Meet Ron Isgate, Esq, Keeping it Real:
Hey, Future Real Estate Conquerors! I’m Ron Isgate – not your average Doylestown Real Estate Attorney. I’m also a Real Estate Agent with eXp Commercial. We don’t just dabble in real estate; we orchestrate success! No fluff, no dull chats – just real talk and real results. Need help finding that perfect property? Navigating tricky negotiations? Figuring out the financing puzzle? I’m your guy, your secret weapon in the real estate game.
Real estate isn’t just my job; it’s my playground. Helping first-time buyers snag their first investment and helping seasoned investors conquer their portfolio dreams, that my goal. Crunching numbers, diving into contracts, and staying on top of the latest real estate trends? Yep, I’m all over that.
Let’s make some real estate magic happen!
According to bankrate.com, Americans are making real estate their largest long-term investment (29%), more so then the stock market(26%). Imagine your assets as treasures guarded by the superhero powers of an LLC. It’s like having a shield that keeps your personal wealth safe from any legal battles – a financial superhero, if you will. Yet, every hero has its kryptonite, and for an LLC, that comes in the form of higher mortgage rates and shorter terms. While the superhero shield defends your wealth, there’s a cost involved – think of it as the price of maintaining a powerful suit. Investing in an LLC is like having a financial Iron Man on your side, ensuring peace of mind and security. Just remember, even superheroes need to manage their budgets for capes and armor.
As a Real Estate Attorney, I implore you to balance the cost with the invaluable protection your assets gain.
How Does an LLC Provide Personal Asset Protection:
Choosing the path of structuring your real estate investments through Limited Liability Companies (LLCs) is akin to building an impenetrable fortress around your personal assets, shielding them from potential legal storms.
Let’s delve into a real-world scenario to illustrate this point.
Picture this: you own a rental property in Doylestown, PA, and tragedy strikes – a fire breaks out, causing severe injuries to a child in the rented home. Your $2 million insurance policy might seem substantial, but in reality, the damage could escalate to a staggering 20-30 million, far surpassing your coverage. The nightmare begins as the affected family can sue you personally for the excess damages, putting everything you own, from your family home to savings, at risk.
As a practicing Real Estate Attorney, these types of accidents are rare, however when they do occur, they devastate investors. Insurance, though essential, isn’t foolproof. It’s like your seatbelt, offering a layer of protection, but an LLC acts as your airbags, providing an additional shield. The more safeguards, the better.
Beyond shielding you from liabilities related to your real estate, an LLC can also safeguard your properties from liabilities caused by personal actions.
Let’s explore another scenario:
Your son takes your car out for a joyride. He looks down to read a text from his girlfriend and t-bones a family. There are significant injuries. You will be personally liable for damages exceeding your insurance policy limit. Without an LLC, your personally owned properties could be exposed to litigation. With an LLC, they remain shielded, ensuring your real estate investments stay resilient in the face of personal liabilities.
Protecting Your Other LLC’s
Ever wondered if creating separate LLCs for each investment property is worth the hassle? By creating a distinct legal entity for each investment, you’re essentially putting a force field around that property. Anything beyond the LLC barrier becomes untouchable. Let’s paint a vivid picture of this shield in action.
Imagine you own three investment properties across Pennsylvania – Property #1, Property #2, and Property #3. Now, let’s form an LLC that encompasses all three, aiming to dodge personal liability. Enter our hypothetical scenario of the child injured in the fire, residing in Property #1. If you’re thinking lawsuits – they can only sue the LLC, not you personally. But, here’s the twist: since the LLC covers all three properties, a lawsuit could target Property #1, #2, and #3. Personal protection intact, but your other properties within the same LLC are left exposed.
Now, picture a smarter strategy: individual LLCs for each property. Voila! Only Property #1 is vulnerable, while #2 and #3 stand as impenetrable fortresses. The State of Pennsylvania turns out to be quite the superhero with its robust asset protection through the LLC vehicle.
Of course, this isn’t a one-size-fits-all tale. Speak with your Real Estate Attorney and Accountant before crafting your strategy. A chat with them is the equivalent of getting your protection suit fitted. It’s the secret sauce to ensuring your LLC fortresses stand strong against any legal storms.
LLC’s and Enhanced Privacy
I recommend naming your LLC to match the street address of the property. For example, 123 Main Street. This way, your personal information is not revealed. Real estate ownership details are often a matter of public record. However, by utilizing separate LLCs for each property, you add a level of privacy to your investments. Interested parties, such as competitors or litigious individuals, will find it more challenging to trace your entire real estate portfolio, offering a layer of confidentiality.
Drawbacks to LLC’s
Now, let’s dive into the flip side of the LLC coin. While we’ve unraveled the perks, it’s only fair to explore the downsides, and yes, they do exist. Enter the dual adversaries of increased mortgage rates and the need for planning ahead.
Escalating Mortgage Rates
In the realm of personal purchases, you’re treated to the cream of the crop – the best mortgage rates currently dancing in the mid to upper 5’s to low 6% range, offering a 30-year fixed term. Shift gears to an LLC, and it’s a different ballgame. Brace yourself for commercial loan territory, marked by interest rates taking a leap, typically 1-2 percentage points higher. The fixed-rate term? Don’t get too comfortable; it’s a shorter stint, often spanning just 3 to 7 years.
Strategizing becomes your ally when venturing into LLC territory. You can kick off the Agreement of Sale in your personal name, with the provision to hand it over to your LLC before the curtain falls on closing day. Sounds smooth, right? But hold on – your LLC needs to be a living, breathing entity at the closing table for the title company. The silver lining? Pennsylvania’s got your back, offering a sprint to LLC existence in a mere 48 hours. Yes, there’s a fast lane – the Pennsylvania Department of State’s expedited filing service. For a slightly elevated fee of $225.00 (regular processing is $125), you leapfrog the standard 3-6 week waiting game, getting your corporate filing within two days.
Property Transfer from My Name to the LLC
Thinking of transferring a property that you own from your name to an LLC? Brace for impact – a 2% transfer tax awaits (3% in you are in Philadelphia), since it is a change of ownership event. Consider it the price of admission for safeguarding your assets under the LLC umbrella.
In a nutshell, while the LLC champions asset protection, but not without the challenges of navigating the intricate steps of increased rates and careful planning. Real estate continues to offer investors profitable returns, worthy of protecting. In 2023, residential properties generated an average annual return of 10.6%, while commercial properties average 9.5% according to Forbes.com.
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