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Should I Hold Title As An LLC or TIC - Real Estate Investment Tips

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Published on Aug 3, 2013

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A very common question I get from my clients is in regards to how they should hold title. Granted, I'm not an accountant or attorney, so I can get legal or tax advice, but I can give real estate guidance & opinions. If you're single, you could always hold title as an unmarried or single person. Then of course there's a few different ways to hold title when you're married, such as community property or joint tenancy.

But what if you're buying with large pool of people like in my "Group Syndication" video example? What about holding title as an S-Corp or C-Corp...What about those Tenants In Common or TIC's everyone was hearing about back in the 2000's?? Well, my opinion in MOST cases -- and I say most because it can change -- is that you hold investment property as an LLC. Now there are multiple tax and legal reasons for this.

Let's say you and nine other friends are going to buy a large investment property together, and you each pay and therefor own 10%. In our first scenario, all 10 people own property as a TIC...if one of the 10 people is having financial trouble and files bankruptcy, the whole property could be at jeopardy. The same thing if someone becomes divorced. But in scenario two, the 10 people decide to hold title as a LLC. If the same thing happens and one member of the 10 files bankruptcy or gets divorced, the project isn't affected.

In fact, LLC's are usually so preferred, that if you attempt to leverage a deal as a Tenant in Common, lenders will request that you change ownership to an LLC to avoid any potential liability. You see, by creating an LLC, you create another entity. Only this one is separate from any of the member's problems.

Another great advantage which also exists with different methods of title is the taxation pass through. If every year your LLC makes $1m in rental income, the income is then "passed through" to the LLC members. They then pay their own share of taxes, and the LLC does not -- it only requires a yearly payment to maintain its status. Of course, this for the state of California, and different states may have different rules. Make sure you always consult with an attorney and accountant and inform them of your decision of holding title. Now when you speak with them to get the additional details, you'll have a better understanding of why they're likely to recommend holding title in an LLC...now that's good to know.

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