
There are numerous decisions to make when investing in real estate – and even more as a foreign investor. Among them is deciding how you will own the property. You may choose to invest in real estate as an individual investor. Alternatively, you might consider purchasing property as an entity, such as a corporation, trust or limited liability company (LLC). Each option comes with its benefits and drawbacks, so it’s imperative to weigh the decision carefully. The right structure can protect your assets and minimize taxes.
Why Consider Investing as an Entity
Investing in real estate through an entity rather than as an individual offers several benefits. Here’s why many foreign investors opt for this approach:
- Liability protection – By holding property under an entity, you can limit your personal liability in the case of lawsuits or creditor claims.
- Personal privacy – Investing through an entity can help protect your personal information from public records, as property acquired through an LLC will list the entity’s name on the deed rather than your own.
- Tax benefits – Depending on the entity structure, you may benefit from certain tax advantages that aren’t available to individuals. For example, income and losses from an investment property are generally not subject to tax withholding, however, always consult with a U.S. tax advisor to learn the best tax strategies for your investments.
- Joint ownership and ease of transfer – A business structure allows members to jointly contribute capital and share in the income or losses per the entity’s operating agreement. Moreover, transferring ownership shares within an entity can be simpler and more tax-efficient than transferring property directly.
Challenges of Investing as an Entity
Purchasing real estate in Florida as an entity is generally advantageous, but the decision must align with your goals and situation. It also comes with other considerations, including:
- Complex financing – If you aren’t purchasing the property with cash or capital contributions from other LLC members, it can be more challenging to secure a loan under the entity’s name (the same is true forforeign investors more broadly). A personal guarantee will almost certainly be required – and maybe not just from you but from every member of the LLC.
- Business formation costs – Registering a U.S. business entity in Florida comes with formation and ongoing management costs. You’ll want to ensure your business is formed correctly and in compliance with local and state laws.
- “Due on sale” clause considerations – If you already own an investment property as an individual and want to transfer it to an LLC, it could trigger what’s called a “due on sale” clause in your current loan agreement. This means that the full balance of the loan may need to be repaid if you are attempting to transfer ownership.
Contact Us at Sirulnik Law and ADS Title Services, Inc.
As you weigh the advantages and disadvantages of investing in Florida real estate as an entity, don’t hesitate to reach out to us at the Law Offices of Alex D. Sirulnik, P.A. | ADS Title Services for professional guidance and legal advice on business and real estate law matters in Miami and across South Florida.