When it comes to starting any business, the question of whether or not to form a Limited Liability Company (LLC) almost always comes into question. And depending on who you talk to, they will either talk you in or out of it. Depending on where you live, it may or may not be a necessity, so always check with your local principalities to see if you are required, but in most states, you are not. However, when it comes to real estate, the lack of an LLC could be absolutely catastrophic. Because if you don’t have one when you need it, you could be in a whole heap of trouble that you weren’t prepared to deal with. Here’s why you should become an LLC as soon as you decide to start investing in real estate!
It Covers More Than Just Insurance Needs
It is a common misconception that insurance can cover the same things as your LLC will. This, however, could not be further from the truth. Insurance will cover damage to your property, injury to yourself and to other tenants while on your property. But your LLC is what protects you legally as well as any damages that are not covered by your insurance. The LLC will help protect you against lawsuits, extortion, fire, and damage or injury is done to guests of your tenants. These are all things that are not covered by your insurance but could cause a huge hiccup in your investing plans.
Protects Your Investments
A huge reason to make sure that you form an LLC is so that should something go awry, your personal assets and your other investments are not at risk. Let’s say you own two separate apartment buildings that you lease out (apartment 1 and apartment 2). A tenant in apartment 1 has an accident on the property and decides to sue you and is awarded a very large judgement. Since you own both properties under your LLC, both properties can be used to pay the proceeds of the lawsuit. This is especially important when dealing with large properties because should you face a lawsuit or bankruptcy, the stipulations of your LLC make it so that in the midst of financial trouble, your personal assets are not going to be called into question. Your LLC can also help you with estate planning, tax savings, and even privacy in your investments.
Protects You When Co-Investors are Involved
Having co-investors is vital to invest in multi-family properties. And no matter how much you like someone or what your relationship may be, there is always a chance that one day it could go south. And having your LLC in place when that happens could save you a lot of time and money when it comes to complications in case of a partner’s death, incapacity or divorce. When you form an LLC, there are contracts that involve stipulations for everything. There are protocols for every issue that could possibly arise and this can give you the peace of mind to know that your investments are safe.
All in all, we think that it is pretty important to form an LLC when it comes to real estate investing! So, our best suggestion is that you check with your State to see what is required and how to go through the proper channels in order to get things lined up. If you’re looking for a place to start investing, once you have your LLC in place, give us a call. Here are Magnolia Design Properties, we are all about helping each other and finding the best places to invest. As part of our own learning process, we have spent a great amount of time listening and learning from what we consider to be experts in their field. Magnolia Design Properties is here to build long-term relationships with interested investors. Call us today at 1-844-428-9776 to start the journey of investing in multi-family.
