As a real estate attorney, one of the most common questions that come across my desk is, “should I purchase [my condo, co-op, townhouse, investment property, etc.] with an LLC?” My answer is always the same – it depends on your objectives.
There are various pros and cons to purchasing real estate with a limited liability company, especially in New York. While this article is not a tell-all with respect to those pros and cons, it should help you make an informed decision.
The Pros of LLC Ownership:
First and foremost, LLCs are widely used to purchase real estate specifically due to the very reason they were devised—limited liability. If, for example, you are an investor with a large portfolio of assets, using an LLC will help shield your other assets from liability in the event an accident takes place on your property (i.e., a slip and fall, fire, or some other casualty). To the extent an accident does take place on your property and you do own the property in an LLC, you significantly lessen exposure of your other assets, as the only asset exposed is what the LLC owns (which presumably will be the property).
Additionally, your status may, at times, play a significant role in your decision as to whether to use an LLC to purchase a property. New York has one of the most transparent real estate markets, specifically thanks to ACRIS, Property Shark, and various other websites, all of which make the recorded sales prices, mortgage amounts, and purchaser/seller information available to the general public. If you are a celebrity, big investor, or simply want the anonymity with respect to your purchase, then the privacy that LLC ownership affords may be something to consider.
The Cons of LLC Ownership:
The formation costs associated with structuring an LLC can be quite costly. Aside from the actual legal costs related to the drafting of the LLC documents (i.e., the operating agreement, resolutions, and other required articles), an LLC must be “published,” which is notoriously costly in New York.
Tax abatements are another cause for concern with respect to LLC ownership of property. Much of New York City real estate (specifically, condominiums and cooperatives) contain popular tax abatement programs that significantly reduce the cost of your tax bill; however, the eligibility for these abatement programs is limited to those properties that are (i) used as a primary residence, and (ii) held in the individual owner’s actual name. Thus, prior to choosing to purchase property with an LLC, it would be wise to consult with your local counsel to determine whether the condo/co-op contains an abatement, and how much, if at all, will your taxes increase should you opt to purchase with an LLC.
Moreover, liability insurance is cheaper when a property is owned in an individuals name, and it also may be easier to obtain financing when you purchase under your own name.
Whether you are a first-time home buyer or an experienced real estate investor, you should always consider the pros and cons to purchasing a property with the LLC. Generally, if liability or privacy is of your concern, then LLC ownership may be the way to go. In contrast, if costs are of upmost importance, it may be worth buying the property in your individual name. Either way, consult with your local real estate counsel for the best advice in your individual circumstance for the proper guidance and protection.
Real estate attorney Daniel Levinas represents numerous purchasers of residential and commercial real estate throughout the New York market. Should you have any questions regarding your next purchase, feel free to call for a consultation to discuss.
This article was written by Daniel Levinas, an attorney at Moulinos & Associates LLC, and is not offered as legal advice.