Just like any other businesses, you need to protect your real estate properties by having a business entity. It stops liability if ever lawsuits occur, thereby protecting your assets.
For instance, if you don’t have a business entity for your properties, tenants can file lawsuits against you when accidents occur within your property, and may lead to garnishing your wages or liens. But if your assets are protected, tenant’s recovery is limited to the property being rented.
When unsure about the type of business structure to follow, read on the following to help you decide:
- LLC (Limited Liability Company)
Limited Liability Company is the new form of business. It is meant to secure real estate investors from mischievous intentions of others such as deceit. Moreover, it is an operation where you can either own the exclusion of everything or to a certain extent.
If you want to know more about state investing, visit bestrealestatedirectory.com. Aside from securing yourself from deceit, here are some compelling reasons why you must contemplate setting up an LLC:
- Raise Credit For Your Business
The capability to raise credit for your business usually diminishes the benefit of establishing a real estate LLC. It can be a powerful tool for you as long as it allows you to start an outstanding credit rating for your business.
- More Freedom
Real estate LLC is not required to hold an everyday meeting. When it comes to managing your duties and responsibilities, this business structure does not need so much binding.
- Limit Your Personal Liability
When investing, you need a massive amount of capital to start up. However, LLC can secure your finances and help you profit more.
Moreover, there are different types of LLC that you can choose, which are available depending on your location:
- Anonymous LLC – are companies where the owner’s details are private and restricted for public viewing, which is currently available in Mexico.
- Member or Manager-Managed LLC – this structure is formed in the operating agreement. The member-managed LLC is the most straightforward structure that runs by the owners of the company while the manager-managed LLC is used when there is a submissive investor.
- Series LLC – this is a business entity that appoints debts, obligations, and rights to smaller cells. It is currently available Nevada, Lowa, Illinois, Tennessee, Oklahoma, Utah. Texas.
- General Partnership – it is the most preferred structure, and it will be formed with multiple members. Each member can decide when will the assets be sold. It also takes action for transactions, taxes, and debts from the business.
- Single-Member LLC – it has a single owner only. It is like a sole proprietorship, which is the owner, and must take action personally on company transactions, taxes and debts that the business owes.
Incorporation is one of the most common structures in real estate investment. It is used in the underlying structure of partnerships or joint ventures and provides insulation for liabilities. Also, it gives flexibility, simplicity to complicated arrangements, and removes investors according to the agreements.
Generally, corporations need intensive paper works. It requires various documents such as annual internal documentation after its formation. Therefore, it is essential to conduct an organizational meeting after the filing to the Secretary of the State.
It is also necessary to understand how your corporation should be structured. Here’s what to expect during your initial organizational meeting:
- Shareholders (owners) are listed.
- From the list of shareholders, Directors who will be responsible for carrying out policies of the company is nominated and elected.
- Directors will conduct their own meeting so they can formulate and implement the Bylaws of the corporation. Bylaws are the main contract how the corporation should be run.
- Directors also nominate Officers for the corporation who are responsible for the daily operation of the company.
- Limited Partnership
A limited partnership is considered the tax-driven structure for common large projects. It allows income to flow and taxed when it reaches each partner. In this structure, it has only one general partner who will be responsible for managing the company.
Its primary benefit is that partners are not exposed to liabilities beyond their financial contribution. However, if a partner gets involved in managing the real estate business, they are exposed to liabilities.
Also, a limited partnership can accept a lot of investors so they can buy and sell interests while many contribute to the project.
To become a successful investor, you should construct a business using these structures. These will help you understand your duties and responsibilities, as well as your rights. Moreover, it protects your investment while helping you decide what structure is suitable for your real estate investment.