Dealing with Liability

There are several steps you need to take to ensure that you are properly buying and selling real estate. You want to make sure that you are limiting any liability that you may have to face. For instance, never take a property’s title in your own name. Considering that deeds are available to the general public for viewing, you are making yourself a possible target for lawyers, creditors, and your renters. If anything goes wrong on the property, the liability comes straight back to your name. The most effective method to maintain private ownership is to utilize a land trust. By using a trust entitled as <for instance> “The 988 Devon Avenue Trust”, you can remain anonymous as you own and manage property. In fact, land trusts are not formally documented in public records, there protecting your identify.

If you happen to be a property flipper, you will want to rely on a corporation to be the recipient of your trust. During flipping, you may be made liable for certain situations unless you go with a corporation. A corporation will also prevent you from having to deal with the IRS. As a dealer, you are subject to a 15% tax. However, by relying on a corporation, the tax is voided. However, you will still have to deal with taxes, just not as much. When the corporation distributes dividends, you will need to pay tax on your income return. Overall, you will still end up with more money in your pocket than if you had not gone through a corporation.

Another option is to create a limited liability company. Two or more people can partner up as an LLC so that their operation is treated as a corporation for federal tax purposes. This will also help you reduce your overall tax expenditures.