The post An Easy Guide To Putting Your Real Estate into an LLC appeared first on The Rozhik Law Firm.
]]>If you are a titleholder of rental property, a question you should ask yourself is if it is more prudent to be considered the individual owner on record of the property or if it would be more beneficial to form a limited liability company (LLC) and transfer the title of the property into the LLC. There are pros and cons with deciding on whether or not to use an LLC. Always be sure to contact an experienced real estate attorney before proceeding with any legal maneuvering so you are provided with a full scope of information and understanding of both Federal and New York State law. Contact us at 917-567-1963 with any questions you may encounter when it comes to LLCs and real estate.
In this guide, we will go over what an LLC is, how an LLC can be formed, and what the common benefits are of having your investment or rental property in an LLC. Finally, we will also address the process of transferring your title into a limited liability company.
Let’s begin!
An LLC is a legal entity that is otherwise referred to as a limited liability company. With an LLC, a company is separate from the owner. As a sole proprietor, you are the company. The biggest advantage to forming an LLC is the benefit that any liability which the LLC incurs cannot be passed on to the owners. As an example, if you own a store that is in an LLC, and someone breaks their leg in your store due to a slip and fall accident, that individual can only recover the assets that are within the LLC – they cannot go after your personal assets.
If you are a sole proprietor, and someone gets injured on your business property, your personal assets such as your checking account are exposed to a lawsuit.
From the perspective of taxes, an LLC is viewed very much like a sole proprietorship or partnership where in both cases, whatever net income ( income minus expenses ) remains, it is passed onto your individual tax return (Form 1040), and taxes are paid on the individual level. This is another significant benefit with LLC’s compared to forming a corporation. A corporation is subject to double taxation, both on the corporate level and individual level. An LLC is considered a passthrough entity meaning all tax consequences are passed through to your 1040.
Let’s make a list of pros and cons so you know what you are getting into before starting an LLC.
Let’s go over how to form an LLC. This is just a basic guide so if you do live in New York State and need help forming an LLC, feel free to call our law firm at (917) 567-1963.
Here are the 6 general steps to forming an LLC:
• Pick a name: Discuss with the other members of the LLC what name should be attached to the LLC. There are various online directories available that can let you know if a name is already occupied.
• Choose a registered agent: Decide on who should be the individual that receives all correspondence in reference to the LLC. Since relationships can become damaged in life, sometimes it is better to have an uninterested third-party designated as the registered agent. Our law firm can act as a designated third-party.
• File articles of organization: This form is considered to be the birth certificate of an LLC. This document is typically filed with your respective state.
• Get an EIN number: EIN stands for employer identification number. It is a 9 digit number used for tax purposes with the IRS.
•Create an operating agreement: This agreement dictates how much each member receives in profits, which member is responsible for which daily tasks, and so on.
• Create a business checking account: No one member should house all of the monies from the LLC in their personal checking account. Establish a separate business account for the sake of security and commonsense.
Now that we have an idea of how an LLC works and how to create one, let’s focus on the aspect of real estate.
Some of the key benefits of putting your real estate into an LLC is the personal insulation you create. During a lawsuit, if you do not have your rental or investment property in an LLC, your personal assets are subject to an action. Granted, you probably already maintain liability insurance for your rental property which is absolutely recommended. But why not go a step further and form an LLC to have additional protections placed on your assets.
To go even deeper, if you own ten rental properties, you should be maintaining ten separate LLCs. Here is a good example why:
You own a single LLC which houses 10 different rental properties. The income which you receive for each property is deposited into a single checking account.
In one of your rental properties, your tenant held a going-away party. Adult beverages were served and some of the guests decided to take the party to the balcony. Due to the amount of drinks and food available, the floors naturally became slippery. At some point, one of the guests on the balcony slipped and tumbled four stories. They suffered multiple injuries including broken bones and a concussion.
In such a case, since the floors were slippery due to the food and drinks, and the victim themselves were inebriated, they probably do not have a case however that will not stop them from naming you in the lawsuit. They will claim that the balcony was a safety hazard. As innocent as you may be, this lawsuit will be expensive and time consuming. Additionally, if you happen to lose, all 10 of your rental properties are exposed in the lawsuit. Not only are the properties subject to loss, but so is the shared checking account.
The easiest solution to avoid such an enormous potential for loss would have been to sit down with your attorney and create a separate LLC for each one of your rental properties. In addition to that, it would be beneficial to sit down with your banker and create a separate checking account for all respective properties.
There is certainly a cost associated with creating a separate LLC and checking account for each property be it a monetary cost or just the cost of time. But by analyzing the example I illustrated, it is well worth every penny and minute you spend on creating separate LLCs for all of your properties. A single accident that may not even be the fault of the landlord and owner can result in huge losses.
If you are a holder of several investment properties and don’t have these protections already in place, our law firm can set up a consultation with you to go over a strategy with you and offer you the best protection possible. Call us at 917-567-1963 to setup an appointment. We will review all of your holdings, discuss the potential risks you are exposed to, and go over every solution possible to give you a peace of mind.
Now that we have covered what an LLC is, the pros and cons of having an LLC, and why it’s a good idea to have your property in a limited liability company, let’s now turn our attention to actually placing your real estate into this pass-through entity.
When we talk about placing our real estate into an LLC, we generally refer to transferring a title into the new entity. Property title is a bundle of various rights that outline the kind of ownership you have in a property. All of these rights can either be held by one individual, a married couple, or several parties. A title may also be referring to a single document called a deed which serves as evidence of who the designated owner is of a particular property.
So to illustrate, if you and you alone bought a rental property, then the property deed will have your name on it. Now obviously, any liability associated with the rental property will have you named in a law suit. Once we transfer your property into an LLC, your name will no longer be on that deed but rather the name of the LLC.
One of the easiest ways to “transfer title” to an LLC, which simply means to change the ownership of the property, is by utilizing a Quit Claim Deed. This would be filed within your locality. We discuss what a Quit Claim deed is in another blog post:
Everything to know about a NY Quit Claim Deed
With a quit claim deed, you have the ability to edit information that was previously recorded on a deed. There may be some exposure to a title transfer tax. This tax is imposed when you transfer a title. An experienced attorney and title company can provide you more information on how and when transfer tax would apply.
Generally speaking, in New York City, this tax is imposed on the transfer of residential property valued at $25,000 or more at a rate of 1%. The city does impose a higher rate which is quoted at 1.425% for property valued higher than $500,000. However since we are dealing with rental property and no sale is actually occurring, you should take the time to sit down with a real estate attorney in order to truly understand what your exposure would be with transferring a title.
Remember to update all of your lease agreements when you successfully transfer your title into an LLC. The leases should display the name of the LLC as being the party that is owed the lease payments. Not only will this make more sense to the tenant but it avoids a court from “piercing the corporate veil”. If your personal name is on the lease as opposed to the limited liability company, it may appear that there is no separation between your personal dealings and that of the pass-through entity.
If you are interesting in transferring your title and deed to another party, or setting up an LLC, our law firm is ready to help you.
In addition to that, we can provide you with the follow real estate legal services:
Feel free to call our law firm at 917-567-1963.
Richard Rozhik, Esq., is the founder of the Rozhik Law Firm. He is in excellent standing with the New York State Bar Association, The Brooklyn Bar Association, and is a community leader in the South Brooklyn Area. He has extensive experience in all matters dealing with real estate, no-fault law, personal injury matters, business transactions, contracts, and all general litigation matters.
The post An Easy Guide To Putting Your Real Estate into an LLC appeared first on The Rozhik Law Firm.
]]>The post Everything to know about a NY Quit Claim Deed appeared first on The Rozhik Law Firm.
]]>Here are some examples of when a Quit Claim Deed may be necessary:
-Parents transferring a home to their children
-After a marriage, when one spouse would like to add their wife/husband onto the title for a property which was owned prior to marriage
-During a divorce where one spouse will acquire a property fully and remove the previous spouse from the title
-When property is transferred into a living trust or what is sometimes referred to as a revocable trust
A quitclaim (also spelled quit claim) deed is a legal document that transfers the title of a property to another party. Be mindful that no assurances are made about the owner’s title. During a traditional sale of a home, a warranty deed is used. With a warranty deed, a deed considered to be one of the strongest and most secure since it is used in regular home sales, guarantees that the property being sold is free of all liens, encumbrances, and any other title holders. With a quitclaim deed, no guarantees are made. Only what the original owner actually had an interest in is transferred.
As an example, my wife and I own a property but one day I decide to quitclaim my interest to my cousin. My cousin is the sole owner of my interest, not my wifes. I am considered the grantor in this example. My cousin, who is receiving the title, is considered the grantee. As the grantor, if I had no interest whatsoever in the property, my cousin does not have title.
Assuming my cousin is now holding title of the property, this has no bearing on the mortgage. If my name was initially on the mortgage, I am still obligated to make the monthly payments. A mortgage is a separate matter altogether that is not covered by a quitclaim deed. Only the title is affected.
As you read through what a quitclaim deed is, you have to ask yourself what are the benefits of this type of deed? Considering that there are no guarantees on the title, why even move forward with a quitclaim deed? Here are 6 reasons why a quitclaim deed may be right for you:
-It is a very fast and simple process in which no title search is made. Also, no title insurance is needed.
-This is an expedited way to receive ownership of a property.
-This is a tax saving tool since no money is attached to the sale.
-As the grantee, you are only given the title of a property. You are not responsible for any liens or mortgage balances.
-This deed is useful in divorce matters since no income tax needs to be paid by the grantor if a particular property is part of a settlement.
-You can avoid the probate process. With the probate process, you may be subject to months of waiting and high legal fees in order to transfer title to the designated beneficiaries in a last will and testament.
A quitclaim deed is never used in a typical sale of a home but does have some benefits for unique situations as noted previously. If you are interested in transferring title to another party or want to know more about the various types of deeds used in the real estate industry, feel free to contact our law firm at (917) 567-1963 or email us at [email protected].
The post Everything to know about a NY Quit Claim Deed appeared first on The Rozhik Law Firm.
]]>The post The Most Important Clauses To Be Aware of In a Real Estate Contract appeared first on The Rozhik Law Firm.
]]>From having to deal with the real estate brokers, to financing, to negotiations, the road to finally realizing your dream of homeownership is arduous. But the most important aspect of purchasing a piece of real estate is the sales contract that needs to be drafted. There are many conditions and clauses you need to be mindful of. In this article, I will go over the most important clauses to be aware of in a real estate contract.
Once a formal offer is made and accepted, your attorney will contact the attorney of the seller. The seller’s lawyer will then forward you a contract with various terms. This document will contain pertinent information such as the address of the property in question, the expected closing date, and the purchase price. Let’s go over the aspects of a real estate contract that most individuals aren’t aware of until they are actually in a position to move forward with a purchase.
If you are making an all cash offer this section would not apply to you. However, most people are usually never in a position to have enough liquidity and cash on hand to buy a property out right. That means you would need financing.
The most typical and standard way of acquiring financing is by going to a bank and getting prequalified with a mortgage banker to determine if you even qualify for financing. If you do qualify, you will need to sign a long application with the bank. You will also need to provide verification of your income which entails providing several W-2s and prior year income tax returns.
Within your sales contract, it is imperative that there is a finance contingency clause. Meaning, if you are not able to acquire proper financing, the deal would need to be called off.
What happens if you don’t have this contingency? When your offer was made and accepted, you initially provide the seller with a deposit. In many cases, it is 10% of the purchase price. If you do not have a finance contingency clause and you are not able to get financing for the home purchase, your seller can keep your 10% deposit and move on to another buyer.
Imagine the following scenario: you find the perfect home. It is being sold for $500,000. You put down 10% ($50,000 ) and move forward with signing the sales contract. Within the first two weeks, you hire a home inspector and an underground tank inspector.
The main line to the sewer is damaged and will need to be replaced. This comes at an estimated cost of $10,000.
The roof is extremely damaged and needs to be replaced immediately before winter arrives. The cost is $5,000.
The current electrical wiring throughout the house is not up to code. The estimated amount to rewire the house is $10,000.
An underground tank does exist and it is located in the front yard. It is already damaging the lawn and is posing as a serious hazard. The cost to remove it and re-dig the lawn will cost $50,000.
You are now looking at $75,000 in necessary improvements. Clearly, you did not sign up for this during your initial honeymoon period with the home. Because you do not have a home inspection contingency clause, if you decide to back out of the deal, the seller will keep your initial deposit of $50,000.
This is why it is so important to have a home inspection clause. This clause typically allows you to back out of the deal within 14 business after a home inspection is performed.
Sometimes a home can be sold with the appliances and fixtures. The sales contract specifies whether or not these items will be disposed of or kept in the property.
Why keep the appliances? If they are in good condition, they simply need a proper cleaning to be used by the new homeowner. You will save anywhere from $2,000-$5,000 if you decide to go this route considering what the cost of new appliances are.
Be mindful that the seller may decide to use your desire to keep these items as leverage. The best time to determine the condition of appliances is during the home inspection.
If these items will be disposed of, make sure the contract states that the SELLER will be the one to pay for their removal.
Suppose you already own a home and are seeking to purchase a new one to expand. The twist is you need to close on your first home in order to finance your new home.
You can include a clause in your sales contract to give you the opportunity to make your initial sale. Make sure you give yourself enough time to close on your current home.
Be mindful that sellers tend to want to avoid removing their property off the market while they wait on you to sell your home. Be as reasonable and generous as you can in respect to the terms you want in the sales contract. The seller of your new home is putting up with a lot to wait on your home to be sold first.
Here are the following closing costs you should be aware of: attorney fees, escrow fees, title search fees, title insurance, notary and recording fees, transfer taxes, and many more.
Usually the buyer covers these costs but if money is tight, you may be able to have the seller take care of these expenses.
Why would a seller be open to paying for something that is the buyer’s expense? Sometimes a person is a few thousand dollars short of closing on a deal. As the buyer, if you take care of these miscellaneous items, you are ensuring that the deal will happen. You can also halt the deal and look for a new buyer but with rapidly changing market conditions, it may just be easier to take a hit on the closing costs.
Suppose the property you are interested in has a tenant occupying one of the floors or rooms.
The first thing you have to ask yourself is if their occupancy is legal or not.
An illegal occupancy would be renting out the ground floor in a legal 2 family home. At this point it is being treated as a 3 family home. This is not allowed in New York.
A legal occupancy would entail a lease already in place with the prior homeowner.
When dealing with an illegal occupancy, the only thing that can be done is an eviction if the tenant refuses to leave. The question becomes who should be responsible for the costs of evicting this individual? Should the seller take care of it before closing or should you instead take the lead on the matter?
If you decide to deal with the eviction yourself, you are certainly positioned to ask for something return. Perhaps a credit at closing for your troubles and cash consideration for the future attorney fees as well. This should obviously be outlined in writing in the sales contract or an accompanying rider.
If the tenancy is legal and there is a lease in place, there is not much you can do. You can always ask the tenant to leave and compensate them for their troubles. Otherwise, you are stuck with them until the end of their lease. Perhaps you and the seller can come to some kind of arrangement where both of you compensate the tenant to find a new home in the event that you want the house vacant upon your arrival.
Once the sales contract is signed by both buyer and seller, an expected closing date is recorded. It is usually 30-60 days. In my opinion, 30 days is cutting it too close since you have to deal with an inspection and the negotiations that come with it along with getting your commitment letter from the bank. 60 days should be enough time to get your mortgage and resolve any inspection issues that may come up.
Remember, the closing date is not something set in stone. The seller will most likely be willing to give you some leeway if your extension is reasonable. Make sure it is done in writing and have your attorney make the request.
If you happen to miss the closing date and are showing bad faith, the seller may decide to terminate the deal and keep your initial 10%. With that said, be mindful of your closing date and try not to play any games.
This blog post is simply a short summary of the most important clauses to be aware of in a real estate contract.
For a more detailed understanding of your contract, feel free to contact us directly. These contracts are in fine print and can ramble on and on for several pages. It is crucial that you have an attorney review your sales contract.
Our law firm can do the following:
– Real estate litigation and disputes
– Draft of sales contract and review
– Landlord and tenant disputes
– Co-op and condo disputes
– Office, industrial, and retail real estate services
– Review of real estate investments
Should you have any questions regarding your real estate case, feel free to contact our law firm at (917) 567-1963 or email us at [email protected].
The post The Most Important Clauses To Be Aware of In a Real Estate Contract appeared first on The Rozhik Law Firm.
]]>The post 7 Reasons to Hire A Brooklyn Real Estate Lawyer When Buying and Selling Real Estate appeared first on The Rozhik Law Firm.
]]>When heading into such large transactions, why go into it alone? The best protection you can afford yourself with is hiring a real estate lawyer whether you are buying or selling a property in Brooklyn.
Let’s go over the top 7 reasons on why you should hire an attorney to oversee your transaction from beginning to end.
1) Having an advisor at low cost: An attorney has an ethical duty to protect your interests. They are not receiving any kind of commission at the end of closing. Most attorneys are paid at closing, but if the deal falls through, they are usually still due their compensation. Most attorney fees are relatively affordable ranging anywhere in Brooklyn from $850-$2,000. The amount of due diligence a lawyer performs is staggering. Just looking at the cost alone, to have an advisor at your side is the best value proposition you can have.
2) Your interests will be protected: An attorney is there to protect you and no one else. Their loyalty is to you only. The attorney is also subject to disbarment, negative reviews, and legal repercussions if they do not act in your best interest or make blatant and negligent errors.
3) Experience: A real estate lawyer has seen more real estate transactions than you. They have reviewed more sales contracts than you can imagine. Their experience is a powerful tool to help you get to the closing date.
4) Contract modification: When you make an offer that is accepted, the seller will have their attorney send you a sales contract. These contracts are very long and complex. The fine print is immense. If you want to modify the contract or change the terms, your attorney will be able to do that the right way. As a non-legal professional, you simply are not qualified nor aware how to propose and change a contract.
5) Title and Inspection Report: Your attorney will review your title and inspection report to look for any abnormalities. There may be liens on a property, issues with termites, a faulty structure, and other problems that only surface when a title and inspection report are provided. An experienced lawyer is able to sift through this information and find the necessary information that can be used to bring down the price of the home.
6) Deed Problems: Suppose the deed comes back with serious issues. An attorney will be able to know how and when you can receive your down payment back. They will also add in the appropriate contingencies into your sales contract to ensure if there ever is a deed issue, you are fully protected.
7) Team lead: You have an entire team behind you during a home purchase. You are working with a mortgage loan officer, an inspector, a broker, and the other parties. Your lawyer will be the main point of contact when dealing with these individuals. He or she is also the person you contact first when you come across a problem with the other parties.
In conclusion, the best reason to have a Brooklyn Real Estate Lawyer when buying and selling real estate is peace of mind. You will avoid many headaches and issues that would otherwise occur if you try and go into this transaction all alone.
Contact us
Should you have any questions regarding a real estate transaction, lease signing, lease review, a sale or purchase of a home, real estate litigation, or have general questions regarding realty law, feel free to contact our law firm at (917) 567-1963 or email us at [email protected]
The post 7 Reasons to Hire A Brooklyn Real Estate Lawyer When Buying and Selling Real Estate appeared first on The Rozhik Law Firm.
]]>