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Should I start a real estate LLC?

| Jun 26, 2020 | Real Estate |

The real estate market is offering some interesting opportunities right now. Whether looking to buy a cabin for personal use and income with the occasional rental or considering gathering multiple rental properties to bring in a regular income, those who are interested in making the most of these opportunities may want to consider forming a real estate LLC.

What is a real estate LLC?

An LLC, or limited liability company, is a legal entity. An entrepreneur can use an LLC to separate their own, personal assets from those held within the LLC. This is important because that separation can provide protection in the event of a lawsuit or other issues. When an LLC is present, the creditors can go after the assets within the LLC, but the LLC will create a barrier and protect the creator’s personal assets.

There are some exceptions. If the creator commingles personal assets with the LLC or fails to keep proper records, the creditor could potential break through the protection of the LLC and reach the creator’s personal assets. Legal professionals refer to this process as piercing the veil of the business entity.

Why would I want a real estate LLC?

In addition to the liability protections explained above, an LLC can also result in tax benefits. These can include a qualified business income deduction and other business deductions. This results in the ability to write off expenses that relate to the real estate held within the LLC, likely reducing the creator’s overall tax obligations.