The Legal Structure of Real Estate Investments to know

when it comes to financial and legal sides of investments, you can’t let yourself get exposed to liability and taxation.  You can make sure that you prevent this by protecting not just your business, but your assets as well. Failure to do this can put you at risk and you’ll be sued or fall behind. Legal structure is a simple document that protects your business.  You should be able to with this, run your business as you feel is fit.

One way to do so is an LLC, or Limited Liability company, and it’s perfect for investors that buy and hold when you have steady income and long-term capital appreciation to accrue. they’re simple and cheap, don’t have a ton of paperwork, and you don’t have to limit the liability of the person behind that. It also allows for a pass-through entry, which means that earnings and losses are passed to the income tax return.  However, you need to be very careful not to mix these, because if you mix the personal and business expenses, it can make you liable.

Then there is the S corp, similar to an LLC, but it will flow to the income tax of the share holders, and the S corp itself doesn’t owe any tax liability, and by structuring with this, you can get the flexility to manage this, and it is transferable.

C corps are a little bit different. They operate as total corporation and they do have to pay their own separate taxes, but the biggest benefit is that there isn’t a cap on the number of owners, which makes it ideal if you’re pooling the investors together for larger real estate investments, and because the earnings don’t flow into the personal tax return, you don’t have to worry about liability, but it does men double taxation if you pull cash out.

Finally, you have a REIT, and while it isn’t totally common, it’s possible to create a non-publicly traded real estate investment trust, allowing for an efficient and secure means.  It does have a trick though, for in order to qualify, the entity must distribute about 90% of the annual income to the shareholders, so it’s hard to fully grow.

When you’re choosing one of these, think in the long term. You should always do so, and think about that when you set up a legal structure for the business. it’s easier to set up the structure and grow than it is to reach a point later on where you need to reincorporate. The latter of this can take a long time, get expensive, and is inevitably hard on the business. So, make sure that before you begin your real estate investment business, you know exactly what it is that you need to do in order to be sane and careful, and from there, you can choose for yourself what the fate of your business is, and where it is going as well.