Maximizing the Protection of Single Member LLC Real Estate

Most real estate investors would agree that among their major concerns when purchasing real estate are limiting personal liability and not having their personal assets subject to creditor claims. To address these concerns, limited liability companies (“LLC”) are growing in popularity as real estate holding entities. Unlike a general partnership, under which all partners may be personally liable for claims against the partnership, or a limited partnership, under which the general partner and the limited partners who actively participate in the management of the limited partnership face personally liability, all of the members of a properly formed LLC can avoid personal liability for the LLC’s action.

In addition, there are several other things that you can do to strengthen the protection of limited liability that an LLC offers:

  • Avoid personal guarantees—Not all personal guarantees can be avoided, but do not automatically consent to every guarantee request
  • Capitalize the business adequately—Provide adequate capital for the entity’s intended purposes and document the capital infusion
  • Keep the LLC separate from your personal business—The LLC should have its own bank account. Don’t pay personal expenses from the business account
  • Purchase business insurance—Carrying adequate business insurance won’t change the fact that you are personally liable for your own negligence, but it can help by providing a source for payment. You might also consider a personal umbrella policy

Aside from shielding your personal assets from creditors, owning investment property in an LLC provides other advantages, including easy transfer of ownership without recording such transfers, and various potential estate tax planning benefits.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>