I\u2019ve been an Arizona real estate and business lawyer since 1980.\u00a0 Based on my knowledge and experience the type of entity to form to hold Arizona real estate is an Arizona LLC.\u00a0 When I represent buyers of multi-million dollar properties the lenders always require that the borrower form a single purpose LLC to own the real estate.\u00a0 Over half of the 10,000+ LLCs I have formed have been to hold real estate.\u00a0 Your other choices are the corporation and the limited partnership.\u00a0 Both of these types of entities have been obsolete since Arizona enacted its LLC law in 1992.\u00a0 A general rule is never own investment real estate in a corporation because of adverse tax consequences.\u00a0 That\u2019s why before 1992 the limited partnership, not the corporation, was the entity commonly used to own investment real estate.<\/p>\n
When you have an LLC, you want the LLC to be the borrower that signs the promissory note and becomes obligated to repay the loan.\u00a0 The general rule is that if the LLC is the borrower, the owner(s) of the LLC are not liable to the lender to repay the loan if the LLC defaults.<\/p>\n
A sophisticated commercial lender will require you to form an LLC and have the LLC be the borrower and take title at closing with you guarantying the loan.\u00a0 Single family home lenders and lenders that do not understand the legal reasons for having the LLC be the borrower will require the person to be the borrower.\u00a0 If your lender will not let the LLC be the borrower then you must be the borrower and take title in your name and then transfer the real estate to the LLC after closing.<\/p>\n
If you are an owner of an LLC that will borrow money, the best structure for you is for the LLC to borrow the money and sign the promissory note without you signing a guaranty by which you promise to repay the lender if the LLC defaults.\u00a0 If you can do this, then if the LLC were to default on the loan and did not have sufficient assets to repay the loan, the lender would not be able to pursue you for the unpaid amount due to the lender.<\/p>\n","protected":false},"excerpt":{"rendered":"