By Maria Rocha-Buschel
LLC involvement has been increasing in residential real estate purchases in the last 15 years, a new study has found. RealtyHop, a sister site of rental listings website RentHop, looked at data from 2004 to 2018 in four of the five boroughs, as well as co-op versus condo purchases.
One of the key findings of the study was that LLC (limited liability corporation) involvement increased to nearly 14 percent of transactions and accounts for almost 25 percent of the value of residential real estate purchases in that time frame.
The data science team combed through records on ACRIS (Automated City Register Information System), information made public by the city government, to examine how the use of LLCs has changed over time. Staten Island was not included in the study because data for the borough is not published on ACRIS.
Adrian McHale, the data scientist behind the study, told Town & Village that there are a few reasons that buyers would use an LLC.
“One of the reasons that people use them is for privacy,” McHale said. “Celebrities use it to obfuscate, and a New York Times article mentioned that (football player) Tom Brady did this.”
Another reason, McHale said, is for investment purposes as well as to avoid liabilities.
“To a certain extent, buyers could be using those purchases for investments to rent out after, expecting the real estate values to rise,” he said.
McHale also noted that this is one of the reasons LLC involvement is common in luxury housing but he noted that the numbers are significantly lower for co-op purchases.
“There are a lot of the restrictions that come with co-ops, which makes it difficult to use them as investment vehicles,” he said.
McHale added that another reason buyers use LLCs is for tax benefits because of the flexibility in how they’re taxed.
The study also found that the median purchase price in 2017 for residential properties in Manhattan with LLC involvement was more than 2.7 times that of transactions without LLC involvement.
The study acknowledged that the overall results compiled information from four different boroughs where habits vary widely, and the results broke down the data by borough, with the Bronx showing the most drastic increase in the number of transactions that involve LLCs, starting at 3.53 percent in 2004 and increasing to 20.57 percent by 2018.
Only 5.21 percent of transactions in Manhattan involved LLCs in 2004. That number has increased to 12.63 percent, although this is a slight dip from its peak in 2016 when 14 percent of transactions in Manhattan involved LLCs.
“The fact that LLC purchase keeps rising goes to show the gulf between what normal people in New York are doing and what the people who can purchase property are doing,” McHale said. “Not that all of the people who purchase property in the city are oligarchs but a number of them are.”