If you want to start a business dealing in real estate, you already know what your goals are and how you want to achieve them. But you also need to set your company up as an official entity so that you can start doing business productively and legally. Whether you’re doing this on your own or with business partners, establishing that official company is an important early step in this process.
So what entity is going to be best? It may depend on the type of investing that you’re doing and whether or not you have long-term or short-term aspirations.
Short-term: S Corp
If you’re thinking of doing short-term investing, it may be best to go with an S Corp. From a tax perspective, the company does not owe taxes itself. Rather, you pay them along with your personal tax returns. In that sense, you treat the money earned by the S Corp as income — just as you would with income earned in other ways. You then pay taxes on your own. This may be the best set-up if you’re a single person running a company without business partners or any employees.
If you want to transfer stock, you can also do it with an S Corp. Other business structures do not allow this.
Long-term: LLC
If you are more interested in long-term investing, then you may want to set up an LLC — or a limited liability company. Your goal is to hold the property that you own and produce a steady income. You’re also interested in capital appreciation over the long term.
Among other reasons that LLCs are terrific for this are the fact that they’re fairly cheap to start, they are relatively simple, you can get through the paperwork quickly, and you’re not exposed to the same amount of liability you would be without them. This protects you and your investment. As with the S Corp, the earnings still go through your taxes.
What is right for you?
Once you have determined what is going to be right for you, take the time to carefully consider all of the legal steps you’ll need to take to get it in place.