Even though the U.S. housing market has taken a big hit in the past few years, real estate investors are still finding opportunities, even in a down market. With home foreclosures still at a near-all-time high, and with housing prices still near record lows, investors are finding opportunities to buy houses in foreclosure and “flip them” at a profit.
If you want to start a business to get into real estate investing, or if you are already buying real estate to sell or use as rental property, you should consider incorporating your business by forming an LLC.
As millions of Americans, unfortunately, learned during the years of the housing bubble, real estate investing is never “guaranteed money.” Especially when you’re dealing with foreclosures, these homes can often have problems or damage that will need work to fix up into selling shape. So any foreclosure real estate investors should consider setting up a real estate LLC to protect their assets.
If you want to be a landlord and make money from rental property, there are also several reasons why a real estate LLC might be the best choice to protect your personal assets from those of your business.
Here are a few reasons why forming an LLC is an ideal choice of business structure for real estate investors:
- Tax benefits: If you own real estate as an LLC, you can elect to be taxed as a sole proprietor or partnership – which means that you do not have to pay corporate income taxes. (The LLC is a non-taxable entity with “pass-through taxation” – the earnings of the LLC have to be reported on the individual income tax returns of the LLC’s members.)
- Avoid litigation risks: If you own rental property, there are numerous possible risks that go with being a landlord. People might sue you for environmental problems, personal injuries, accidents or other incidents. If you own your rental property via a real estate LLC, your personal assets are protected from all of these potential claims and liabilities.
- Flexible profit distribution: If you own real estate along with one or more partners, owning a real estate LLC enables you to divide the profits among yourselves based on each owner’s share of the investment, risk and “sweat equity.”
- Less red tape: Forming an LLC is often the easiest, simplest fastest way to start a business. There are fewer regulatory requirements and bureaucratic “hoops” with an LLC than with other business entities.
If you want to get serious about investing in real estate, you should form an LLC to protect your personal assets and help enhance your credibility as a business person. There are still good opportunities out there to buy real estate and own rental property, but there are risks that go with it. Forming a real estate LLC can help you avoid the risks and enjoy the rewards of real estate ownership.