When perusing Manhattan’s top sales, one phrase frequently comes up: “The buyer [and/or seller] is listed as an LLC.” The acronym stands for limited liability corporation, and New York State defines this as "an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business." In essence, an LLC is a business structure that combines "corporation-style limited liability with partnership-style flexibility," making it an ideal structure for many small businesses and a particularly attractive structure for real estate investors.

There are benefits to making a purchase with an LLC, but the practice is not without controversy. This article examines the logistics of buying a property with an LLC, the pros and cons, and recent legislation related to LLCs.

When to Buy a Property with an LLC

There are two primary reasons to buy a property with an LLC. The first is privacy. If you're a celebrity or someone of notoriety, closing a deal under an LLC can help you buy a property without having your name mentioned in Notable Sales or any similar reports. However, most properties bought and sold as LLCs don't belong to celebrities but rather to investors (and, in some cases, individual owners) who want to take advantage of the protections and tax advantages associated with purchasing a property with an LLC.

Why Buy a Property with an LLC

There are several advantages associated with buying a property under an LLC, including the ability to:

• Protect your personal assets: Whether you own one unit or hundreds of units, if you purchase a residential property using an LLC structure, you'll always be able to keep your personal finances separate from your real estate investments. In theory, if you lose your property, the loss won't impact assets held outside your LLC.

• Avoid paying double tax: There are also significant tax benefits associated with purchasing properties under an LLC structure. Most importantly, an LLC helps owners avoid double taxation (i.e., paying taxes on a business and personal level).

• Easily invest with business partners: An LLC structure can also make it easier to buy a property with friends or business partners.

How to Buy a Property Under an LLC

Buying a property with an LLC is a fairly straightforward process that only differs slightly from buying a property as an individual. The following are the main steps involved in the process:

• Establish an LLC: If you don't already have an LLC or want to create a new one for a specific real estate purchase or series of purchases, the first step is to establish an LLC. Visit New York State's Forming a Limited Liability Company in New York State site to learn more about the process. One important consideration is that any information included in the "Articles of Organization for a Domestic Limited Liability Company" form will eventually be made available in public databases. However, for a small fee, you can work with a registered agent to avoid having your name or address included in any public filings.

• Adopt an operating agreement: If you are forming an LLC, you'll also need an operating agreement, which is essentially a set of bylaws that will determine the operation of your LLC. An operating agreement is particularly important if you plan to establish an LLC with other investors.

• Seek financing: Since lenders know that LLCs can't be held personally liable for a corporation's debt, financing can be more challenging. Some lenders will only work with LLCs if the buyer agrees in advance to also put their assets on the line if a debt is incurred.

• Find an agent and start making offers: Once you've established your LLC, adopted an operating agreement, and secured financing, the following steps are similar to any other real estate purchase (i.e., you need to find an agent, start looking at properties, and eventually make an offer). One possible difference is that some sellers and buildings will be more amendable to LLCs than others. For example, if you're buying a sponsor unit in a new construction condo, you'll be unlikely to run into obstacles. By contrast, the welcome mat may or may not be rolled out if you attempt to buy a unit in a small coop, since many coop boards are invested in selling to individuals, not corporations.

• Prepare for additional scrutiny during the closing process: When buying with an LLC, you don't need to reveal your name. Your agent will present the deal as coming from an LLC. That said, if you're buying anything over $3 million in Manhattan or $1.5 million in Brooklyn, expect additional scrutiny, especially during the title search.

Why LLCs Are Controversial

Despite being a common practice, LLC ownership of residential properties continues to attract a fair share of critics. In recent years, even former U.S. Treasury Secretary Janet Yellen has taken a swing at LLC-owned properties. In an uncharacteristically sharp critique, Yellen once claimed that "sometimes the only thing these luxury properties are home to are ill-gotten gains – they're money laundromats on the 81st floor." In some respects, Yellen is correct—particularly on the luxury side of the market, some properties are purchased with LLCs to help an owner (in many cases, a buyer based in a more volatile economy) move a portion of their wealth to the United States. Given the strong returns delivered on New York City real estate, there is no question that at least some LLC-owned condos in the city, including many located in Billionaires' Row, are primarily investment vehicles.

But if you live in a building with many LLC-owned units, don't assume your building is a haven for "money laundromats." Most LLC-owned units are owned by the building's original sponsor—in condos, this is typically the developer, and in coops, this is the investor who helped turn the building from a rental into a coop.

Understanding the NYLTA

In December 2023, Governor Hochul signed the LLC Transparency Act (NYLTA), which requires all LLCs either formed under New York law or seeking to do business in New York to submit information to the New York Department of State disclosing the entity’s owners. Modeled on the federal Corporate Transparency Act, this information is stored in a confidential database.

The NYLTA became effective on January 1, 2024, and new sections defining relevant terms and requirements go into effect on January 1, 2026. LLCs that fail to file either their information or a request for exemption by the applicable due date will be deemed suspended and will not be able to conduct business in New York until everything is sorted.

The NYLTA was enacted to prevent the use of LLCs for such nefarious activities as money laundering, fraud, and tax evasion. As such, the information in the database will only be released for law enforcement purposes or if an owner requests or consents to disclosure of their information.

When the NYLTA awaited the governor's signature, some speculated that it would lead to fewer buyers choosing to purchase using an LLC. Over a year since the bill was signed, it has not put a stop to the practice. However, as the NYLTA only applies to LLCs, as opposed to entities like trusts and limited partnerships, some high-profile buyers choose to conduct transactions with these instead. One recent and notable example is hedge fund executive Ken Griffin—he is listed on public records for the purchase of philanthropist Julia Koch's Park Avenue apartment as a limited partnership.

Whether you plan to buy with an LLC, a trust, or in your own name, you'll want to see this weekend's open houses. The dates are included in the listings; if these times don't work for you, contact CityRealty to arrange a tour.