What Is A Real Estate Holding Company?

Real estate is a potentially lucrative investment class. However, as with all investment classes, it comes with significant risks, risks of loss of capital, and the risk of liability. These risks can have material impacts on your net worth. Being able to shield your net worth while investing in real estate, is a goal that you should have. One of the best ways to achieve this is by setting up a real estate holding company.

A real estate holding company shields your assets while allowing you to invest in real estate. More technically, it is a company that can own or operate a portfolio of real estate assets. So, rather than owning the real estate directly, it is owned by the real estate holding company. The real estate holding company assumes the liabilities of owning the real estate assets. It will seek financing on the behalf of the real estate investments and bear the burden of paying any interest accruing to bondholders as well as the principal. The mortgage on any real estate assets will be under the real estate holding company’s name.

Legal Structure

The most popular legal structure of real estate holding firms, is the limited liability company (LLC). An LLC is a type of private limited company that has the taxation of both a partnership or sole proprietorship with the limited liability of a corporation.This means that you can file your income from an LLC as personal income.

Creating an LLC is a pretty simple process. You just have to deposit a certificate of formation, or articles of organization, with the secretary of state in the state which will act as the corporate domicile of your business.  Processing your papers costs between $50 and $200.

In the majority of states, LLCs must be renewed annually. The state charges a nominal fee for renewal.

When registering your real estate holding company, after getting full coverage painting & flooring, you are required to also apply for a Taxpayer Identification Number (TIN) from the Internal Revenue Service (IRS).  In lieu of a TIN< you can obtain a Social Security Number (SSN) from the Social Security Administration (SSA).

If your real estate holding company has more than one member, or you seek to add members, you will need to create an operating agreement that explains how the company will be managed.

Real estate holding companies come with numerous benefits. Nevertheless, as with all things, it has risks.

You need to be prepared to pay the costs, fees, and taxes involved in registering and managing a real estate holding company.

Real estate holding companies are complex business organizations, and this makes them particularly challenging for inexperienced entrepreneurs.

You need to retain a lawyer who will help you create and manage your real estate holding company.

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