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Many investors have probably heard about holding properties in a limited liability company (LLC) but aren't sure about the details of doing so. For a number of investors, the benefits of ownership through an LLC outweigh the drawbacks.
In today's litigious society, for example, many people worry that they could one day find themselves defendants in a lawsuit. In order to protect themselves from legal issues, real estate investors often choose to hold their real estate in LLCs.
"In today's legal environment, people are scared and they want to…protect their investments," Jonathan Alper, a Florida-based asset protection attorney, said. "Ownership interest in the LLC has better legal protections from any other legal problems a person may have than…ownership in their own name or ownership in a corporation," Alper said.
Many commercial lenders favor LLCs, and either prefer to or will only lend to those who set up LLCs to hold title to properties, Richard Keyt, an Arizona-based real estate attorney, said. "They don't want to increase the risk that their borrower can be sued," he said.
Additionally, real estate investors should have each high-risk property they own—such as an apartment building or a project that involves a significant amount of construction—in its own LLC, according to Methven & Associates. This ensures that one property's liability will not affect another and can also allow for more accurate insurance coverage, according to Methven & Associates.
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Author: Trista Winnie
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