Copyright (c) 2009 Jeffrey Matsen
Real Estate is generally considered to be a very valuable and worthwhile investment and has generally increased in value over time. Although the real estate market has slowed down recently, many individuals have substantial equity in their real estate investments and in many cases real property assets constitute the major part of their estate. If you own real estate in addition to your residence, you need to pay attention to this warning.
With the huge proliferation of plaintiff lawsuits and the victim compensation attitude of juries and the courts, it is imperative that the proper steps be taken to protect your real estate assets and the hard earned equity build up that they represent. Insurance, of course, is a must, but, in addition, most income producing real estate and even raw land should be placed in limited liability companies (“LLCs”) in order to preserve and protect the other assets in your estate from claims that may not be covered by insurance. This is especially true if the property is jointly held with another investor or in a partnership where the problems of the other joint owners or partners can possibly endanger your own interest in the property.
An LLC is structured much like a partnership except that it has members instead of partners. The LLC can be member managed in a manner similar to a general partnership or it can be manager managed like a general partner does in a limited partnership. If the LLC is member managed, normally, all of the members have an equal vote and decide between themselves on not only the major business and financial policies, but, also the every day operations. If the LLC is manager managed, the members only decide on major financial and business decisions and the manager handles all of the day-to-day business operations.
When the primary purpose of the LLC is to hold title to a real estate investment, the members will need to deed or convey the real property involved to the LLC by means of a formal deed that needs to be recorded. All of the rents with respect to the real property should be deposited in the LLC bank account and all expenses with respect to the property should be paid for out of the LLC bank account. All contracts with respect to the real property and service arrangements should be exclusively in the name of the LLC.