Managing commercial real estate risk should be on your mind. On the Champions DFW Commercial Real Estate radio show and podcast, Jim Kelley welcomed Skip Leake to discuss this topic. Skip is a business and real estate attorney in Arlington, Texas.
Here is an excerpt of their conversation on managing commercial real estate risk…
Jim: Tell us about the need and the requirement for setting up a legal entity when purchasing commercial real estate.
Skip: Well, because of our society in the way that we’ve evolved, you need to have as much, what I would call, asset protection around you as you can get, especially when you’re looking at buying a piece of real estate that you’re not going to live in. Under Texas law, there’s the home stay protection for your house, but any other piece of real estate is not protected from creditors. So we have a concept where we try to minimize risk through entity formation, and then have the process of managing controllable versus uncontrollable liabilities.
Jim: I think you described it as an insurance policy when buying real estate.
Skip: Forming an LLC, in my opinion, is about the cheapest insurance policy you can buy because it protects your personal assets from your business assets.
Jim: So it’s all about managing the risk. There are various tops of legal entities, Skip. We talked, you mentioned LLC, LP. Can you talk about some of those structures?
Skip: Texas has adopted the Texas organizations code which defines, statutorily, several types of entities; one of them is what everybody understands to be a corporation. Then we have a limited partnership, we have a limited liability company, we have a general partnership and we have professional organizations that piggy back on those, as well as a non-profit organization under Texas Law. The entity that I use more than any other type of entities is Limited Liability Company.
Jim: What are the benefits for an LLC type setup?
Skip: An LLC, or a Limited Liability Company, is an entity that’s defined by statute that allows the flexibility of being taxed either as a partnership, as an S corporation, as a C corporation, or even as a disregarded entity if it’s a single-member LLC.
For the entire conversation on managing commercial real estate risk, listen to the podcast here on our website or on iTunes.
Learn more about the Champions DFW team, here.