Should Your Real Estate Business Become an LLC?

Real estate is one of those ventures that you can get into through a very deliberate plan to become a landlord, but also sometimes just by a pure accident. Examples of the latter include inheriting a piece of property and renting it out or buying a house adjacent to your own just to be in control of what happens in it.

Whatever the circumstances of your entry into the real estate business, you are in a vulnerable position. Owning a piece of property exposes you to all kinds of liability risks, not just for the tenants you have but also their visitors, as well as any contractor who may come to make repairs, potential tenants visiting the property while it’s vacant, and many others. If one of those people is injured or killed while on your property, you are at personal risk of losing everything.

The only viable means of avoiding that risk is to form a real estate LLC. This step creates a legal entity that bears all the liability of the real estate venture, removing it from you personally. A tenant could suffer a paralyzing injury on your property and sue the LLC, and that tenant might be awarded all the resources that the LLC owns, including the property itself.

Sure, that’s a difficult blow, but the judgment would not jeopardize your home, your car, your personal financial holdings, or anything else that’s in your name, and that’s why setting up an LLC is far superior to simply privately owning the property.

Liability is a major part of the value of an LLC, but there are other benefits you will find when you put one together.

Simplified Partnerships

Not every LLC is owned by just one or two people. Real estate companies are often composed of relatives, friends, investors, joint heirs, or other groups that band together for the purposes of the real estate and, often, for nothing else.

Assembling these groups into an LLC allows you to have everything established on paper and with everyone’s agreement about management, ownership, rights, duties, and so forth. This can go a long way toward not only the setup and operation of the company but also any future liquidation, departure of partners, or other changes.

Privacy

If your property is for rent, do you want phone calls about it coming to your home? Do you want somebody to knock on your door and ask about it? And if there is a problem, do you want people to know where you live if you evict them or refuse to rent to them?

Concealing yourself inside an LLC is a great way to insulate your personal life from the business and to allow only the access you want. Your LLC can hold a mailing address, email, phone number, and social media presence that all operate without undesired access to your personal information.

A Professional Image

It is vital that your tenants perceive your real estate company as a serious business, not a hobby that you’re involved in for fun or a simple technique for protecting your property. That’s true even if those are your exact motivations.

Having them write “Smith Street Property Management LLC” instead of your own name on the rent check reinforces with them every single month that you are running a business, and they are expected to interact with you the way they would interact with a business.

Real estate companies number in the thousands, encompassing thousands of individual properties and operating under countless ownership arrangements, rent scales, and more. No matter their unique characteristics, though, every real estate company has issues of risk, ownership, privacy, and professionalism to address, and an LLC allows the owners to manage the property in the optimum way to keep those issues under control.