Buying Investment Property – Entity Protection

Many “average” Americans are dipping their toe into the world of investment real estate. Not satisfied with owning REITs, many non-real estate professionals are turning to buying vacation homes, single family rental properties, small multi-family dwellings and even small commercial buildings.

If you are in this group (or thinking of joining this group), I want to give you three letters to remember as you begin your journey – LLC.

LLCs is an acronym for limited liability company. It is a form of entity recognized by states as providing liability protection for its members. At the same time, it receives different tax treatment than traditional corporations. It also is much more flexible than corporations when structuring relationships between members. The following is a very high level discussion on some benefits of forming an LLC. While forming LLCs can be done by laypersons, you should consult an attorney or CPA before taking that step.

TAX TREATMENT – When an individual forms an LLC, the feds disregard the entity and tax the individual as if no LLC existed. If more than one unmarried persons form an LLC, again there is entity protection like a corporation and the individuals are taxed as partners by the feds. So, instead of filing a separate corporate tax return, the members file form K-1s as part of their individual return. The benefit of this is that there is no double taxation as there would be if the investor(s) had created a C-Corp. Moreover, the members can have a much more flexible relationship than had they formed an S-Corp.

LIABILITY PROTECTION – This is the main reason to form the LLC. Say you want to purchase a rental house. If you purchase it in your own name, all of your personal assets are subject to risk in the event that something goes wrong. If you and your renters get into a lease dispute, they may sue you and your individual assets are on the line. What if someone gets hurt on the property and your insurance coverage is not enough to cover the loss? Again, your assets will be at risk. If you form an LLC, you have just created an entity that is separate from you. Its assets are only those that the LLC owns – usually the property. Thus, if something goes wrong, usually only the property is at risk and not your life savings. This can be worth a lot of sleep at night.

While LLCs may not be for every real estate investor, they are certainly three letters that need to be discussed when buying investment property.

Seabrook, WA – Buy or Not To Buy?

(Marian is a friend of mine who has been following the Seabrook development on the coast of Washington. Based on many interesting conversations that we’ve had about this development, I thought it would be fun let him write updates about the process of buying into this development. -Dustin)

Buy or Not To Buy?

That’s a question to all of you Seattle beachcombers who like ocean sunsets, salty air, sand dollars and beach fires. If you’ve been taking your family down to Newport, Cannon Beach or Seaside in Oregon, now you have a comparably beautiful alternative on Central Washington coast. We are not talking Long Beach or Ocean Shores. We are talking about Seabrook.

I fell in love with this part of the Washington coast several years ago, before anyone announced plans to develop properties in this area, when our family visited the Griffiths-Priday state park. It reminded us of Oregon Coast with its sand cliffs, dunes and beaches. Seabrook is being built just north of the park, on adjacent 88 acres of land on a bluff overlooking the beach and the ocean.

seabrook layout

I have to give kudos to Casey Roloff and his team at the Seabrook Land Company for making their vision of building a town on the undeveloped part Washington coast a reality. Using the New Urbanism approach and building a dense, pedestrian-friendly neighborhood with the public amenities of a small resort and the atmosphere of a beach town, they hit a jackpot. Seabrook is a runaway hit! Just 15 months ago, new 3 bedroom/2 bath “cottages