When you start investing in commercial real estate, there are many different decisions that you need to make. One of the biggest is what type of structure your business has. Some investors are curious about the benefits of forming an LLC, or limited liability company. What should you know about LLCs and real estate investing?
What Are the Benefits of LLCs for Real Estate Investing?
Most real estate investing companies who are LLCs initially choose this structure because they are very easy to set up and use, and they help protect your personal assets from any lawsuits or debts relating to the commercial properties. The LLC structure is also very flexible and can be appropriate in a variety of situations. LLCs are an excellent way to protect yourself from claims that might pop up due to owning, developing, or leasing a commercial property. You’ll get the benefits of ownership without the liability associated with it.
Are There Downsides of LLCs for Real Estate Investing?
Despite LLCs being a popular choice for real estate investing, there are also drawbacks that show why careful consideration is so important. Being an LLC can impact the financing process, so you might not be able to access the best financing or interest rates like you would if you were purchasing it with your own credit. Some people try to work around this by purchasing the commercial property under their own name and transferring it to an LLC, but that typically violates loan requirements.
Who Should Consider Creating an LLC?
LLCs are very valuable if you have multiple owners of your commercial property, as they make it simple to outline every party involved and all of their responsibilities. You can form an LLC before or after buying your property, as long as you ensure that your financing terms will not be discarded. If you start renting out the property before forming an LLC, you will also need to update rental leases and notify tenants of the change. Work with your accountant to prepare for any tax changes that will happen as a result of your real estate investing.
Make Finances Easy at Your Commercial Real Estate Business with MKS&H
MKS&H provides tax and accounting services to businesses of every size and in every industry, including construction and commercial real estate. We can work with you to improve your company and make sure that it is financially secure now and in the future. Contact us today for a consultation.
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.