Should You Form An LLC To Invest In Real Estate?

Updated on

Real estate investment is a great way to earn money and many people undertake this form of investment as private individuals. If you’re considering a more aggressive investment strategy, such as becoming a real estate flipper, however, or you want to partner with someone else in the process, it may be better to formalize your business. So how do you do that? Your best option may be to form an LLC.

The Real Estate LLC

While many LLCs, short for limited liability company, structure conventional small businesses like local stores, home-based businesses, and digital service providers, real estate LLCs are slightly different. That’s because a real estate LLC is a way of separating an investment from personal assets. It’s a beneficial strategy because it means that if you fall behind on expenses or experience financial losses related to your real estate holdings, your personal assets like your savings or home aren’t vulnerable. That’s not all a real estate LLC does, though.

Another advantage of forming a real estate LLC is because it provides a structure for investing in real estate with a group of people. If, for example, you want to invest in real estate with your family, an LLC can help you set up an operating agreement and establish guidelines for cooperation and money management. This can prevent conflicts down the line.

Get The Guidance You Need

If you decide that forming an LLC is right for you as a real estate investor, it’s important that you go through the proper channels. First, you’ll want to consult resources from an established LLC development group. These resources, either written or via an individual expert, can help you understand the requirements for a real estate-focused LLC in your state, including the filing costs and paperwork involved. These services can also help you develop a business plan for your LLC.

One of the advantages of working with an LLC development service is that they can help you define the goals of your organization. Your goals may seem obvious – you want to invest in real estate while protecting your assets – but there are a number of other issues an LLC can address.

By forming an LLC, however, you also protect your assets from lawsuits by tenants and guests, create additional estate planning opportunities, and make it easier and less expensive to transfer properties between groups or individuals.

Are There Alternatives?

Besides continuing to operate as a private individual, there are other alternatives to forming an LLC for your real estate investment business. One option is to form a real estate partnership instead, but an LLC offers greater risk mitigation. You can also opt for limited liability insurance, but again, the protections just aren’t as comprehensive as if you were to form an LLC.

The fact is, investing in real estate is risky enough before you begin considering issues like lawsuits and bankruptcy. It costs a lot of money to flip houses or maintain properties. Doing the work to form an LLC, either as a sole operator or with friends or family, can provide you the protection you need to feel confident about your long-term financial prospects.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q3 2019 hedge fund letters, conferences and more

Leave a Comment