A lot of people are not aware that there are certain risks involved when investing in tax lien or foreclosed properties. They simply forget that they need to protect their other assets as well. If the intention is to do business then as an individual this is a dangerous thing to go into. What an investor can do is form a Limited Liability Company or LLC. With the formation of an LLC and placing the tax lien property business under this, the investor is protected especially his other assets.
LLC Formation Myth
Contrary to what people think, formation of an LLC is faster than other types of business organization. People also believe that an LLC formation will cost so much. This is completely the opposite. An LLC is the least expensive of business organization.
Benefits of an LLC
- Members of the LLC are provided with limited liability protection. What this means is that in the event debts or liabilities, they are not personal accountable. The personal assets of the members are not part of the LLC and thus cannot be sequestered should problems arise.
- LLCs do not pay taxes like other business organizations.
- Being part of an LLC shows that the investor is a “serious” business person thus credibility is higher than sole proprietors.
- LLCs have fewer compliance requirements so establishing one is faster than a sole proprietorship or a corporation. LLCs also have less reporting requirements.
- Corporations have controlled number of incorporators. For LLCs, organization is more flexible.
Negative Side of an LLC
As in anything, there is always an opposite side. When organizing an LLC there is no getting away from expenses. There are initial fees. Most states also require an annual reporting fee.
There are also mandatory reports to be filed yearly.
Adding members or owners to the LLC is not as easy as in a corporation where shares can be sold to other people. There is also some difficulty when transferring ownership when it comes to LLCs. Thus it is important to be sure who to include as LLC members.
LLC formation rules and regulations vary from state to state. It is vital to get a firm to give you guidance on this matter else you will be wasting time and money.
Find a good real estate lawyer or firm to represent you especially when you are not from the state where you have tax lien properties.