July 13, 2024


Mad about real estate

Understanding LLC and its Importance to the Landlords

If you are into rental property business, whether it is for residential or commercial purposes, it is best to form a LLC to handle your property.  It is unavoidable that such of business is very volatile.  If you do not have any knowledge about the standard operation, then you might have a lawsuit in the long run.  However, if you are a wise business owner, you have insurance in case problems such as those may arise.  To ensure a more orderly flow of your operation, it is recommended to put your rental business under a LLC.  Even if this might not be the ideal answer, but it limits the claims of LLC creditors to the LLC assets and also protects your home and business from the creditors.

Consider some of these instances so you will have complete understanding of the essence of LLC.  The restriction on liability is not ideal.  If you asked someone to do some jobs such as removing of snow and you did not do it.  Then it resulted such job to an injury, you can possible be a part of it as the person responsible for doing the job and not just a mere owner.  The part of LLC will restrict your contractual liability to the extent that the contract is only within the LLC and the other party.

If your LLC is under the category of sole proprietor, you will be saved from filing your own tax returns.  It can be part of the Schedule C on your personal tax return.  But, if your LLC has two proprietors, such as husband and wife, you will have to file a different partnership tax return.  On the other hand, if you are married and one of you happens to be the LLC owner, one of you can automatically receive the LLC membership if the owner dies.  Therefore, a multiple-member LLC has to file its own tax return.  As married couples and want to have a more organized operation, you have to be open to the fact that one of you will own the LLC.

In order for you to give the limited liability that is normally shown by the LLC entity, you have to claim that LLC is different from you.  It must have its own bank account.  You are not allowed to use any money from LLC’s bank account for personal consumption.  And the LLC must be the one to get involved in any agreement and not the owners itself.

Finally, your mortgage holder may not be in favor about your transfer of ownership of your property to the LLC.  Majority of these mortgages would need you to pay off the balance before any related proceedings are made.  In loans, if you plan to transfer the real estate property into a LLC, it should be considered sold first.  However, there are cases that you can renegotiate this rule if you put up LLCs for rental properties.  There are also other cases that they conduct the transfer hoping that the mortgage holder will not notice the transaction.  However, be careful of the risks involved in this scenario.  The lender can anytime consider the loan due because of the violations made under the due on sale clause.  This is in the case if you have successfully transferred the property and was caught by the lender.  And as son as the loan is said to be due you may either refinance it or must be paid off.  The worse consequence of your actions is your loan might get more expensive as you go along.

With all these tips, try to think carefully and decide whether LLC option is the best for your business.