Benefits of a Real Estate LLC

Jump to Section

Need help with an LLC?

CREATE A FREE PROJECT POSTING
Post Project Now

What is a Real Estate LLC?

A real estate LLC is a limited liability company that is created to buy and sell real estate properties. When a person forms an LLC, the LLC is a separate legal entity from the individual. This means the LLC has its own bank account and files its own taxes. This provides both liability protection and tax benefits to the company’s owner.

When a person purchases real estate using a limited liability company , the LLC is the legal owner of the property rather than the individual owner. LLCs can be formed for just one real estate transaction or can be maintained for various real estate investment properties.

Setting up a real estate LLC is reasonably simple and can be accomplished by following these five steps:

  1. Choose a name for your company and conduct a search to ensure it isn’t already in use
  2. File Articles of Organization with your Secretary of State
  3. Draft an operating agreement for your company
  4. Obtain all necessary business licenses and permits required to conduct business
  5. Apply for a tax identification number through the IRS and set up a business bank account

Each state will have its own business laws that regulate the formation of an LLC. Some states require that you publish an intent to file in your local newspaper, and required licenses and permits can vary. If you have questions about your state regulations, you can reach out to a corporate lawyer familiar with your state laws.

Should You Put Real Estate in an LLC?

Yes, it would be best if you put real estate in an LLC. Establishing an LLC for real estate transactions provides the owners with:

  • Asset protection
  • Liability protection
  • Tax benefits

Owners of multiple properties are encouraged to place each property under its own separate LLC. They can then establish a parent LLC to manage all the individual LLC. Each limited liability company will provide the owner with another layer of protection, and it will keep the properties insulated from each other.

If you would like more information about investing in real estate, read this article.

Benefits of Using an LLC for Real Estate Investing

Using an LLC to purchase real estate and run rental companies will provide the owner with many benefits, from personal liability protection to tax savings.

Personal Liability Protection. There are two main situations in which personal liability protection is essential when owning real estate:

  1. Injury: If someone is injured on your property, they may file a lawsuit to recover damages. Even if you have insurance, insurance only covers up to certain limits. If an LLC owns your property, only the LLC can be named in the lawsuit. This means that only the LLC’s assets are subjected to collection if the plaintiff is awarded damages. Your personal bank accounts, real estate, and other properties under other LLCs are protected.
  2. Monetary Judgments: Similarly to a personal injury claim against your property, there is the possibility that the property could be caught in a financial dispute or targeted by creditors. Because the LLC is a separate legal entity from the owner, only the LLC’s assets are at risk in collection from a monetary judgment.

Credibility. When a real estate property is owned by an LLC rather than an individual, it creates a more business-like appearance. When someone is looking to lease property, whether it be commercial property for a business or residential real estate for personal use, contracting with a legally registered LLC makes the transaction feel more legitimate.

Ease of Transferring Property. Selling real estate is a complicated process. However, transferring LLC membership interest is a much easier way to buy and sell property. The current owner can transfer their interests in the LLC to the new owner. The LLC will still own the real estate even if the LLC ownership is transferred.

Tax Benefits. Real estate owners who operate through limited liability companies can receive substantial tax benefits. The benefits are even more significant for those who rent their properties. Some benefits include:

  • Qualified business income deductions
  • General business deductions
  • Pass-through taxation

Qualified business income deduction allows taxpayers to deduct 20% of LLC income from their personal taxes. General business deductions can include auto expenses, utilities, travel, and meal associated with running the LLC.

Meet some lawyers on our platform

Daehoon P.

5 projects on CC
View Profile

Russell M.

4 projects on CC
View Profile

Anatalia S.

3 projects on CC
View Profile

Samuel R.

4 projects on CC
View Profile

How Are Real Estate LLCs Taxed?

At the federal level, real estate LLCs are pass-through entities . Any income earned by the LLC, like rental income, passes through the LLC and on to the individual members.

LLCs are not subject to federal taxes like a corporation, so they avoid double taxation. The LLC members are responsible for reporting all profits and losses on their individual federal tax returns.

Limited liability companies are also eligible for various tax deductions that can reduce the amount of taxes the owner must pay. Most rental properties are eligible for the qualified business income tax deduction in which the owner can deduct 20% of the LLC income from their personal taxes.

Other popular tax deductions for real estate and rental properties include:

  • Mortgage interest
  • Depreciation
  • Property taxes
  • Repairs and maintenance
  • Transportation expenses
  • Advertising
  • Insurance

Check out this article for more information about how real estate investments are taxed.

What’s Included in Real Estate LLC Operating Agreement

An LLC operating agreement is a written document that lays out how a company will be operated and governed. The operating agreement includes important information like management structure , investments , taxes , and profit-sharing .

Most states do not require limited liability companies to have an operating agreement; however, it is a good idea to have one anyway, especially if the LLC is a multi-member LLC which is typical for real estate LLCs.

The operating agreement outlines the roles and responsibilities of all the members and managers in a company and will help avoid and solve any business disputes that may arise.

It is common for real estate investors to go into business with a partner. This means that the real estate LLC will have more than one owner. An operating agreement will protect all partners because it is a legally enforceable contract.

An operating agreement is an important document, so it is best to consult with an experienced corporate lawyer to help draft the contract to ensure it meets your state’s legal criteria. Operating agreements will vary depending on the company, but an effective agreement will contain the following information:

  • LLC name, address, and function of the business
  • Names of each member with contact information
  • Capital contribution from each member and what percentage of the company each member owns
  • How profits and losses are distributed
  • Management structure
  • Financial administration like accounting methods and banking methods
  • A process for making business decisions
  • How and when a partner can sell shares
  • How the LLC can be dissolved
  • How disputes will be resolved

An effective operating agreement will help deter disputes, and if a dispute should arise, the operating agreement will help resolve the issue. If two or more people form a real estate LLC, it is imperative to have an explicit, effective operating agreement.

Get Help Forming a Real Estate LLC

Do you have questions about real estate LLCs and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from LLC lawyers and real estate lawyers specializing in real estate LLCs.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

ContractsCounsel verified
Legal Counsel
13 years practicing
Free Consultation

12 Year PQE Lawyer with wide experience in sports, media and tech.

ContractsCounsel verified
Lawyer
5 years practicing
Free Consultation

I am an entrepreneurial lawyer in the Seattle area dedicated to helping clients build and plan for the future. I graduated from the University of Chicago Law School and worked in a top global law firm. Now I help real people and businesses get where they want to go. Reach out to discuss how we can work together! Some of the areas of law I work in: Small Businesses, Trusts & Estates & Wills, Tax Law (for individuals, businesses, and nonprofits), Land Use, Environmental Law, Nonprofits

ContractsCounsel verified
Business Attorney
15 years practicing
Free Consultation

Results oriented business attorney focusing on the health care sector. Formerly worked in Biglaw doing large multi-million dollar mergers and acquisitions, financing, and outside corporate counsel. I brought my skillset to the small firm market, provide the highest level of professionalism and sophistication to smaller and startup companies.

ContractsCounsel verified
Associate
15 years practicing
Free Consultation

Attorney - I graduated in Law from the University of Wroclaw and in Economics from the Scottish University of Aberdeen; My legal interests include, in particular: contracts, intellectual property, and corporate law, as well as transactional / regulatory advisory along with related risk management (M&A); The industries with which I have worked most often are: IT, real estate and construction, professional sport, industrial chemistry and medicine, oil & gas, energy, and financial services; I possess many years of experiences working with international entities for which I have prepared and negotiated contracts, as well as (due diligence) reports, analyses, litigation documents, and presentations; Apart from law firms, I have also worked for investment banks and big 4 - thanks to that I also gained financial, technological, and consulting experiences; I shall be described by: accuracy, openness, honesty, concreteness, a broad approach to the problem, and ... a lack of bad manners, along with a good sense of humour :)

ContractsCounsel verified
Self Employed
12 years practicing
Free Consultation

I have practiced law in foreign jurisdiction for more than 11 years and more than one year in Texas. I am Texas licensed attorney. Practice areas include Corporate: incorporation of business entities, drafting of operating agreements, by-laws, and business contracts; Commercial: business disputes, demand letters, cease and desist lettera, dealing with insurance companies, negotiations, settlements of disputes, commercial real estate, and business litigation Litigation: business disputes, personal injury, civil rights, cross-border matters, maritime matters, drafting of litigation pleadings, motion practice, legal research, white-collar defense.

ContractsCounsel verified
Attorney
39 years practicing
Free Consultation

Mr. LaRocco's focus is business law, corporate structuring, and contracts. He has a depth of experience working with entrepreneurs and startups, including some small public companies. As a result of his business background, he has not only acted as general counsel to companies, but has also been on the board of directors of several and been a business advisor and strategist. Some clients and projects I have recently done work for include a hospitality consulting company, a web development/marketing agency, a modular home company, an e-commerce consumer goods company, an online ordering app for restaurants, a music file-sharing company, a company that licenses its photos and graphic images, a video editing company, several SaaS companies, a merchant processing/services company, a financial services software company that earned a licensing and marketing contract with Thomson Reuters, and a real estate software company.

ContractsCounsel verified
Director
8 years practicing
Free Consultation

We are a boutique legal practice focused on media, fintech and international trade and have significant experience of advising on high value matters in these areas and delivering results. We advise start-ups, established businesses and professionals on a wide range of commercial and corporate arrangements, not only in the UK, but also in the European Union, United States and Latin America.

ContractsCounsel verified
Owner
13 years practicing
Free Consultation

Talin has over a decade of focused experience in business and international law. She is fiercely dedicated to her clients, thorough, detail-oriented, and gets the job done.

ContractsCounsel verified
Attorney Advisor
8 years practicing
Free Consultation

Former litigation attorney, current owner and co-founder of a documentary and scripted film and television production company. Well versed in small business foundation, entertainment and IP-related issues, as well as general business contracts.

ContractsCounsel verified
Attorney
6 years practicing
Free Consultation

I have been practicing law for more than 4 years at a small firm in York County, Maine. I recently decided to hang my shingle, Dirigo Law LLC. My practice focuses mostly on Real Estate / Corporate transactions, Wills, Trusts, and Probate matters.

ContractsCounsel verified
Managing Partner
24 years practicing
Free Consultation

Tim has 20 years of experience representing a wide variety of emerging and established companies in the technology, software, bitcoin and professional services industries. He works directly with his clients’ executives and boards of directors on corporate, intellectual property, and securities law issues. Recently, Tim has advised clients on Series A and Series B financings, corporate structuring, complex video licensing agreements, and structuring new hedge funds. Tim previously served as Forrester Research, Inc.’s General Counsel and Secretary where he was chief legal officer, led the company’s legal group, and managed the company’s legal and regulatory affairs. Tim played an integral role in the company’s initial public offering in 1997 and coordinated its secondary offering in 2000. He directed the legal process in the company’s acquisitions of Giga Information Group, Inc., Fletcher Research and Forit GmbH and oversaw over $125million in transactions. He also managed the company’s intellectual property assets. Tim is admitted to practice in Massachusetts and New York. Tim holds a Juris Doctor degree from the Boston College Law School and a Bachelor of Arts degree from Trinity College

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call