Setting up a separate entity for real estate holdings is a smart move to protect assets and manage properties efficiently. This process involves creating a legal structure that separates personal assets from real estate investments.
Following certain established steps can help both new and veteran investors make greater strides in their property acquisitions.
Choose the type of entity
The first step is to decide which type of entity to use. The most common choices are limited liability companies and corporations. An LLC offers flexibility and protects personal assets from business liabilities. A corporation can also provide liability protection but involves more complex regulations and higher costs.
Register the entity
Once you determine the type of entity, the next step is to register it with the state. This involves filing the necessary paperwork, such as Articles of Organization for an LLC or Articles of Incorporation for a corporation. Each state has its own requirements, so California investors should be sure to comply with state-specific business entity guidelines.
Obtain an Employer Identification Number
After registering the entity, it is necessary to obtain an Employer Identification Number from the IRS. The EIN serves as the entity’s tax identification number. It is necessary for opening bank accounts, filing taxes and conducting business.
Transfer the property to the entity
Any current and future real estate holdings should move to the newly formed entity. This involves preparing a new deed in the entity’s name and recording it with the local county recorder’s office. This step legally places the property under the entity’s ownership.
Setting up a separate entity for real estate holdings provides significant benefits. It protects personal assets, simplifies property management and offers potential tax advantages. Following these steps ensures a smooth and successful setup process.
