Wednesday, July 25, 2018

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The Smart Way To Buy Florida Real Estate

When people think of real estate, Florida tends to be one of the first places to come to mind. But why?
First, there's nothing more inviting than the beautiful beaches, the warm, sunny weather, and the luxurious lifestyle that people associate with Florida. People from all over the world come to Florida from snowbirds, to retirees, foreign investors to tourists. This influx of people has created a constant boom in the real estate market which in turn has created profitable jobs and low unemployment. The high tourism trend requires people to staff amusement parks, hotels, restaurants and the other businesses that profit from tourism.

As a peninsula, Florida has many coastal cities which enjoy profitable gains from real estate investments because of the lucrative investments vacation homes offer. This profitable investment has enticed more and more middle class to upper class families both domestically and abroad to purchase coastal vacation homes for summer renters or winter snowbirds. Additionally, many homeowners are willing to pay a premium for the luxury of a lakeside or ocean-view home which they know renters will prefer as well. 

The uptick in the Florida real estate market has also created diverse investment opportunities such as residential homes (single family homes, condominiums, apartments, multi-family homes, efficiencies), commercial buildings (office buildings), industrial investments (warehouses, storage units), retail buildings (strip malls, shopping malls, storefronts), and combination real estate (such as storefronts with residential units above) all of which can be leased and rented to different types of tenants for short term or long term leases.

Additionally, because of the international intersection of Florida's southern location, cities like Miami, Orlando, and Tampa have made Florida an international hub. Cities like Boca Raton, Davie, and Fort Lauderdale are growing exponentially in the real estate market. This presents Florida as a strategic and economic opportunity for both domestic and international real estate investors to take advantage of the natural growth of the market, diversify their real estate investment portfolio, or make some personal real estate purchases. The most important thing to remember when investing in real estate is to invest smart—use an LLC.

Why Use a Florida LLC to Purchase Real Estate?

Using a Florida LLC to purchase real estate is one of the things legal professionals have been debating recently. But for Vivanco & Vivanco, it's a no brainer. Using an LLC to purchase real property is the smart thing to do for the majority of our clients. Latin American clients who seek to purchase real property in Florida, whether as an investment or for personal use, should use a Florida LLC because of all the benefits the LLCs provide.

Arguably the most important benefit for our Latin American clients, a Florida LLC protects the client's privacy. Florida property owners are easily found on public records online. By having an LLC purchase the property, only the Florida LLC will be listed as the owner of the property. This keeps the clients purchases confidential.

Another significant advantage of using an LLC is asset protection. LLC's limit the liability both in Florida and in the client's residency. If there is ever a judgment against a client, the property is protected under the name of the LLC. If the lawsuit names the LLC, then only the assets owned by the LLC can be used to pay the suit. Owning a property through an LLC can also reduce rental liability.
Tax planning is a big benefit of using an LLC to purchase real estate; LLCs are see-through entities that limit tax liabilities in both the US and the client's home country.

LLCs are also great for succession planning. Purchasing property with an LLC can be easily be paired with Trusts or foreign entities to ensure that the property and assets avoid probate and go directly to the assigned family member.

Additionally, LLCs are a great value for the flexible nature and protection they offer which is why they are such a popular option. In fact, according to the Florida Department of State, two-thirds of all new business entities in 2017 were Florida LLCs. This number is expected to rise drastically thanks to the Tax Cuts and Jobs Act which provides favorable tax treatment to pass-through business entities.

Anything Else I Should Know Before I Use an LLC?

Absolutely! Addressing some common questions asked by clients, some might be thinking "But I'm not a foreign client, I'm from Florida. Is an LLC still an option for me?" An LLC is an option for anyone who wants to shield themselves from personal liability or protect their privacy such as celebrities. However, it is of utmost importance that domestic US investors from Florida know that if they use an LLC to purchase their property, the LLC is not eligible for Homestead exemption. Therefore, using an LLC to limit liability may not outweigh the benefit of Homestead exemption for Florida residents who wish to live in the property they are purchasing but would be beneficial for Florida residents buying property for only investment purposes.

What if I already bought the property under my personal name? Is there anything I could do? The creation of an LLC and transfer of the property from the client's personal name to the LLC is a simple transaction.

If I'm buying multiple properties, should I use one LLC or multiple LLCs? it is a best practice to form an individual LLC for each property purchased. This ensures that the investor's liability exposure for any one property is limited to that property alone. If multiple properties are owned by one LLC, liability resulting from one of the properties could lead to an exposure and execution on all of the properties owned by the LLC. If each property is owned by an individual LLC, the maximum exposure on any one property or LLC would be limited to the property owned by the LLC.

Another important thing to remember is that there should be no commingling of assets—all taxes and fees for the property needs to be paid by the LLC and not from the client's personal account. If the payment comes from the client's personal account, then it is possible that a court could pierce the veil and hold the client liable for any judgment.

When buying property, it feels like there are a million different things to remember—where to invest, what kind of property to invest in or how long to rent the property out for. But the most important thing to remember is to always buy smart and use an LLC.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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