By: Paul Wells
As a real estate investor specializing in foreclosures, the type of legal structure you select for your business largely depends on what your business is going to do. In this article I give you guidelines you can follow to help you select the appropriate legal structure for your business.
Firstly, you need to estimate how much business volume you are going to do. Are you planning to do two to three homes per year? If so, then you probably should just file a simple LLC or a simple limited partnership.
If you’re doing anything more than four homes a year, you should consider a corporate entity. Corporate entities offer the most personal protection to the real estate investor by far.
LLCs are good to use if you were to buy a home with somebody and have it on a short-term basis. LLCs protect their members from personal liabilities and they give the flexibility of a partnership. In many cases, the particular real estate deal as well as the advice of a tax attorney or CPA will determine what entity you choose.
One of the things that you don’t want to do with a foreclosure investing business is take any properties in your own name. So it’s critical to get good tax help and good legal help when forming your business structures.
We incorporated. We started with Rocky Mountain Real Estate, Incorporated, which is now Colorado Realty Solutions. And the reason is simply asset protection. You take houses over and you want to put them in the name of the corporation instead of your own name. That way, if someone decided to sue the purchaser of the house they would have to sue the legal entity, not you.
Many investors will work in what is called a limited partnership or a liability company. Whatever the case, use a legal structure so that your business assets and liabilities are not tied to your personal fortune.
My best advice is, when it comes to selecting the best legal structure for your situation, always consult a competent tax attorney or CPA.
