Buy Properties Below Market Value

Real estate is a very lucrative industry. Rarely does the value of real estate property depreciate. Adding a few minor improvements here and there will greatly increase the property’s market value. Real estate buy and sell business is booming but the best business regarding real estate is rental operations. Think of shopping malls, apartment complexes and the like. Income is not a one time thing but it is virtually perpetual until the property is in existence.

However, due to the increase in popularity of tenants suing the landlord for the most mundane things like molds infestation, pests and to the gravest offenses like physical injury brought about by defective structures, sometimes the losses exceed the potential income. These losses, at worst have to be taken out of the personal property of the landlord. Not when your rental property is covered by an LLC!

Protected by an LLC

LLC or the limited liability company protects your personal asses from being attached to the liabilities brought about by your rental property business. It protects in the same manner a corporation protects the personal assets of the shareholders from being sued upon by creditors of the corporation itself. Meaning, if someone sues the corporation and the assets of the corporation are not enough to cover the same, then the creditor will have to be satisfied by what is available because he cannot go after the individual properties of the shareholders.

In a sole-proprietorship, the law does not afford the same immunity towards the personal property. If the business assets are not enough, the deficiency will be taken out from the personal property of the business owner until the liabilities from the business are fully paid. This includes bank accounts, the home, personal car and other business holdings of the owner.

With an LLC covering your rental property business, you earn as a sole-proprietor because all the profits are yours alone, and you are protected as a corporation because your personal assets immune from being attached for payments of claims.

Why not opt to enter a corporation in the first place?

Entering a corporation is no piece of cake. The law requires a certain number of individuals to form a corporation, there are stricter formalities in forming one and you pay higher attorney’s fees for the same formalities, and that is before you can go and register your business and secure licenses for the same.

With a sole-proprietorship, you just go and register your business and that’s it, applying for an LLC is likewise easy and simple and the attorney’s fees are at a minimum. Profit is solely to your own benefit and you get to manage your business the exact way you want it to be managed, while as in being in a corporation, you have to deal with other part-owners in handling the business affairs.

Profits are also maximized with an LLC rather than in being in a corporation. Income from corporate shareholdings are taxed almost twice, first from the corporate tax itself and second from the income tax when you declare your income from the corporation. In an LLC organized business, the LLC is not taxed individually nor separately from what you receive as income.

With these benefits of an LLC, only a foolish rental property owner will not opt to have his property covered.