If you invest in real estate, you may wonder how best to grow your investments. Perhaps you will decide that starting your own real estate investment company, also known as a holding company, is the best option. Additionally, forming a holding company for your properties may limit your exposure to taxes and liabilities that could endanger your finances.
Starting a holding company is not for everyone. The Motley Fool explains some crucial facts about real estate investment companies that might benefit you to know before you decide to form one.
Holding companies take different forms
If you want to create a holding company, you have a variety of options. Many entrepreneurs go with a limited liability company. However, you have other choices than an LLC. You may create a sole proprietorship, a limited partnership, an LLC that has an S-Corp designation, or a corporation. Keep in mind that corporations for real estate are not common because they incur taxes at both the shareholder and the corporate levels.
Holding companies offer protection
Creating a holding company may help protect you from liabilities. In the event someone suffers an injury on one of your properties, you may avoid personal liability because the company owns the property, not you personally. This should keep your assets safe from litigation. A holding company also offers various tax benefits. You may take advantage of tax deductions and not have to pay certain taxes on your properties.
You will have expenses
Keep in mind that starting and maintaining a holding company involves costs. You must not only invest money to start the company, but you will have to pay renewal fees and other expenses to maintain the company. Since the company will incur taxation, you will need someone who can do your company’s taxes. This may come to a substantial cost if your company’s operations are complex.
Determining whether a holding company is worth your time and investment will depend upon your situation and your priorities for the future. If you can navigate the legal requirements to start and maintain a real estate investment company, reaping a substantial benefit is possible.