Should You Own Real Estate in Your Personal Name or in An LLC?

How are you protecting your assets? 

As an investor it is evident that you must have a plan for how you will limit your liability to risks. 

While there are several ways to protect your assets, you should select a method that works for you.

Today we will cover a few ways investors limit their liability to risk.

Let’s get started.

Entity Choice

I often hear investors, whether aspiring or currently active, speak on the topic of using a LLC (limited liability company) or not. 

While you do not need to place your properties in a LLC, understand that you would be putting your other personal assets at risk.

Often times when starting out, there may not be a concern with the amount of personal assets you have personally. 

If that is the case, electing to not own your investments in an LLC may be okay.

However, if you have considerable amounts of assets that you don’t want to jeopardize any risk to, you should own your new assets in an LLC.

Here are the primary pros and cons to owning in an LLC and not owning in an LLC.

It is up to you to decide what works better for you based upon your situation and plan.

– Pros for Owning Personally

• Better financing rates. Ability to possibly scale faster.
• Ability to utilize government programs only available to persons.
• Ability to compound better financing rates in addition to utilizing the house hacking method.
• Ability to convert your primary debt vehicle from a mortgage to a HELOC – in the first lien position.
• Less yearly expenses if you live in a state that would require annual fees for your entity.

– Cons for Not Owning Personally

• Lack of anonymity – otherwise inability to remain anonymous.
• Liability risk to other personal assets outside of the investment property.
• Inability to defer expenses on your taxes that are incurred when running a business.
• Inability to build business credit and separate your personal credit expenses from your business credit expenses.
• High risk to personal credit if conducting risky value add investment strategies.

– Pros for Owning in an LLC

• Limits your risk liability to only the assets owned under that entity/LLC.
• Benefits of anonymity. Remain anonymous in ownership with proper structuring.
• Build business credit to separate personal credit from business credit.
• Ability to access more funding relationships for value add strategies. Many private/hard money lenders will not lend to persons, but only to entities.
• Ability to utilize government programs only available to businesses.
• See Cons for Not Owning Personally

– Cons for Owning in an LLC

• See Pros for Owning Personally

So what do you think? Which is more ideal for you?

If you do own personally and want to mitigate your risks, there are always insurance policies that cover you. 

This is how many investors, that are not concerned with anonymity or tax deferments, run their businesses.

Conclusion

Based upon your current standings and forward plans, you can decide what fits your life best. 

Perhaps you will use both strategies by starting out owning personally and then using entities moving forward.

Whether you select one or the other, or a combination, the decision is yours.

• If you’re ready to start an LLC, and would like the service completed for you, connect with us here.
• We file LLC formations and FinCEN BOI reporting separately.

We hope this article has been helpful for you.

Thanks for joining us today faithful readers – future leaders.

Love ya and continue to strive for growth.

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Please feel free to comment any additional pros and cons.