Using LLCs in Real Estate

Investing in real estate can be a daunting process. That is why many people turn to establishing limited liability companies, or LLCs, to account for all of the complex legal and tax implications of owning multiple properties. There are a few things you may want to consider about LLCs as they related to real estate.

It is important to note that the option isn’t perfect for everyone. There are costs associated with starting and maintaining an LLC, which may make them inadvisable for some investors. There will be cases when taking liability insurance policies out will be a better solution. That said, for those who want the added structure of a company, forming an LLC can be a good option.

How to Form an LLC:

  • Many of the rules will vary from state to state, so be sure to consult with an attorney in your state to ensure compliance. For Massachusetts, reach out to one of our Business Law Attorneys – we are happy to help get you started.
  • Choose a name that complies with state law. We can help you determine whether your LLC name may conflict with another company registered in the state.
  • File the paperwork and pay the associated filing fees, typically around $100 to $800 depending on your state. In Massachusetts, the filing fee is around $520.
  • Create an Operating Agreement for all members of the LLC. This lays out how the LLC will be managed.

Benefits of an LLC:

  • The primary benefit of having an LLC for property investments is no double taxation. Income and capital gains generated by the LLC will essentially bypass the owner, who will only have to pay individual taxes. There is no separate tax on the LLC, thus avoiding double taxation.
  • LLCs do not have to have the same corporate structure as other business entities. They can be managed either by a manager, the members, or a third party. Foreign ownership of an LLC is permitted, unlike with an S-Corp. LLC owners can also transfer ownership of properties by giving interest to heirs, which can, over time, completely pass on the ownership without paying fees associated with the transfer.

Does an LLC make sense for real estate investments for you? If you have questions or would like to learn more, please do not hesitate to reach out to us. We’re here to help!

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