You've most likely noticed that most of the larger real estate deals out here involve the use of Limited Liability Companies or LLCs. We've always been curious as to why many choose to go this route when purchasing in the Hamptons, so we broke down and asked a real estate attorney. Jerry M. Feeney was kind enough to provide an exceptionally thorough answer. Turns out, LLCs serve a purpose other than keeping nosy bloggers from finding out who's purchasing/selling what:
"Many tax advisers recommend that investment property is purchased in an individual LLC in order to facilitate allocating expenses and income, and to provide other tax advantages. Moreover, when done properly and when funds are not commingled, the entity can insulate the owner of the LLC from individual liability in connection with activities on the property. Experienced investors with deep banking relationships may even be able to secure "non-recourse" financing, meaning only the LLC has liability on the loan, rather than the individual who owns the LLC. But these arrangements are rare, and in today's financing market, obtaining financing when property is held in an LLC is very challenging, even when credit-worthy individuals are willing to guaranty the loan. Finally, be careful before "transferring" a property with a mortgage on it from an individual name to an LLC, as this will violate the terms of your loan agreement and could accelerate the loan making it due in full as a result of your inadvertent default."So, there it is...straight from the horse's lawyer's mouth keyboard. If anyone feels like expanding on what Mr. Feeney said, please avail yourself of the comment box. That's what it's there for. · Jerry M. Feeney [Official Site]
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