#AskTheDanielMtz Ep. 61: Real Estate Portfolio (LLC Structure)
For individuals who are looking into getting into the real estate, learning the best way to structure an investment portfolio is crucial to success. There are five different ways to assemble a portfolio, which we’ll break down over a five-part series. We’ll tackle the most popular and preferred method first: personal portfolios.
Investors who are looking to acquire real estate and protect their personal interests are best served by limited liability companies, or LLCs. These have become the preferred vehicle for commercial investors through which to hold titles to their real estate properties. Forming and maintaining a company for real estate purposes can be extremely taxing. LLCs are much simpler to set up and don’t have complex stock structures. LLCs may not be the best way for every investor to obtain real estate, though. Before settling on this structure for your portfolio, consult with an attorney to make sure you have a thorough understanding of this structure.
Some of the popularity of LLCs stems from the taxation rates. With these structures, investors are only taxed at a personal level, not at a business level. This is referred to as “pass through” taxation. Owners enjoy a little extra return on their investment this way. For example, a property owner may decide to rent out said property to some tenants. Come tax season, the owner avoids a double tax on on the rental income generated by the property and the appreciation in value of the property upon disposition.
When it comes to lawsuit potential, LLCs limit the owner’s liability to the initial financial investment. For example, say a tenant hosts a party on the rental property. The party gets too wild and somebody ends up getting hurt. Next thing you know, the property owner is getting served with a lawsuit. With an LLC, the most the owner could lose is whatever assets are tied up in the property.
Again, make sure you know how these portfolio structures. While LLCs may be attractive, they may not be appropriate for every investor. It depends on the goals of the investor. Gather as much information as you can, do your homework, and if you still have questions, shoot me a message so we can chat.
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