You’ve probably heard about the great tax advantages that come with owning income property. Owning cash flow property is an exciting endeavor but, as with any investment, there can be some drawbacks too. Being a landlord can be challenging and time consuming, and in an increasingly litigious society, some investors are choosing to further protect their assets through a limited liability corporation (LLC).
There are two primary reasons why investors use an LLC for investing:
Insulation against liability: If something happens to a tenant or someone visiting your property, they can potentially sue you for damages. The LLC limits your exposure so that your personal assets are separate from the property limiting your overall liability.
Tax advantages: If the LLC is owned by two or more parties it acts as a pass through entity and can help you avoid double taxation. Although you’ll still need to pay taxes on the income that is gained through rent collected on the property, you won’t have to pay Medicare or social security like you’d normally pay on earned income.
Alternatively, many investors are taking advantage of a little known secret by owning real estate through and SDIRA. While this process isn’t difficult, it does require you to follow a few extra steps that you wouldn’t normally take when purchasing investment properties. The property must be purchased completely within the SDIRA, and some additional paperwork is required.
One of the biggest advantages of owning property within an SDIRA is diversification. Instead of having all of your assets tied up in the stock market or mutual funds, this alternative asset class can generate cash flow, grow through appreciation, and provide a tangible asset that can help you prepare for retirement.
Would you like to learn more about options for owning income property Register on our investment site to take a look at competitive investment properties across the country, and learn more about how to become a hands-free real estate investor.