If you are a single owner or a partner, you are personally responsible for all bills, no matter how big or small. This may make you nervous about dealing in real estate.
Investing in real estate can be a very good way to make money. But because you will be working with a lot of money in this field, you might feel a little nervous. After all, if you are a single owner or a partner, you are personally responsible for all bills and losses. Since these can easily cost tens or even hundreds of thousands of dollars, it makes sense to look for ways to protect yourself, like incorporating.
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Know your options for forming a company
Even if you know how to deal in real estate, you still need a different kind of knowledge for incorporation. An S-Corporation is one of the easiest ways to incorporate a business. Taxed under Subchapter S of Chapter 1 of the Internal Revenue Code, the company passes on its income, losses, deductions, and credits to its owners, who report them on their own tax forms.
But the company is seen as something different from you. So, the company will be responsible for any bills and losses that come up during business operations. This protects you and your personal assets. Of course, you will have to give your property to the company for this security to work. If you keep owning the property, any claims or cases will be brought against you. You will also have to follow the rules of company law, which are very strict.
Think about forming a limited liability company.
Because of how corporations are governed, it might be better to form a limited liability company (LLC). Compared to businesses, the rules are less strict and give the company more freedom in how it is set up. At the same time, the LLC stays a different legal body, which protects its members from being sued.
The limited liability company is a good option if you want to keep your options open and focus on how to deal in real estate better. Before you make a decision, it is best to talk to a lawyer about what is best for you.