Many real estate investors’ properties are owned under a separately formed entity–many times, but not always, by LLC’s. Such alternative ownership structure protects one’s personal assets. For example, if a claim or lawsuit arises relating to real estate owned by a properly formed and managed LLC, only the assets owned by the LLC are generally at risk if a judgment is entered. The investor’s personal assets will typically not be subject to such claim or lawsuit.
Many investors choose to set up a separate business entity for each investment property they own. Others choose to set up one business entity for their entire investment property portfolio. Either choice goes a long way toward protecting one’s personal assets.
As for choosing between an LLC, partnership, corporation, or other business entity, many factors are at play. Number of owners/managers/members…state in which the property is located…tax treatment considerations…etc. More posts will be submitted in the near future regarding these factors, as well as how to transfer ownership of one’s property from ownership as an individual to ownership as a business entity. Check back in the coming weeks.
Of course, when making these decisions, it is always best to consult one’s attorney and possibly one’s tax advisor.