Real Estate Transactions with a Limited Liability Company

Documents, we don’t need no stinking documents!

Anytime you can make a reference to an 80’s movie (Blazing Saddles for those of you who didn’t know), I say do it!

I’m the guy that tends to over analyze T.V. shows and movies… it’s a curse. I think “oh, so that guy is a sharpshooter but he cannot hit the guy running in a straight line down the alley.” Or “if you are running away from someone, why are you running upstairs and into the bathroom?!” I tend to keep most of my thoughts in my head, but if you are lucky enough I will share my insights with you. One such instance is in the fabulous movie, The Greatest Showman (Spoiler Alert!!! Skip ahead to the next paragraph if you have not seen it, then go watch it!). The collateral that PT Barnum used, was not his! He promised some trade ships at the bottom of the South China Sea. He didn’t own them but he said he did…as I watch this I’m thinking “what kind of banker loans money out like that??” Well, it worked out for the Showman but not as a great investment on the bank’s behalf. This is a great example of not doing some due diligence on the property being sold or on the company selling it.

Buying Real Estate in a Limited Liability Company

Real Estate, like trade ships, could be a great investment, if you do your research. A lot of investors chose to create a Limited Liability Company (LLC) as a form of protection and professionalism when they buy and/or sell their properties. Most of them are either a single member LLC or maybe with their spouse or one other investor. But no matter the size, like any other business, the LLC needs to be registered and in good standing with the Secretary of State, and it needs to have some type of Operating Agreement. And it may possibly be required to apply for a Federal Tax Identification Number. These documents can tell us who owns the company, how and why the company operates, and who can execute documents on behalf the of the company. At a minimum, this information is collected by the title company as part of their due diligence before a closing. Although all fraud cannot be stopped, having these documents prepared can help speed up the process and protect you and your title company, and reduce potential fraud.

If you are selling the property, you are going to want to deposit all the money you make in your bank. Unless it’s PT Barnum’s bank, they will require these documents as well to set up your accounts.

So next time you buy or sell something through your LLC, be sure to thank the title company for verifying and protecting your assets.

Happy Closings!

Brett

I am not an attorney and this should not be considered legal or tax advice.  I would strongly encourage you to contact an attorney or accountant to assist you when setting up a new company, sometimes the savings of a few dollars to do it yourself could cost you thousands throughout the life of the company.