The vast majority of saavy local and foreign US property investors choose to hold their US property portfolio inside a corporate structure of some description. The most common, lightweight, and effective option most opt for is a Limited Liability Company (LLC). Information on LLC’s and other corporate structures fill thousands of textbooks – this page intends to provide a very high level view that will explain the important facts about LLC’s and how effective they can be as tools for investing in the US investment property market. This information should not be construed as accounting or legal advice and is not a substitute for individual advice from your accountant/lawyer.
An LLC is a Limited Liability Company, it’s the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. It’s most similar cousin in Australia would be a “Pty Ltd” company.
By holding your investment property in an LLC it’s possible to gain personal liability protection, tax advantages, and more benefits we explain in greater detail upon your initial consultation with American Properties.
The main thing to understand is – more people sue each other in America than in any other country on earth. Unfortunately for us, investment properties can create liabilities. An LLC is intended to provide corporate protection that shelters your personal assets from lawsuits related to your investment property. Holding your investment property in an LLC can be a wise step to reducing your overall risk.
While walking through your property, a tenant or a visitor trips on some loose carpet and has a severe fall. They suffer a terrible and permanent injury such as paralysis. They will almost certainly sue the property’s owner for a large amount of money. By holding your investment property in an LLC you are typically not personally liable. Any resulting lawsuit would only be able to recover assets from the LLC, not your personal assets (car, home, savings, etc). And conversely, if you are personally sued for any reason then the assets in your LLC can be potentially harder for the other party to recover.
Again, simplifying a very complex topic – there are different types of LLC’s, each with unique benefits, drawbacks, and considerations.
An LLC may be taxed as a partnership, a corporation, and it can even provide pass-through taxation advantages. The accountants we connect you with can fully advise you on these matters.
It is relatively easy to get an LLC. However, not all LLC’s are created equal. If your LLC is not set up or maintained correctly then an opposing lawyer may “pierce the corporate veil” of your LLC, render it invalid, and go after your personal assets. It is important that your LLC is set-up under the guidance of a qualified professional. Typically this would be a lawyer, an accountant, or both. They will ensure your LLC is structured correctly and they will draft the key LLC component known as the operating agreement. This document controls the operations of the LLC and it is crucial that it’s drafted with professional expertise that considers your personal circumstances.
American Properties strongly recommends you avoid online sites that offer low cost LLC incorporation. They often lack the required level of personal attention that ensures a quality LLC. The extra money you spend having your LLC set up correctly can save you future litigation expenses and headaches.
As an American Properties member we connect you with some of the best lawyers and accountants the USA has to offer. Our referrals are extensively vetted and completely independent from American Properties. We currently recommend lawyers and accountants that are also active real estate investors, as they are able to combine the knowledge of their professional field with hands on real estate investment experience. To understand more about our 3rd party qualification process, please review the Referral Partners section of our Membership page.
Be wary of US investment property providers who provide in-house legal and accounting advice. We consider this a conflict of interest. Does an in-house lawyer or accountant have your best interests at heart or their employers? There is no substitute for truly independent advice.
It is important to note that there are additional costs involved in LLC incorporation that are NOT included in the American Properties Membership fee. These costs may include government, accounting, and legal fees. We have negotiated an entry-level LLC incorporation + EIN setup package for well below market rates which is typically suitable for 90% of our members.