As a business owner, you face an almost limitless number of risks. There’s the risk that your business will falter or fail, the risk of theft or fire and the risk that someone will be injured on your property. You may have general business liability insurance to help cover these claims, but if you plan to own your business property or purchase rental properties, you may want to consider the advantages of a real estate holding company.
A real estate holding company owns property and keeps it separate from your other assets. The real estate LLC earns income from interest and rental payments from the properties the LLC owns.
What Is a Real Estate Holding Company?
A real estate holding company is typically set up as a limited liability corporation. The real estate holding corporation exists solely for the purpose of owning and managing property. The corporation is a separate, distinct entity from your primary business. The real estate LLC earns income from interest and rental payments from the properties the LLC owns.
What Are the Advantages of a Real Estate Holding Company?
Placing your real estate interests in a property-holding company helps protect your personal assets and your primary business assets. For example, if you have a restaurant in a space owned by your real estate LLC and a customer is injured due to a property issue such as a broken step, the customer would sue the property owner. In this case, the owner is the real estate holding company. Your personal and business assets would be protected from the lawsuit.
How Do You Start a Real Estate Holding Company?
The first step in starting a real estate holding company is setting up an LLC. You will need to choose and register a business name with your state and apply for an employer identification number with the IRS. Your business name will need to be unique.
Once you have your business name and employer identification number, you will need to file the paperwork to incorporate your LLC. You may need to file articles of incorporation with the appropriate office in your state. You should also create an operating agreement for your LLC. The agreement should spell out each member’s rights and responsibilities, the voting structure for your LLC, the percentage of interest each member has in the LLC and how profits and losses are managed.
Next, you should open a business checking account in the name of your LLC. This separates your LLC’s funds from your personal funds and the funds of your primary business. Once you have your funds separated, you’re ready to look for and purchase property.
Although starting an LLC is relatively simple, you may want to consult an attorney to ensure everything is set up properly.