Since the North Fork Sun began tracking real estate transfers at the beginning of December, more than 35% of the properties listed in our real estate transfers have shown a limited liability company (LLC) as a buyer, not an individual.
Remove Riverhead from the equation, and the number increases to almost 40%. Of the properties shown having sold for $1.7 million or more during that time, just less than half of them were purchased by LLCs.
What does that mean?
Interviews with North Fork brokers and real-estate professionals point to a fairly consistent explanation: most are not corporate investors but second-home buyers following advice from attorneys and financial planners. The structure offers liability separation, estate-planning flexibility and administrative simplicity when ownership shares may change over time.
Privacy plays a role far less often on the North Fork than many assume, brokers said. In practice, the LLC is typically a legal wrapper placed around a lifestyle purchase — but one closely associated with higher wealth and long-term financial planning.
These homes are being bought as real estate investments, and the decisions the LLCs make in regard to using their properties, and how much to pay for them, will markedly affect the communities they’re in.
There are two main reasons to purchase a home through a limited liability company (LLC). The first is to protect the buyer’s privacy. Bridget Elkin, an agent with Compass, said that’s rarely the case on the North Fork because there are very active community members who bought their homes through LLCs.
Elkin says it’s often not top of mind for them as they enter the process.
“This is a second home that’s signifying somebody has a wealth to protect, and assets to protect,” she said. “And it’s sometimes at that point where they’re in a position to afford that, that a financial advisor or a legal advisor says, hey, you know what? We need to start protecting these assets.”
Corcoran’s Sheri Winter Parker said that’s been her experience as well.
“The LLC route is the way a lot of attorneys want people to purchase their properties,” she said. “Especially [when] not a primary home.”
Scott Fleishman, vice president of the title company Spano Abstract Service Corp, said an LLC purchase would make sense as well if a group or family was purchasing it with the future intent or need to add or subtract owners, change ownership valuation or to pass the property down to their heirs as part of their estate.
“Just make an amendment to the operating agreement of the LLC and that’s it,” Fleishman said. “And that’s what dictates the ownership and the percentage ownership of that property as well. As opposed to having to constantly change the deed and recording the deed at the county clerk.”
Other advantages of an LLC include tax deductions on property taxes, insurance, mortgage interest and costs to maintain and repair the structure, according to Rocket Mortgage.
Fleishman said that possibly the biggest advantage of owning a property through an LLC is that it allows a buyer to separate personal finances from real estate investments.
”It limits your liability,” he explained. “So, if someone, God forbid, falls or dies on that investment property, that lawsuit that may sue the LLC, they can’t go after someone’s personal assets, right? It’s just the assets the LLC owns.”
Other than for organization purposes, Fleishman said that limiting the liability only to the assets the LLC owns is why few, if any LLCs, are used to purchase multiple properties.
”You don’t want to buy everything in one LLC,” Fleishman said. “Because then, if something happens on one of your properties, that same LLC owns those five other properties.”
A lawsuit against one of the properties an LLC owns would endanger the rest of the assets owned under that same LLC. The owner would thus lose the limited liability that makes an LLC so attractive.
Owning an LLC requires that all bills – taxes and otherwise – are paid through the LLC. They cannot be paid through an individual’s bank account. Otherwise, if that LLC were to be sued, Fleishman said the court is likely to find that “they’re just throwing in the name in an LLC, but everything’s being done individually. There’s no business, no limited liability company. [Courts] know that there’s no company being run here.”
Nor can a buyer make the home purchased through an LLC their primary residence. Any of these actions would be considered, in legal terminology, to be “piercing the corporate veil,” and the buyer would lose the LLC’s liability protections.
So what do more LLC purchases mean for the North Fork real estate market?
“It is tied to wealth, it is tied to protecting finances,” Elkin said. “And so, if we’re seeing more people use LLCs here on the North Fork, it means that, we’re seeing wealthier buyers come through. This is a financial planning play.”
This is not to say people purchasing second homes on the North Fork don’t have other motivations for doing so. Winter Parker said it was the region’s “understated chill vibe” that initially attracted her when she started coming out as a weekender from the city. “It’s just so pretty,” she said. “It’s soothing. It’s calming. It’s wonderful.”
And, Elkin said, people looking to sell see that attitude as advantageous to negotiations.
“ I think that it’s a misconception that they’re necessarily displacing full-time homeowners,” Elkin said of second home buyers. “Full-time homeowners are choosing to sell – locals that have been here for 30, 40 years – and maximize their value. They’re … not saying, ‘I want to sell to a full-time resident.’ They’re in it. They are all wanting to maximize their value and I don’t fault them for that.”
Parker said sellers will take what they think is the best offer in front of them, LLC or not … with one exception.
She said that an attorney she knows “had a seller that did not understand that the buyer wanted to buy it in an LLC. She freaked out and then refused to sell to them.
“I’ve been doing this for 21 years and I heard that story a couple of years ago and I was like, ‘What? I’ve never heard that before.’ And no matter how the attorney tried to explain it to the seller, she just was super old school and just like did not understand it and said no.
“So, she sold it to another couple instead. And for less money.”