Real Estate Lawyer’s Thoughts on LLCs in Real Estate | Summary and Q&A

TL;DR

LLCs provide personal asset protection by acting as a liability shield between individual business owners and their business assets.

Key Insights

• 🧑‍🏭 LLCs act as a shield, protecting personal assets from potential lawsuits or judgments against the business.
• 🛡️ Commingling funds by using personal accounts for LLC expenses can eliminate the liability shield provided by the LLC.
• 🍉 Lenders may require a personal guarantee for loans taken under an LLC, but having an LLC still offers benefits in terms of asset protection.
• 👻 Checking with your lender is crucial to determine if transferring property to an LLC after a personal loan is allowed and to understand the associated risks.
• 🤗 Opening an LLC can benefit individuals, even with no existing assets or limited credit history.
• 🥡 The liability shield provided by an LLC is not absolute and can be compromised if certain actions, like commingling funds or using the LLC as a personal bank account, are taken.
• ❓ It is important to understand the specific requirements and policies of your lender when considering property transfers to an LLC.

Transcript

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Questions & Answers

Q: What is the purpose of an LLC?

An LLC provides personal asset protection by creating a legal barrier between individual business owners and their business assets, shielding personal assets in case of lawsuits.

Q: How can the liability shield of an LLC be eliminated?

Commingling funds, such as using personal accounts for LLC expenses, can lead to the courts considering the LLC and individual as one entity, eliminating the liability shield.

Q: Why should someone buy property under an LLC if lenders require a personal guarantee?

While lenders may require a personal guarantee for new LLCs or those with limited credit history, having an LLC still protects personal assets from other potential lawsuits or judgments.

Q: Can you transfer property to an LLC after purchasing it with a personal loan for better rates?

It depends on the lender's policies. It is important to communicate with the lender and get written confirmation before making any transfers to avoid potential issues.

Summary & Key Takeaways

• LLCs offer better protection for individuals by separating personal assets from business assets, limiting liability in case of lawsuits.

• Commingling funds, using personal accounts for LLC expenses, can eliminate the liability shield provided by the LLC.

• While lenders may require a personal guarantee for a loan taken under an LLC, there are still benefits to having an LLC, such as protection against lawsuits and preserving personal assets.