As the popularity of house-flipping shows on TV demonstrates, investing in real estate can be an attractive wealth-building option with a high potential for success. However, there is also a high risk associated with any real estate venture, both in playing the market correctly and in understanding the financial and legal issues involved in running a real estate investment business.
Before taking the plunge and buying a property to flip or rent, it’s important to take a few steps to protect both yourself and your investment.
Forming a Real Estate Investment Business
While you certainly don’t need to set up a business to buy property, having a business separate from yourself to hold your property can separate the risks associated with the property from your personal assets. Depending on your personal financial situation, there are a number of different ways to set up this business.
Most real estate investment businesses are set up as “limited liability companies,” or LLCs. While these are usually simple to set up, going to an experienced business attorney for your paperwork ensures that tax questions, liability issues, and more are appropriately handled. These details are important to get right since the protections and advantages they offer are the whole reason you’re planning to set up the business. An attorney will also provide advice on managing the business and any legal issues with contractors you should be aware of, as well as recommend insurance to help you further protect your investment.
If you’re planning to enter into a real estate investment business with a partner, setting yourself up as a business correctly and ensuring all the right paperwork is in place is even more important. In addition to providing you with advice and legal paperwork, your attorney will help both partners understand their roles, responsibilities, and the risks they are taking. They can also set up your LLC to, for example, help further isolate the investment partner from operational risk or to provide the managing partner with the ability to make quick decisions without constantly consulting the investment partner.
From decision-making to handling the finances, setting up a partnership means making a number of up-front decisions on the business’s operations and long-term plans. Taking the time to do this correctly in the first place means saving significant headache down the road, especially if the real estate investment business is meant to be a long-term relationship.
For help setting up a real estate investment business as a single member or partnership, choosing the right corporate structure, and understanding any additional laws that may apply to your situation, reach out to the experienced business counsel at Chase Law Group, P.C., by calling (310) 545-7700. We take the time to get to know each client and their goals and recommend a custom solution that you can be confident is correct now and will protect you in the future.