Purchasing an investment property under an entity name, such as a limited liability company (LLC) or a corporation, is a common strategy among real estate investors, but before determining if it’s the right strategy for you, here are some factors to consider.

Pros and Cons of Buying Investment Property as an Entity

One of the primary advantages of doing business under an entity name – and this includes investing in real estate – is that it offers a level of personal asset protection you don’t get as an individual investor. If there is a lawsuit or creditor claim made against the property owners, the business entity will be liable but your personal assets should be shielded. Other advantages include:

  • It enables you to add members/investors to the LLC – A business structure allows members to jointly contribute capital and share in the income or losses per the entity’s operating agreement.
  • It offers tax advantages – Income and losses from an investment property are generally not subject to tax withholding, however always consult with your tax advisor to learn the best tax strategies for your investments. 
  • It offers personal privacy – Property acquired through an LLC will list the entity’s name on the deed, not your own.

While there are many advantages to owning real estate under an LLC, there are some other considerations to keep in mind, including:

  • Financing can be more complex – 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. A personal guarantee will almost certainly be required – and maybe not just from you but from every member of the LLC.
  • It comes with business formation costs – Registering a business entity 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. Talk to us about registering a U.S. entity in Florida.
  • There may be “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 with Questions

Reduced personal liability, strategic tax advantages and other benefits can make purchasing property under an LLC a wise choice depending on your situation. As you consider the advantages and disadvantages related to your specific investment strategy, 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.