‘Should I buy office property with an LLC?’ may not be a question that commercial property investors were asking themselves this time last year. But as tough economic headwinds continue to affect real estate investments, many are now assessing whether it’s a viable option.
It’s a question that may catch you unaware if you’re one of the real estate investors who's never used an LLC (Limited Liability Company) before. You might be contending with various doubts, including:
Despite these concerns, the case for using a limited liability company to close commercial real estate (CRE) business deals is strong. Hybrid work models means that demand for office space has been surprisingly resilient across the world.
Rent growth has been robust in many parts of the United States, and downtown office spaces are still classed as one of the most attractive investment opportunities in the Asia-Pacific region, according to Deloitte.
LLCs have emerged as a popular way of securing these sought-after investments ahead of the competition. Efficient and relatively inexpensive, they can also be a great way to pool together resources and increase investment options.
When used correctly, you may find the answer to the question ‘should I buy office property with an LLC?’ turns out to be a resounding ‘yes’.
Is that quality office space or other commercial property you’ve been looking for tantalizingly out of reach? Sign up to Duckfund and find out how our low-cost LLC-based method can help close that real estate deal within 48 hours.
Inflation, high interest rates and a lack of affordable lending options: investing in real estate right now is tough, so why should you buy office property with an LLC and add those extra costs to the equation?
After all, an LLC is still a company that requires setup costs, legal fees, and operational expenses. Also, if you try to transfer an existing rental property into an LLC, many lenders class this as buying property, triggering a sale clause that demands the full repayment of the loan.
Doesn’t it sound tricky?
Well, firstly, it’s normally better to set up a new LLC for each property purchase. That’s because they’re typically very cheap – setup costs can be as little as $35-50 in some US states – and they provide individual benefits for each investment.
Secondly, LLCs are a commercial property investment trend that comes with several other benefits that make buying office property with them a more attractive prospect.
Buying office space in an LLC’s name shields your personal assets in the event of a lawsuit following the sale, possibly avoiding heavy legal costs and the foreclosure of other properties in your portfolio.
Let’s say a tenant seeks legal advice after tripping over wire a builder has carelessly left exposed. The LLC would give you personal liability protection should they take you to court, which means you only risk losing the capital you invested into this one LLC.
Asset protection in this way is essentially a type of insurance policy as you wouldn’t need to dip into your personal capital in the worst case scenario. That said, it’s always a good idea to get commercial insurance, too.
Quick tip: if you’re thinking of buying multiple properties, then factoring in a separate LLC for each one into your estate planning is prudent. That way, no one can come for other properties under the same business entity.
An LLC is classed as a ‘pass-through’ entity. In case you’re not aware, this means that all profits and losses ‘pass through’ to you as the business owner, but with one crucial distinction: it’s exempt from company federal taxes.
Instead, you’ll only need to submit a federal personal tax return in your own name to the IRS that reports your portion of the LLC’s income. You’ll effectively be a sole proprietorship.
Quick note: A C-Corporation LLC (C-Corp) is the exception to the rule here. C-Corps are classed as separate tax-paying entities and must pay corporate income tax. Its members also pay pass-through taxation on their proceeds, subjecting them to double taxation.
LLCs have an additional benefit. Their status as a pass-through entity means they may qualify for a 20% qualified business income (QBI) tax deduction. However, it’s always best to confirm this with a certified accountant (CPA).
In a tough investment market, it’s often difficult to keep cashflow up with a lack of lending options or money tied up in other deals.
An investment LLC can solve this by giving you access to group funds that you wouldn’t otherwise have access to, increasing your purchasing power. This can work in two ways.
Often investors band together to set up a multi-member LLC with shared access to a deeper pool of funds. All purchases must, of course, gain unanimous approval, but it opens up a larger number of property deals that could benefit the group.
Non-property purchases are also on the table here with many LLC investors using grouped funds to buy stocks and bonds, mutual and index funds, and ETFs, although it may be harder to get the nod from fellow investors for these.
Many modern soft deposit financiers use LLCs to wire the down payment into an escrow account to show the seller that the buyer is interested, without needing to dip into the investor’s capital.
Quick and inexpensive, it’s an extremely effective way of securing property on the investor’s behalf before their rivals have the chance to get in ahead of them. It also means they can work on multiple deals at once as they never touch their personal income.
How does closing real estate deals with an LLC work?
In these tough economic times lending options are thin on the ground. Even those you can get are subject to slow due diligence processes that often allow more liquid rivals to nip in and steal the deal.
It’s hugely frustrating if you want to take advantage of a commercial real estate market that’s on the up again following the 2020 COVID-19 outbreak.
Duckfund is a soft deposit financing solution that has the funds to unlock the property deals you’ve been aiming for.
Our LLC-based method uses AI-powered algorithms that specialize in speed, transparency and efficiency. We don’t demand credit checks or collateral that bogs the lending process down.
In just 48 hours, you can secure your target property, without touching a cent of your personal bank account funds.
What’s more, you have no obligation to buy the property until the last possible moment, meaning you can walk away at any point.
Here’s how our LLC-based model works, in seven simple steps.
(i) Walk away from the sale. Duckfund rips up the purchase agreement and calls the deal off.
(ii) You decide to buy. You wire the deposit to Duckfund, get full control of the LLC and purchase agreement, and become the property owner.
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Take a second to think of the time and hassle this will save. Duckfund lets you secure that commercial property without worrying about liquidity (not to mention tying it up for an indefinite period), giving you more space to focus on other ventures.
Soft deposits are a common pain for commercial real estate investors.
Often, cash is tied up in other deals and traditional lenders typically aren’t interested in loan terms less than two years. Those that can normally charge exorbitant interest rates and carry out rigorous credit checks, not to mention the collateral they often demand.
The soft deposit industry aims to meet this demand. Focussed on speed and efficiency, with no need for credit checks or collateral, more and more investors are turning to these solutions to secure vital property deals.
Yet the commission for these deposits can vary wildly.
Many financiers charge a fee based on the property’s value. Let’s look at two examples with the 1% of the purchase price that several soft deposit lenders charge.
As you can see, while 1% of the purchase price sounds low, it snowballs into a significant sum the more valuable the property gets. In the first case, you pay 10% of the deposit size in fees; in the second, it reaches 20%.
Duckfund, meanwhile, charges just 2% of the deposit size for each 30 days, creating huge potential cost savings.
The result? A savings ranged from $4,000 to $35,000 on property purchases between $1 million to $5 million for a 48-hour process that will help you secure the property you need. The more valuable the property, the bigger the savings.
There’s also no limit on the number of simultaneous deals you can put through Duckfund, meaning you can supercharge your portfolio with multiple purchases without dipping into your own funds.
Lightning quick, flexible and cheaper than its rivals, Duckfund is the soft deposit solution that more and more commercial real estate investors are turning to.
Should you buy office property with an LLC? Well, why wouldn’t you?
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