Commercial Real Estate Basics: Why Many Investors Use LLCs

If you’re considering your first commercial property purchase—whether it’s a retail suite, office condo, or mixed-use space—you might be asking: Do I need to form an LLC first?

The short answer: No, you do not. Anyone can purchase commercial real estate as an individual. There is no legal requirement to establish a company or LLC before buying a commercial property.

However, many investors and professionals recommend purchasing through a legal entity. The reasons are both practical and strategic.

Why Many Choose an LLC for Commercial Real Estate

An LLC (Limited Liability Company) is not reserved for experienced investors. First-time buyers can also benefit from the protections and structural advantages it offers.

1. Liability Protection Owning property through an LLC generally protects your personal assets in the event of legal claims related to the property, such as injuries or disputes.

2. Tax Flexibility LLCs can provide tax advantages, including the ability to pass profits and losses through to your personal tax return. This can allow for greater control over how your income is taxed.

3. Professional Credibility Operating through an LLC can increase your credibility with lenders, tenants, and other real estate professionals. It signals professionalism and may lead to smoother negotiations.

4. Simplified Joint Ownership If you are purchasing a property with partners or investors, an LLC allows for clear ownership agreements, including specific roles and equity shares.

5. Separation of Finances Maintaining distinct financial accounts between your personal and property-related expenses is easier and cleaner through an LLC, particularly for accounting and tax purposes.

When Buying as an Individual Might Make Sense

There are some situations where purchasing property personally may be appropriate:

• The property is small or low-risk, such as a single office suite or condo.

• You are making your first purchase and wish to minimize upfront complexity and setup costs.

• You intend to occupy the space for your own business and have limited legal exposure.

In these cases, it is still advisable to consult with a commercial real estate attorney or tax professional to understand the potential implications.

You are legally permitted to buy commercial property as an individual. However, if your goals include long-term investment, asset protection, or portfolio growth, forming an LLC or similar entity is often a more strategic choice.

Starting with a small property is reasonable. Ensuring your structure and protections are in place from the beginning is even better.

Written by LevRose CRE with assistance from: LevRoseCRE.(2024)

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