Why You Should Incorporate Your Real Estate Business

Many people have a few real estate investment properties and they may wonder if they should incorporate. There are many sides to the discussion, that can depend on your goals and purpose for being a real estate investor. Even if you aren’t a big business this a question that can help you with your finances. There are many ways you can benefit from incorporating your real estate investments.

It may be best to incorporate to protect your business assets from your personal assets. When you have everything in your name, you can take a lot of the responsibility if you were to receive a lawsuit from a tenant. This can not only wipe out your business assets, but can also affect your personal assets.

Incorporating can be also be beneficial when it comes to taxes. Having a corporation can help you turn nondeductible expenses into deductible expenses. For example, if you have a home office that you would like on your expenses, it can be hard to claim them on your personal taxes. But, if your corporation leased the same space from your home, you have an easier chance of claiming the expenses. Also by incorporating you reduce your risk of being audited by the IRS.

Being a corporation can help separate your business and personal life, as well. If you don’t want to put out your personal information to your tenants, being a corporation can give you a sense of anonymity. It can also make the interactions more professional, rather than you being seen as just a landlord. You are now seen as a part of a management corporation and can make for easier negotiations.

If you have decided to incorporate, another question that may come up is which entity or structure is best for you. There are three main structures: corporation, Limited Partnership (LP), and Limited Liability Company (LLC). They each have their different benefits and negatives. A corporation is the traditional business structure. It gives your real estate investments the most separation from your personal assets, but also has the most upkeep because it requires a board of directors, annual meetings with minutes, issuing stock, and an annual shareholder meeting with minutes. An LP is relatively simple but the main downside is liability. It requires at least one general partner that will have unlimited liability. If you’re a relatively small investor, you will likely be the general partner and you won’t have the limited liability that you wanted. LLC’s are also relatively simple and is recommended as the first you use when you’re starting out. It’s recommended because you with the liability you can’t lose more than you put in and its upkeep is very flexible.

The issue of incorporating your real estate business can be complicated. It is recommended that before you begin the process of incorporating you use or consult an attorney to see examine what will be best for you and to also be informed of your states laws.

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