Legal advice
What is a title company?
Title companies typically represent the transaction and act as combined agents for the title insurer, the buyer, the seller, and any other party involved in a real estate transaction, such as the mortgage lender. A title company’s responsibilities are many, the most important being:
- Title analysis to issue a title insurance policy. This step involves conducting a property history investigation, and during this investigation, issues that need to be addressed before the purchase may be discovered. If these issues cannot be resolved, a decision is made as to whether title insurance will be issued.
- Conduct the closing of the transaction, preparing all legal documents; receive the necessary funds from the buyer or banking institution to make the necessary payments, acting as a trustee. This provides transparency to the transaction.
- Finally, issue title insurance to the buyer and the financial institution, ensuring a clean title free of any title defects.
Buy in your own name or in the name of a company?
One of the first decisions you must make when purchasing property in the U.S. is the amount you will purchase it under. A property can be purchased in the name of an individual or a company. The most commonly used forms for these cases are LLC, INC, or Corp. Investment properties, almost without exception, must be purchased through a corporation or other entity.
What are the advantages of purchasing through a company?
- It protects the owner from potential property-related lawsuits. That is, in the event of a lawsuit, it can only be brought against that property and not against other personal property or assets.
- Consolidate all income and expenses attributable to this property into a single entity. This will help reduce the tax impact and impact the property in the event of a sale.
- Provides flexibility in tax planning, in terms of transferring property interests to family members and others.
- Avoid or reduce inheritance taxes, so when the company owner dies, the legal entity never dies, thereby reducing the amount of inheritance tax.
Should I open a company for each property I buy?
Forming a company for each property is truly the best protection you can obtain. This way, investors limit legal liability to each property.
If several properties are under the same ownership, the liability of one could expose the other properties. However, due to the costs of opening, managing, and maintaining these companies, it is common for investors to maintain multiple properties under the same company.
Estimated costs of opening a company to purchase real estate
- Approximate opening cost between $500-$900.
- Annual renewal cost ranges from approximately $200-$400.
- Accounting fees for administration and annual tax filing (before May 1) depend on the service and structure requested by each client, but range from $500-$1,000.
What does it take to open a company?
- Register name.
- Mailing address in the United States.
- Names of the directors and their respective identifications.
- Prepare the company’s articles of incorporation (accountant’s work).
- Prepare operating agreement (accountant’s work).
I bought in my personal name, can I transfer it to a company?
It’s important to plan this before making the transaction; however, if you’ve already purchased in your personal name, although it’s possible to transfer ownership, it’s important to consult with an accountant and/or attorney to analyze your specific case and determine the potential legal and financial implications. Among these, it’s important to determine:
- If FIRPTA applies (foreign investors)
- Transfer costs
- If it is taken as a sale
