LLC
A Limited Liability Company — a business structure that separates personal assets from investment property liability.
Definition
A Limited Liability Company (LLC) is a legal business entity that provides personal asset protection by separating the owner's personal finances from the business's liabilities. If a tenant sues over a property held in an LLC, only the LLC's assets are at risk, not the investor's personal savings, home, or other properties. LLCs are the most popular entity structure for real estate investors due to their simplicity, flexibility, and pass-through taxation. Most investors create a separate LLC for each property or small group of properties to maximize isolation of risk. LLCs can be managed by a single member or multiple members with different ownership percentages.
How This Relates to DSCR Loans
DSCR loans are uniquely well-suited for LLC borrowers. Unlike conventional loans, most DSCR lenders readily close in the name of an LLC, which is required for proper asset protection.
Related Terms
Series LLC
A special LLC structure where each asset is held in a separate "series" with individual liability protection.
Asset Protection
Legal strategies to shield personal assets from lawsuits, creditors, and liabilities arising from investment properties.
Operating Agreement
A legal document that defines the ownership structure, roles, and rules of an LLC.
Entity Vesting
Taking title to a property in the name of a business entity like an LLC or trust instead of a personal name.
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