The Pros and Cons of Owning Real Property in New York as a LLC
As detailed herein, there is no "one size fits all" approach to purchasing a real estate.
The Pros
First, as the name implies, owning real property as a limited liability company protects the personal assets of the individual LLC members.
Second, purchasing real property as a "special purpose" LLC can protect the assets of the parent company.
Third, purchasing as a LLC can add an extra layer of privacy for high profile individuals and others who do not wish to be easily found.
Fourth, purchasing real property as a LLC can help insulate the individual owners from liability under New York's Labor Law. In New York, unlike other states, real property owners can be strictly liable for certain construction accidents pursuant to New York's Labor Law.
Fifth, purchasing real property as a LLC can help separate bookkeeping for accounting and tax purposes.
Sixth, LLCs are relatively quick and inexpensive to set up and maintain.
The Cons
First, purchasing real property as a LLC may require additional time and expense associated with forming the LLC and/or conveying title into the LLC. The title company and/or County clerk may require additional documentation such as a “Unanimous Consent" resolution from the LLC authorizing the transaction.
Second, purchasing real property as a LLC does not necessarily preserve the privacy of its individual LLC members.
Third, conveying title into a LLC, or a controlling interest in a LLC that holds title to real property, may trigger a property transfer tax.
Fourth, purchasing real property as a LLC may prolong or even compromise the underwriting process for a loan.
Fifth, purchasing real property as a LLC without proper diligence can result in unanticipated tax consequences.
Sixth, purchasing real property as a LLC would result in additional time and expenses associated with forming and maintaining the LLC, including additional legal and accounting fees.
Seventh, purchasing real property as a LLC without proper diligence could compromise an organization's not-for-profit/charitable 501 (c) (3) status.
Eighth, if the LLC does not observe the corporate formalities, a plaintiff could potentially "pierce the corporate veil" to access the individual LLC members' liability.
This document is designed for general information only. The information presented in this document should not be construed to be formal legal or tax advice nor the formation of a lawyer/client.
For further information please contact me at www.kmckernanlaw.com kevin@kmckernan.com or 718-317-5007.