Under the auspices of an Arizona LLC, the real estate investor is granted the legal protections of a corporate entity without the strict regulatory filing restrictions under other business entities. The ease of set up and lack of regulatory requirements is the main reason many real estate investors chose the business format. If you don’t form a LLC for investment property, the owner will be forced to assume all of the risks of liability in the event there is a lawsuit.

While many states allow individuals to establish an LLC online, it is best to speak with a trained professional who is experienced in the various business entity filing formats. While you will need to purchase property in your own name if you’re seeing bank financing you can transfer the property to your LLC after the closing by filing a quit claim deed. Once the property has been transferred to the LLC, all other transactions that relate to the property should be done under the name of the corporation.

Filing an LLC to protect yourself against liability and financial risk as a result of your investment real estate purchase. When it comes to tax consequences, filing taxes under an LLC means you will be taxed as a sole proprietor which means you will not pay taxes based on the income of the LLC but on your share of the profits and losses in the property.

Bear in mind that you will need to form a separate LLC for each investment property purchased – this protects the owner from “Spillover liability” from the other properties. Spillover means that if one LLC owns two investment properties, a tenant living in one of the properties could sue the LLC and could potentially obtain a judgment against both of the properties – meaning they could potentially receive a larger payout. Additionally, your bank may also require a separate LLC to limit the risks from underwriting properties that are not related to the property they are currently financing.

Taking steps to establish an Arizona LLC should be undertaken at the same time as your deciding what kind of investor to be in your real estate purchases.

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