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Investing in residential real estate via LLC

11/14/2016 | Real Estate Blog

When purchasing property through a limited liability company, many real estate investors in Pennsylvania and throughout the country enjoy a number of benefits. However, it may be more difficult to take advantage of them when it comes to residential real estate investments. However, real estate investors can still enjoy the benefits of using an LLC when the transaction is properly structured.

By using an LLC, real estate investors enjoy a lower tax rate and protection of their non-investment assets from liability exposure. An LLC is not a taxable entity, so unlike a corporation where income as taxed at the corporate level and again when shareholders receive dividends, the entity’s income passes through to its owners. The problem facing those who want to invest in residential real estate via an LLC is finding a lender. To get around this difficulty, investors could obtain the loan as an individual owner with the purpose of renting out the property to an end user. This can be done by first leasing the property to an LLC as a sublandlord. The sublandlord, also called an intermediary master lease tenant, can then act as the end user’s landlord.

While residential real estate investors can benefit from using an LLC, they cannot use an LLC to actually buy residential property. Albeit, creative structuring the ownership, as previously described, will allow an individual owner to enjoy the benefits of LLC ownership without triggering a due-on-sale clause that occurs when the ownership is transferred.

Real estate investors who wish to purchase residential property via an LLC might want to have the assistance of an experienced attorney. As has been seen, these types of transactions are complex and require the preparation of several agreements that the attorney can assist with.

Source: Dans Papers, “The New Way to Own Residential Real Estate Investments”, Andrew Lieb, Oct. 29, 2016