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!

What is an LLC?

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.

Pros of an LLC

• As mentioned previously, members of an LLC are not liable to legal actions against the company. Your car, checking account, and house are not exposed to lawsuits.
• Filing taxes are generally easy since everything is funneled to the members personal tax return as opposed to dealing with any filings on the company level.
• Members expectations are clearly stated in the articles of organization or operating agreement.

Cons of an LLC

• There is a concept called “piercing the corporate veil” which means if you are doing something illegal or your personal transactions aren’t clearly separate from your business transactions, your personal assets may be liable to lawsuits. The best way to avoid losing the typical protection of an LLC is by doing everything legitimately. Don’t use the LLC debit card to pay off your mortgage. Avoid commingling funds and make sure there is a clear paper trail of your business activity.
• You are required to pay self-employment tax. Self-employment tax is a combination of Social Security and Medicare taxes. This means Schedule SE has to be filed ( https://www.irs.gov/forms-pubs/about-schedule-se-form-1040 ). If you use a software like TurboTax, this is not a huge burden. The software does everything for you. If you file your taxes with an accountant, they will probably charge you a little extra since this does complicate your tax return.

How do you form 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.

What are the benefits of having real estate in an LLC?

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.

How to put your real estate into an LLC?

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.

Ready to Transfer Title or Need Other Legal Services?

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:

• Lease Review/Creation: If you are looking to rent or want to rent a property out, we can assist you in reviewing a lease, creating the lease with the appropriate legal terminology in place, and be there with you during the lease signing.
• Real estate closings: If you are buying or selling a property, our law firm can help you every step of the way once that offer sheet is submitted. We can review and draft a sales contract, deal with the title companies, work with your mortgage professional, and go through every step needed to get you to the closing table.
• Real estate litigation: Whether you are dealing with a broker who has been acting dishonestly, your tenant is causing you issues, or there are title issues you are dealing with, litigation is always an option. Our law firm is equipped to see that you are represented well during one of these disputes. Whether you want the full force of litigation to be applied or would prefer a quick settlement, we will work with your needs to get you the best outcome possible.
• All other real estate issues: Zoning issues, mechanics lien, evictions, boundary disputes, property tax issues, contractual disputes, misrepresentation and nondisclosure problems, and recovery of down payment – we can help you with all of the above.

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.

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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

What Exactly is a Quitclaim Deed?

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.

What are the benefits of a quitclaim deed?

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.

Conclusion

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].

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Navigating through real estate law should be left to licensed professionals. Various aspects are involved when it comes to a real estate transactions including a basic understanding of contract law and zoning regulations. Although it may feel like there is endless red tape when it comes real estate, with the right lawyer, you will be able to navigate through all of the complications.

How can our law firm help if you are a Bay Ridge Property Owner or Tennant? We offer the following services:

Transaction and property litigation/disputes: We are able to represent either side during a disagreement or dispute of the sale of real estate, a breach in the contract, easement issues, or any conflicts associated with neighboring properties be it commercial or residential.

Condominiums and cooperatives: If you are a board or shareholder, we can offer representation in the event that legal disputes arise between both parties.

Landlord/Tennant and Property Management: Our real estate legal services extend to landlords, tenants, and property managers be it residential or commercial.

Bay Ridge Real Estate Closing Lawyer

A niche that we’ve carved out for ourselves in the field of law is real estate closings. When you buy or sell a home, this is undoubtedly one of the larges transactions you will come across in life. Make it easy on yourself by finding an attorney who will oversee the closing. In reference to a closing, we will do the following:

Enforce the sale or litigate in the event that the buyer/seller illegally backs out of the deal

Review the inspection report and draft a letter explaining the necessary remedies to close on the deal

Draft the sales contract and review it for either the buyer or seller

If a contract was already drafted by a separate attorney which you are no longer engaged with, a review will be done of the document and any warranted amendments will be applied

Assist with explaining the financing process and follow up with lender if need be

Provide legal representation and consultation with the buyers/sellers broker if warranted

Contact us

Should you have any questions regarding your real estate transaction, need help with a lease, a closing, or have a real estate litigation matter, feel free to contact our law firm at (917) 567-1963 or email us at [email protected].

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Our law firm can assist you with all of your Midwood real estate needs. Located in South Brooklyn, our practice concentrates on all real estate matters. The priority for us is ensuring you are completely satisfied after your matter is resolved.

There is a sense of unfamiliarity with what a real estate law office can do for the local community. Aside from shuffling through pages of paperwork, a real estate attorney oversees the relationship between buyers and sellers or landlords and tenants. A real estate lawyer may also have a hand in dealing with shareholders and their boards. What does our law firm do? There are a numbers of items we can handle which includes:

Real estate disputes

Real estate closings for buyers or sellers

Review of financial statements for condo and coop purchases

Commercial sales and purchases

Lease review and lease drafting

Sales contract review

Inspection report analysis

Assist in overseeing title searches

If you are expecting to tackle on any type of real estate matter, feel free to reach out to us.  We typically prefer to meet the client during an initial consultation, go over their matter, and then review the provided documentation within 48 hours. Afterwards we contact the client again and provide them with the best path going forward.

If your case has other areas of law involved such as bankruptcy or estate planning, we have a network of lawyers who can provide a supporting role in your matter. For example, if you want to transfer your property over to a relative but do not necessarily want to sell your home, we can refer you to a probate attorney that may recommend a living trust. Or suppose you own a property but due to a financial hardship, you are considering a bankruptcy. Our network of bankruptcy lawyers will guide you on what the best approach would be to ensure you can still keep your home. If your matter is even remotely involved with real estate, we are here to help.

If you work with Rozhik Law, you will be in safe hands Our legal experts are here to help you get through your matter as smooth and as efficiently as possible.

Contact us

Should you have any questions regarding your real estate transaction, need help with a lease, a closing, or have a real estate litigation matter, feel free to contact our law firm at (917) 567-1963 or email us at [email protected].

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Our law firm, Rozhik Law, is a legal resource that you should familiarize yourself with when it comes to all things dealing with law and realty.

With the right Kings Highway Real Estate Attorney, you position yourself with a high-level asset that can help you navigate through the complications that are associated with real estate. Our law firm is ready to help you with the following matters:

General real estate disputes

Commercial lease closings

Residential closings including co-ops, condos, multi-family homes, and single-family homes

Lease review

Lease drafting

Real estate broker disputes

Zoning applications

What distinguishes us from other Kings Highway and Flatbush Real Estate Lawyers?

Brooklyn is replete with real estate attorneys. This is a fact. Why should you consider hiring our firm? Our attention to detail and our client-focused approach is what separates us from the herd. We aren’t in the business to bill people hourly. We are in the business to build relationships. Our goal is to satisfy you to such a high degree, that your convinced you must let your family and neighbors know about our high quality legal representation.

Our Closing Services

When it comes to a real estate closing, there are a number of items which you should be aware of and typically require during a closing. Our law firm can assist you with the following:

Assignment of Contracts

Title and Lien Search

Enforcing contractual obligations

Drafting offering plans

Review of title reports, building department records, and surveys

Acquiring a power of attorney for a real estate transaction

Navigating through refinancing and equity lines

A real estate closing is undoubtedly one of the biggest transactions a person experiences in life. Do your part by finding a great attorney to help you during the closing process.

Contact us

Should you have any questions regarding your real estate transaction, need help with a lease, a closing, or have a real estate litigation matter, feel free to contact our law firm at (917) 567-1963 or email us at [email protected].

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