Like your friends and family members in Louisville, you want your share of the American dream. Purchasing investment property is one of the best strategies for securing economic freedom. Of course, owning rental units may also expose you to some legal liabilities you would rather avoid.
Savvy investors routinely elect to establish limited liability companies for their rental properties. While creating a business entity may seem like a hassle, it is also a good way to separate your personal interests from your business interests. Before deciding to purchase an investment property, you should explore all legal options for its ownership. Here are three advantages of using an LLC:
1. Protect your personal assets
As their name suggests, LLCs limit their owner's legal liability. When you place ownership of an investment property in an LLC, you usually do not have to worry about tenants and others coming after your personal assets. Instead, these individuals may generally only pursue the LLC's assets. Even if the company loses everything in a suit or settlement, your personal property may remain intact.
2. Take advantage of pass-through taxation
Tax law in the United States is extraordinarily complex. Before investing in rental property, you must understand your tax burden. With an LLC, you may be able to take advantage of pass-through taxation. Even though a company owns the property, you may not have to pay both corporate and individual income tax. Instead, you may be able to claim rental income on your personal return. This allows you to pay tax once instead of twice.
3. Isolate multiple rental properties
You do not want an incident at one rental property to affect every investment you have. If you plan to purchase more than one unit, you may want to establish individual LLCs for each property. As discussed above, this approach may keep litigants from going after every piece of property you own.
Investing in rental property is an effective way to make money. It can also cause you some legal headaches, however. Placing ownership of rental properties in an LLC may be the best way to achieve peace of mind.