If you are interested in purchasing United States real estate, you may want to consider forming holding companies for the property. Holding companies offer several advantages to property investors, including liability protection, privacy, and in some cases tax breaks.
Types of Holding Companies
People investing in real estate typically choose from a few different kinds of entities to hold their property, including limited liability companies, corporations, or even partnerships. Limited liability companies (LLCs) are generally the most common. A limited liability company has one or more members (people who contribute money or property to the company) and often has one or more managers, who handle the LLC’s day-to-day business.
Real estate often has mortgages on it or lines of credit to pay for repairs. Further, tenants or guests may pursue lawsuits if they are injured on the property. As a result, it is a good idea to choose a holding company type that offers some liability protection for yourself, so that you are not stuck paying debts.
Limited liability companies and corporations offer what may be the best liability protection for real estate investors. In an LLC, members are protected from all or most personal liability for the company’s debts. That means that creditors rarely pursue the members or managers to pay any debts the company has not paid back. Similarly, corporation shareholders, officers, and managers are rarely liable for debts of the corporation.
Forming a holding company offers some privacy protection for property owners. For example, tenants will not need to send rent to your home address or have your personal contact information. Instead, you can give them the holding company’s information. Although in many states anyone can look up who owns an LLC or corporation, you also have the option of creating nesting companies. An LLC or corporation can own all or part of another company in many states. This can make it harder for curious people to find out your personal information.
Finally, corporations in particular may offer some tax breaks. You can talk to your lawyer or accountant about the tax advantages of placing your real estate in a corporation versus owning it individually. In some cases you may receive deductions or credits that would otherwise not be available.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.