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When you think about owning a second home, co-ownership is a great way to lower costs and increase access to potential properties. There are a wide variety of co-ownership structures to choose from, each with distinct advantages and disadvantages. Let’s break it down.
The common structures for co-ownership include: limited liability companies (LLCs), tenancy in common (TIC), real estate trusts, and not-for-profit corporations, just to name a few.
Pacaso has modernized LLC co-ownership, improving on the proven model to maximize the positives. Offering owners increased protection, tax benefits that may help their bottom line, and increased purchasing power, Pacaso is the smarter way to buy and own a second home.
Want to learn more about the benefits of LLC co-ownership? Read on.
What is an LLC?
A limited liability company (LLC) is a legal business entity composed of individual members that acts to protect its owners from personal liability. Multiple-member LLCs, like those created by Pacaso, are a unified front that represent and protect a group of buyers. A blend of partnership and corporation, LLCs have their own bank account, tax ID number and assets, conducting real estate investment and transactions under their own name, and transforming the way buyers purchase and own a second home.
How is an LLC funded?
The beauty of LLC property ownership comes from its simplicity. Whether the entity is made up of two members or many, the LLC pays for real estate purchases using its own funds, making it crystal clear where the ownership lies. With Pacaso, buyers purchase owner membership interests in a property-specific LLC.
Financing a LLC property is simple. Buyers can use a HELOC or other lines of credit lines. Pacaso also offers qualified buyers flexible financing options.
The top advantages of LLCs include:
Protection: A second home should be all about relaxation and enjoyment, but accidents can happen. As a general rule, LLCs offer owners increased protection, containing liability within the LLC rather than placing blame on individual owners. For any claim against a property — a guest slips on the infinity pool deck, a passerby interrupts a perfectly hit golf ball, or a neighbor gets a scrape on your ocean shoreline — your assets are protected with an LLC. This is not the case with other forms of co-ownership.
Privacy: Privacy is paramount in this digital age, and LLC property ownership is one of the easiest ways to ensure it. When a home is purchased, the LLC name is recorded on the deed and available to the public, as opposed to the owner’s name being in the public records. Additionally, if you’d prefer to keep your second home address to yourself, or you’d rather not have everyone you know able to find the exact sale price online, LLCs offer a simple and smart way to reduce searchability.
Profits: One of the major pros of LLC property ownership comes at tax time. With an LLC, properties aren’t taxed directly — owners instead report profits on their personal tax returns. Defined as pass-through taxation, this LLC property ownership benefit should be counted firmly in the plus column when buyers ask themselves, “Can I afford a second home?” — it could mean thousands of dollars’ worth of annual tax savings.
Passing it on: Since an LLC operates as a registered business entity, owners can sell shares — or in the case of LLCs, “interests”— of the property to others. The paperwork process is simple and straightforward, and does not require a new deed.
Proven model: The last advantage of LLCs is that they are a known quantity. It’s not uncommon to see 20% of homes in a second home market being LLC owned, and they are the most common form of ownership in commercial real estate transactions.
Contracts: Though the pros of the LLC property ownership model are huge, the headaches can be too. From finding a lawyer to researching regulations to outlining a complex operating agreement, creating your own LLC can be a major undertaking. And getting it right is critical — your rights, responsibilities, and profits depend on it.
Costs: There are costs associated with forming an LLC and for keeping it in good legal standing.
The Pacaso solution
Navigating the ins and outs of property ownership can be a complicated process, but Pacaso is here to help:
- Pacaso creates a property-specific LLC for each home, minimizing the hassle while providing all of the proven benefits of this approach.
- Pacaso does the hard work so you don’t have to. We’ve invested countless hours and boundless energy into consulting with experts to create a best-in-class owner operating agreement that bypasses red tape and brings like-minded buyers together.
- Instead of going it alone, owners purchase a membership ownership interest sold in ⅛ shares.
- Pacaso’s professionally managed LLC co-ownership structure allows for a personalized approach, with maximum flexibility to create the operating framework that works best for second-home owners.
- With Pacaso, transferring ownership interests is streamlined and secure, a real benefit when and if it’s time to resell.
Pacaso helps you leverage all the benefits of LLC property co-ownership of fully managed second homes. It’s true ownership with less expense and stress, and all the joy.
(As with all major investments, it’s smart to consult your certified public accountant.)