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Navigating Real Estate Ownership: Personal vs. Entity

Buying real estate can be incredibly rewarding but comes with responsibilities and potential risks. One of the key decisions you’ll make is how to structure the ownership. The choices you make will affect everything from your liability exposure to your tax situation, so it’s important to understand the options. Here’s a breakdown of the pros and cons of buying real estate in your name vs. in an entity.

Purchasing Real Estate in Your Name

Let’s start with the simplest option: buying a property as an individual. Here are some of the advantages and disadvantages to consider:

Advantages

Individual ownership offers several advantages that can be particularly appealing for straightforward purchases, especially for primary residences.

● Simplicity: Owning a property in your own name is straightforward. You don’t need to set up any additional legal structures or file extra paperwork.

● Tax Benefits (Homestead): If you’re buying your primary residence, there are potential tax advantages to individual ownership, such as the homestead exemption.

● Financing Options: Individual buyers often have a wider range of financing options available, including conventional mortgages and other loan types.

Disadvantages

Individual ownership has certain drawbacks that could expose you to personal vulnerabilities and complicate future planning.

● Personal Liability: If you own the property individually, you’re personally liable for any debts or legal issues associated with it. Someone suing you over a slip-and-fall incident at your rental property could potentially go after your other assets.

● Lack of Asset Protection: Your personal assets are at risk if something happens related to the property.

● Difficulty in Estate Planning: When you pass away, individually owned property usually must go through probate, which can be a time-consuming and costly process.

Purchasing Real Estate Through an Entity

Setting up a legal entity, like an LLC or a corporation, to own real estate offers some additional benefits but also comes with its own set of considerations.

Advantages

Entities provide benefits that may be crucial if you’re concerned about protecting assets and simplifying the long-term management of your properties.

● Limited Liability Protection: Perhaps the biggest advantage of owning property through an entity is that it shields your personal assets. If someone sues over an issue with the property, they generally can only go after the assets owned by the entity.

● Potential Tax Benefits: Depending on the type of entity you choose and how it’s structured, there may be tax benefits, like deducting certain business expenses related to the property.

● Asset Protection: Owning property through an entity can add an extra layer of protection from creditors in unrelated lawsuits.

Disadvantages

While an entity structure can prove advantageous in many situations, it’s important to be aware of the potential complexities and costs involved:

● Financing Challenges: Lenders might be more hesitant to extend financing to an entity, especially a newly formed one. You may need to offer a personal guarantee or seek alternative funding sources.

● Tax Implications: The specific tax consequences of owning property through an entity will depend on its structure and your overall tax situation. You’ll likely need professional guidance from an accountant or tax attorney.

● Selling Property (Multi-Member Entity): If the entity has multiple members (owners), the process of selling the property can be more complex. Any transfer of ownership might require consent or additional paperwork, depending on your entity’s operating agreement.

The Right Choice is Situation-Specific– Get Expert Advice with Boss Law

The truth is, there’s no one-size-fits-all answer when it comes to deciding between personal or entity ownership. The best approach depends on your individual circumstances, the type of property you’re purchasing, and your overall financial and estate planning goals. Boss Law can help.

We’ll work with you to assess your unique situation, evaluate the pros and cons of different ownership structures, and ensure your real estate transactions are structured with your best interests in mind. Contact us at (727) 877-3188 for a consultation.

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