Ever so often, real estate investor has to sit down and think about the kind of entity they should use for their business. However the answer to the question depends on a lot of factors such as the size of the business, the investor’s source, type of income and the number of family members involved. Obviously this cannot be made in a hurry, as it is not a simple choice to make as the rules and regulations from state to state might also vary.
However, here are some general rule that one can follow in order to figure what kind of entity works best for them and their business:
Rule One – Limited Liability Companies is the entity used to hold rentals and most lease-optioned properties. The reason for this is because in most states LLCs are cheap while also providing the best asset protection and being an excellent way to avoid incurring extra taxes.
Rule Two – Using the S-Corporation entity to flip properties seems to be the way to go. As opposed to the C-Corporation which gets taxed twice over, this seems to be a better way to reduce taxes based on your income and assets.
Rule Three – C-Corporations for high-income individuals with self-provided benefits can be beneficial from a tax point of view as using this entity creates certain benefits that are tax-free as well.
Rule Four – Incorporate in Your Home State
Finally, remember that your business, personal situation or state’s laws can also create exceptions to these rules, so it is important to get qualified advice on choosing the right entity for your real estate business.