lender may require that the LLC obtain a new loan in the name of the LLC, and that the existing personal loan be repaid with the proceeds of that new loan. In either case, because the loan is being made to an entity and not to a private individual, the lender may request personal guarantees from the members of the LLC or additional collateral. The exact terms, conditions and loan options will vary depending on the lender and other circumstances.

We recommend that property owners consult with a lawyer with regard to any transfer of property to ensure that it is done properly.

Summary:

  • An LLC must be formed before a deed can be transferred to it. The Company Corporation can help properly form and maintain an LLC.
  • A deed must be prepared in the LLC's name, signed by the grantee, notarized, and recorded in the appropriate office(s) (usually the recorder of deeds office where the property is located).
  • There are many types of deeds, which may differ based on the types of warranties provided.
  • The ability and steps necessary to transfer a deed to an LLC may depend on whether the property is subject to a mortgage.
  • We recommend that property owners consult a lawyer to ensure that the transfer is done properly.

Will a mortgage company lend an LLC or corporation money? Is it easier for an LLC or a corporation to get a loan or mortgage?

If it otherwise qualifies, an LLC or corporation can obtain a loan from a mortgage company. Before applying for a loan or mortgage, it is important to determine the proposed amount of the loan, how the loan proceeds will used by the company, and the company's expected source of the funds necessary to repay the loan. Typically, lenders, such as a mortgage company, will grant loans only if they are satisfied that the borrower has the ability and resources to repay the loan. Also, keep in mind that the real estate purchased by the LLC or corporation typically must be pledged as collateral for the loan.

Normally, the criteria that lenders use to evaluate a company's loan application include a thorough credit check of the borrower (in this case, the company and any guarantors). A lender may also look at the company's cash flow (past and projected) to determine if it will be able to repay the loan and also continue to operate its normal business operations. Lenders may also ask the company's owners to personally guarantee the loan and/or provide additional collateral (other than the property owned by the company) that the lender can take if the company fails to repay the loan according to the required terms.

Typically, lenders will use the above criteria regardless of whether the loan applicant is an LLC or corporation. Stated another way, a company's ability to obtain a loan generally will depend on the resources and financial condition of the company and its owners, and not the legal form of entity (i.e., LLC or corporation).

Summary:

  • A company can obtain a loan from a mortgage company, but must qualify under certain criteria, including a thorough credit check of the borrower.
  • Before applying for a loan, the applicant should determine the proposed amount of the loan, how the loan proceeds will used by the company, and the company's expected source of funds to repay the loan.
  • The real estate purchased by the LLC or corporation typically must be pledged as collateral for the loan.
  • Lenders typically will perform credit checks on the company and/or its owners to assess creditworthiness. Lenders may also evaluate the company's cash flow, assets, and financial condition.
  • Lenders may ask the company's owners to guarantee the loan and/or provide additional collateral.
  • Generally, a company's ability to obtain a loan will not depend on whether it is an LLC or a corporation.
If I have properties in several states, where should I incorporate? What if I cannot afford to qualify in all the states at once?

Many of our customers incorporate or form their LLC in the state where their company intends to conduct the majority of its business. However, in deciding where to form a company, there are many factors to consider, such as the cost of formation, tax laws, and general laws governing the actions and liabilities of the LLC or corporation within each state.

Many small and large business owners choose to incorporate in Delaware. Delaware has no minimum capital requirement, no sales tax, no personal property tax, a relatively low franchise tax, and advanced and flexible laws governing corporations and LLCs. Also, Delaware is one of the few states that permit series LLCs, which may be an attractive option for investors with multiple properties.

One factor that our customers consider when forming a company in a given state is that the company may also have to qualify to do business in other states where it owns properties or otherwise conducts business. The LLC or corporation is often referred to as a "foreign" LLC or corporation in states other than the state in which it was formed. Generally, qualifying a company to do business in a state other than its state of formation is similar to the formation process, and the LLC or corporation may be required to pay filing fees and provide certain information and documentation to the state.

The costs of forming and qualifying a company to do business may be an important factor to consider in determining where to form the company. For example, if investors are considering forming a company in Delaware but all of the properties to be owned and operated by the company are located in New York, then the investors may elect to form the company in New York (and not Delaware), and avoid the dual costs associated with forming the entity in Delaware and then qualifying that entity to do business in New York. However, the costs associated with forming and qualifying a company are only one or many factors to consider when forming and qualifying a company. Also, if a company is required to qualify to do business in a state but fails to do so, it may be subject to penalties. The Company Corporation can help investors form and qualify an LLC or corporation in any state and in a cost effective manner.

Summary:

  • In deciding where to form a company, there are many factors to take into account such as the cost of formation, tax laws, and the general laws governing the operations of the LLC or corporation within each state.
  • Many business owners decide to incorporate in Delaware for a number of reasons, such as certain economic advantages and Delaware's advanced corporation and LLC laws.
  • If a company does business in a state other that the state in which it was formed, it will likely have to "qualify" to do business in that state.
  • The Company Corporation provides formation and qualification services in all states and in a cost effective manner.
Why do so many people form a limited liability company (an "LLC") to buy real estate? What about forming a corporation to buy a home or property? Is there a reason to choose an LLC instead of incorporating in this scenario?

We find that many of our customers use an LLC rather than incorporate real estate to hold their estate in order to protect their other assets and property from claims that might result from their real estate investment. If the LLC is formed and managed correctly, customers can limit their potential liability if there is a claim or lawsuit relating to the real estate. Although an LLC and a corporation can both help protect our customers from liability, we find that many of our customers choose an LLC to hold real estate. An LLC offers investors more freedom in how they can manage their investment, and may not require some of the formalities usually required with a corporation, such as annual meetings of stockholders. In addition, an LLC can have tax advantages over a corporation. For example, 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.

Summary:

  • Many of our customers find that an LLC provides them with a simpler and more flexible way to protect their assets from claims that might result from their real estate investment.
  • An LLC may have tax advantages over a corporation. For example, an LLC with one owner may not to have file a separate tax return and its profit or loss can be included in the owner's personal tax return. A corporation must file separate returns.
What is a series LLC, what states recognize them and can The Company Corporation set one up for me?

A series LLC is an umbrella entity consisting of one LLC with multiple "series" or "cells." Series LLCs are generally of interest to individuals who have several large assets (such as multiple properties) for which they desire to maintain separate liability protection.

To best understand how an LLC and a series LLC differ, a typical non-series LLC (if properly formed and maintained) will generally protect its owner's personal assets from the LLC's business obligations. However, it will not protect one asset owned by the LLC from being used to satisfy a judgment relating to another LLC asset. Under a non-series LLC, all assets owned by the LLC are potentially subject to any claim or lawsuit against the LLC. For example, assume that a typical non-series LLC holds several properties. If a person is injured at one of the LLC's properties and sues and wins, then all of that LLC's assets -- even the other properties that it owns -- can be used to satisfy the judgment obtained against the non-series LLC. The LLC could potentially lose all of its properties based on a lawsuit or claim that is related to only one of its properties.

A properly formed and maintained series LLC will treat each created series as a separate entity, with its own rights and obligations. Theoretically, under a series LLC, if someone is injured at Property #1 (which is an asset of Series #1) and sues the LLC and wins, then only the assets of Series #1 should be at risk with regard to the claim.

The series LLC originated in Delaware, but the laws of some other states (such as Illinois and Oklahoma) also provide for the formation of a series LLC. The Company Corporation has extensive experience in setting up series LLCs in Delaware, Illinois or Oklahoma, and can help investors properly form and maintain a series LLC.

Summary:

  • Series LLC's are generally of interest to individuals who have several large assets (such as multiple properties) for which they desire to maintain separate liability protection.
  • A typical non-series LLC will generally protect its owner's assets, but it will not protect one asset from being used to satisfy a judgment relating to another LLC asset. A properly formed and maintained series LLC on the other hand will treat each created series as a separate entity, with its own rights and obligations, and may provide additional asset protection.
  • The series LLC originated in Delaware, but the laws of some other states (such as Illinois and Oklahoma) also provide for the formation of a series LLC.
What's the best entity to hold real estate?

Choosing the best entity to hold real estate investments is typically dependent on the particular circumstances involved, such as the size and nature of the company's business, and number of owners or members and their respective rights and obligations. We find that many of our customers use an LLC to hold their real estate in order to protect their other assets and property from claims that might result from their real estate investment. If the LLC is formed and managed correctly, customers can limit their potential liability if there is a claim or lawsuit relating to the real estate. Although an LLC and a corporation can both help protect our customers from liability, we find that many of our customers choose an LLC to hold real estate. In addition, an LLC can have tax advantages over a corporation. For example, 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.

Summary:

  • Selecting the best entity to hold real estate investments is typically dependent on the particular circumstances involved, such as the size of the company's business, and the number of owners or members.
  • Many customers find that an LLC provides them with a simpler and more flexible way to protect their assets from claims that might result from their real estate investment.
  • An LLC may have tax advantages over a corporation. For example, an LLC with one owner may not to have file a separate tax return and its profit or loss can be included in the owner's personal tax return. A corporation must file separate returns.
How do I change my mortgage from my personal name to the company name?

If an individual investor owns real estate in their own name and has a personal loan and mortgage relating to that property, they will need to negotiate with their lender to attempt to transfer the loan and mortgage to the LLC. Whether the lender will agree to allow the LLC to replace the individual investor as the borrower on the loan and mortgage will depend on the particular circumstances presented. Moreover, in connection with agreeing to transfer the loan and mortgage to the LLC, the lender may require changes to the terms of the loan and/or additional collateral or personal guaranties.

Rather than attempt to transfer an existing loan, the LLC may seek to obtain a new loan and mortgage, such that the proceeds of the new loan would be used to pay-off the individual investors' outstanding personal loan in connection with the transfer of the property to the LLC.

Typically, lenders, such as a mortgage company will grant loans only if they are satisfied that the borrower has the ability and resources to repay the loan.

Keep in mind that the real estate purchased by the LLC or corporation typically must be pledged as collateral for the loan. [See FAQ #2].

Of course, in order for the LLC to obtain a loan and mortgage with regard to the property, it will be necessary to transfer the property to the LLC.

Before transferring the deed of a property into an LLC, the LLC must be formed. The Company Corporation can help properly form and maintain an LLC. To transfer a deed to an LLC, the deed will need to prepared in the LLC's name and filed and recorded in the appropriate office(s) located in the jurisdiction in which the property is located (usually the county's recorder of deeds office). The deed must be signed by the person or entities transferring the property, and will require the proper notarizations.

There may be costs and tax issues relating to such a real estate transfer and changes to existing loans and mortgages, which can vary significantly based on the terms of the transaction and other circumstances. Given the many important issues presented in such a transaction, it is often prudent to obtain advice from a real estate attorney.

Summary:

  • In order for an individual investor to transfer a loan or mortgage to an LLC, the investor will need to negotiate with their lender.
  • Alternatively, the LLC may seek to obtain a new loan or mortgage, which can be used to pay-off the individual investor's existing loan.
  • In order for the LLC to obtain a loan with regard to a property, it will be necessary to transfer the property to the LLC.
  • There may be costs and tax issues relating to the transfer of the property and making changes to the existing loans and mortgages. Given the many important issues relating to such a transaction, it is often prudent to obtain the advice of a real estate attorney.
Should I form an LLC for each property?

Many of our customers form an LLC to hold and manage their real estate in order to protect their personal assets from a claim or lawsuit relating to their real estate investment. If an investor owns multiple properties, he or she may be able to further protect his or her assets by forming a separate LLC to own and hold each separate property. If the separate LLCs are properly formed and maintained, then theoretically only the assets owned by a specific LLC would be subject to claims or lawsuits against that LLC. However, there are costs and administrative responsibilities associated with forming, qualifying (if necessary), and properly maintaining multiple LLCs, which should be considered in deciding whether to form separate LLCs for each property.

Another option to consider, if permitted under applicable law, is a series LLC, which is an umbrella entity consisting of one LLC with multiple "series" or "cells." Series LLCs may be of interest to individuals who have several large assets (such as multiple properties) for which they desire to maintain separate liability protection.

Summary:

  • Many of our customers form an LLC to hold and manage their real estate in order to protect their personal assets.
  • One option to provide additional protection may be to properly form and maintain a separate LLC to hold each property. However there are costs and administrative burdens associated with properly forming, qualifying and maintaining each separate LLC.
  • Another option may be to form a series LLC if permitted under applicable laws.

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