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If you’re like me and you invest in real estate, you might want to consider starting a real estate holding company. be considering starting a real estate holding company to maximize your monthly profits and streamline your operations.
Not only can a real estate holding company maximize your monthly profits and streamline your operations; it can protect your assets.
But what is a real estate holding company? Is it right for my real estate business? And above all, how do I create one?
Sit back and relax: I’ve got you covered with everything I learned as I asked the same questions.
Let’s get started!
What is a Real Estate Holding Company?
A real estate holding company is a company created for the purpose of owning, leasing, and managing real estate properties.
In other words, it is a company with a shell.
Its purpose is to provide its owners (you!) with the benefits of a limited liability company while enjoying tax breaks.
Advantages of a Real Estate Holding Company
The major advantage of a real estate holding company is liability protection.
Why is that so important?
Have a looksie…
If something goes wrong with a piece of real estate, your personal assets are safe because the real estate holding company will take the hit if something goes wrong.
Plus, real estate holding companies have tax advantages.
Who doesn’t love that?!
You qualify for expenses such as depreciation and maintenance repayments which can reduce your taxable income and thus increase your profitability.
Keeping your properties in one real estate holding company also has some advantages from a management perspective.
It simplifies accounting and maintenance duties and enables you to stay on top of your investment.
BOOM!
In addition, trading under a real estate holding company name gives you credibility.
When you use the formal name you give the impression that you’re not some inexperienced amateur, and you’ll likely be able to close a deal or raise capital more quickly.
Disadvantages of a Real Estate Holding Company
Creating a real estate holding company will incur startup costs, maintenance costs are involved, and there are legal costs for creating and running the real estate holding company you are managing.
These can add up and reduce your profitability if you don’t take them into consideration from the start.
There is record keeping to conduct in order to comply with state and federal regulations.
This can take time – and does require high organization and attention to detail – adding yet one more layer of complexity to running your real estate assets.
But, in my opinon?
The advantages of a real estate holding company far outweigh the disadvantages.
When You Should Start a Real Estate Holding Company
A real estate holding company can help protect your assets if you’re a landlord with multiple properties.
When you add up all the risk involved with your properties, having a holding company that protects your assets and your personal wealth from lawsuits over your rental activities and personal debts can be an enormous comfort.
If you intend to buy property long-term as an investment, a holding company is a good idea as it will help you avoid costs and headaches later down the line, whether you’re planning on holding a couple of investment properties or something larger once you reach full financial independence.
How to Start a Real Estate Holding Company in 10 Steps
Have I convinced you to start a real estate holding company?
Sweet, so how can you get started?
Take a look:
1. Choose a Business Structure
Choose whether to form an LLC, a corporation, or some other corporate entity.
2. Pick a Name
Choose a company name that you think would work and that conforms to the naming rules in your state; then do a search to make sure the name is available.
3. File Articles of Incorporation
File your articles of organization (or incorporation, depending on your state) with your state’s business filing office. This creates your legal company.
4. Create an Operating Agreement
Write up an operating agreement that outlines how your business will be run. All LLCs should have one of these.
5. Obtain an EIN
Have the IRS assign an Employer Identification Number (EIN), which you’ll use to file taxes and open a business bank account.
6. Open a Business Bank Account
To keep your business and personal finances separate, open a separate bank account for business use.
7. Register for State Taxes
Your state may also require you to register for a number of state taxes such as sales tax, property tax, etc.
8. Comply with Local Regulations
Be sure to follow any zoning laws or permits required by your town or county, as well as any special licenses or certifications needed.
9. Purchase Insurance
Make sure you’re properly covered with the appropriate insurance policies.
General liability and property insurance are necessary for most real estate holding companies.
10. Start Acquiring Properties
Now, all that is left is to start buying rented real property in your own company’s name. Each piece should be held in the name of your holding company.
The Bottom Line: Real Estate Holding Company
Starting a real estate holding company is often a game changer full of advantages.
If you’re planning on making real estate your career or even a side hustle, I highly recommend getting your real estate holding company set up so you can be prepared for the real estate investing road ahead.
